Reading - Berks Real Estate Outlook, Fourth Quarter, 2020
Three quarters of the year 2020 have passed. It is now October and time to look at what has happened in Reading, PA, and Berks County real estate and see what fortunes quarter-four may bring.
To say 2020 Has been interesting might be the understatement of the year. As real estate goes here in the Reading-Berks area, the story continues to be the low inventory of available homes and its effect on prices. January 2020 started pretty benignly with the median home sale price pegged at $160,000. Roll the calendar to September, and the median price ballooned to $196,500, an increase of 22.8% - Only one word can aptly describe the escalation in home values, WOW!
What is Causing Rising Home Prices
The nation had been flirting with low inventory and rising prices for almost all of 2019. By mid-January and February, it became apparent our local market was heading for an available housing crisis, and the numbers reflected that. By the end of January, 376 homes were pending sale, and in February, there were another 450. The median price for February skyrocketed to $179,950, an increase of 12.5% in one month.
The real estate shut down in Pennsylvania did nothing to abate the demand for houses. I believe the pandemic added fuel to the fire, thus increasing the supply and demand gap. It had become apparent that housing (shelter) was as hard to acquire as toilet paper and hand sanitizer. The next substantial price increase came in April when the median home price in Berks rose to $185,000. By this time, the inventory of available homes for sale in the area had fallen to under 600.
With the COVID-19 issue at hand, our government decided to do two things, further fueling the housing demand. The first was printing money like never before, thus adding liquidity to the market. They then lowered the cost of borrowing that money to historic levels. In June, 729 homes went under contract here in Berks, and the median price climbed to $195,000. June through September saw more houses go under contract than homes listed, dropping home inventory to 393 as of this article's writing (unbuilt houses excluded). September's median price was a whopping $196,500, an increase of 13.5% over September 2019.
Another critical factor at play affecting the Reading-Berks real estate market is the lack of new residential developments. In case any has forgotten, Berks is still a dominant farm community and boasts acres of preserved and state eased land. Before the crash of 2008, it was common to see new home sales in berks top 600 units. So far this year, the MLS shows 126 new homes sold. Compare this figure to 2008 when in the same period, 349 new homes sold, a drop of 64%.
Where Do Berks County House Prices Go From Here?
There is a thing I call the "Holiday Effect" that can be a very influential condition affecting homebuyers in northern states. Many of these buyers plan their home buying strategy around being in their new home by Thanksgiving or Christmas. by doing so, they avoid the rigors associated with a winter move and enjoy the holidays in their new home. In contrast, the average age of homeowners has been rising and is somewhere around 52 years old. Many older Americans living in states that experience harsh winters tend to shut down moving plans unless necessary.
There is a rumor that the government money presses are ready to roll again, and interest rates will remain low. There is also the COVID-19 factor that has not gone away, keeping shelter a high priority. Given these unchanging, accelerating, and circumstantial factors, I see inventory getting lower and prices continuing to rise. Home sellers willing to move over the next couple months before the holidays could see an even greater premium as long as the appraisers out there continue to agree with the increased valuation.
At some point, home prices will rise past sustainable economic conditions. I don't believe we have reached that point just yet.
Knowledge is Power!
Jeffrey C. Hogue