Home economics: Inventory, workforce issues pose continued challenges for housing market
Midstate Realtors and homebuilders expect the good times to continue this year for home sales as buyers continue to step up.
The regional housing market has been growing for the last six years. With a tight labor market and optimism that wages will rise after recent federal tax changes — further boosting consumer confidence — a seventh year of growth is in the cards.
But several factors could spoil the party.
Chief among them is a low inventory of homes for sale, a situation that could be exacerbated by steady buyer demand, sending home prices higher.
Competition among buyers already is driving up prices. So are rising mortgage rates, which could force would-be buyers to dig a little deeper into their pockets this year.
The median-sale price across Central Pennsylvania counties has increased for the last five years, including a jump of about 5 percent to 6 percent last year. The median-sale price in York County was $169,900 last year; it was $192,205 in Cumberland County, according to the Bright MLS, which tracks midstate home listings.
Meanwhile, many builders are running out of land to build on in popular housing developments. And the process of buying land and taking a new project through land development approvals is lengthy and costly, which makes it hard for builders to quickly ramp up new projects.
Even if they wanted to take on new housing projects and expand their operations, many builders are having a tough time finding enough skilled workers, a problem expected to worsen before it gets better. The construction workforce is getting older and a wave of retirements is anticipated in the coming years.
“Right now issue one, two and three is skilled labor,” said Daniel Durden, CEO of the Pennsylvania Builders Association.
And, he said, most solutions to the workforce problem reflect long-term strategies designed to reach young people who won’t enter the workforce until sometime next decade.
In the meantime, builders remain focused on serving current demands for housing as best as they can.
Time to buy
While many millennials still prefer to rent — or feel compelled by college debt to put off buying — some people under the age of 30 are starting to dribble into the housing market.
Jessica Wenrich, a marketing coordinator for Lancaster-based law firm Barley Snyder, made the leap into homeownership last month.
After renting in downtown York for the last three years, the 26-year-old and her husband settled on a home in Haines Acres, an older development in the York Suburban School District.
A desire to have more living space and eventually start a family drove the search. Mortgage rates — which at under 5 percent are still considered historically low — also helped.
But finding a home at the right price wasn’t easy, Wenrich said. She and her husband were looking for something between $130,000 and $180,000.
“There were quite a few we were interested in, but by the time we looked to schedule an appointment the next day, the home was off the market,” she said.
That happened six or seven times throughout the fall of 2017.
And when they were able to finally make an offer on the home they purchased, other buyers were also interested. Wenrich said they beat out a competing offer by $400. The home was on the market for less than a week.
Build over buy
Brittany Holtz, a current homeowner, decided the better option was to build a new home in Lower Paxton Township, one that would be closer to her business.
The 29-year-old is the founder of Studio B Power Yoga, which has locations in Annville and Lower Paxton Township. She also is in the process of taking over a third studio in Hershey.
“We’ve been actively looking and planning for about two years,” Holtz said, noting she was motivated by the prolonged period of low mortgage rates. “We looked all over. It just had to be the perfect fit, the right lot, right builder, price and location.”
In November, she found that fit with Garman Builders and the Amber Fields development in Lower Paxton.
Holtz expects workers will break ground on her home in March home and that she will be moving in this summer.
A licensed Realtor, Holtz said she believes the inventory issue will continue to constrain the housing market. Before deciding to build, she looked for homes to buy, but ran into the same issues that dogged Wenrich. The ideal home was usually off the market before there was a chance to put in an offer.
“I think it’s such a great market for people selling because there are so many people who want to buy,” she said.
However, not everyone is eager to sell if they can’t find a new home to buy. Or they could be waiting for greater home-price appreciation, which was non-existent following the recession.
When she built her first home after graduating college in 2010, Holtz said she had concerns about making the payments, especially if she lost her job.
“Now at 29, I got a lot of equity in that house,” she said, which gave her confidence to move up to a new house.
But not everyone will be as comfortable making a move.
Ken Worley, president of the Realtors Association of York and Adams Counties, expects listings to remain tight heading into the busy spring selling season.
“The shortage of listings is still prevalent,” he said. “It might stay that way this year.”
Worley, who does the bulk of his business in the center of York County, said multiple offers are common for homes priced between $150,000 and $250,000.
He doesn’t see that changing. And even as prices edge up, he expects sales will be about the same as last year.
One exception could be high-end buyers. Because of changes under federal tax law, they might remain on the sidelines. The new law lowers the amount of interest on mortgage debt that can be deducted to $750,000 from $1 million.
That change will raise the cost of borrowing.
However, the top segment of the housing market in Central Pennsylvania is fairly small, so the impacts should be minimal.
The tax bill also caps state and local tax deductions, including deductions for property and income taxes, at $10,000. That may have more impact on people in high-tax areas such as New York, New Jersey and Massachusetts.
Midstate builders are optimistic that the federal law’s modest tax breaks for most people will translate into rising paychecks and outweigh any negative effects of other changes.
The pay bump may spur some people to buy or build homes. Others may gain confidence from looking at their 401(k) accounts, which probably have gone up over the last year — despite recent turbulence in the stock market — and spend more on big-ticket items like homes or cars.
Meanwhile, top regional builders like Keystone Custom Homes have been posting strong sales during the housing surge. Last year, the Lancaster County company sold more than 380 homes and early indications from sales appointments are that the numbers will be at or above that level this year.
But CEO Jeff Rutt said he isn’t sure builders can keep up if buyer demand persists. Builders like Keystone have plenty of lots now on which to erect homes, but some communities are filling up and regulations pose a chronic challenge to starting new projects.
The permitting process is often a sore spot for builders. It takes too much time, there are so many layers of regulation between what local, state and federal agencies require and it’s gotten more expensive. Among the hurdles are rules for curtailing stormwater runoff and pollution under federal mandates to clean up the Chesapeake Bay watershed.
“The development process is becoming more challenging and cumbersome from a regulatory aspect,” said Cliff Weaver, president and CEO of Landmark Homes in Lancaster County. “Part of it is it can take just one item to delay a project. The challenge is to navigate through all of the approvals and it just takes more time.”
Land prices aren’t falling either.
And many builders remain unwilling to risk developing land on their own after the last financial crisis. Smaller builders like Berks Homes, based in Berks County, would rather buy lots from developers as they need them. It’s common for multiple builders to build in the same subdivision and spread the risk.
The majority of the land developed over the last decade was teed up for residential development before the recession. And in those long-approved subdivisions, homes are still going up.
One example is Winding Hills, which was started in the early 2000s off Route 15 in Upper Allen Township. It has provided steady work for several builders, including Berks Homes, said Mike Benshoof, the company’s president and COO.
Benshoof and Weaver both said developers are buying very little new land for large housing projects.
It’s a costly prospect. Companies must spend money to get approval to develop land for housing, and pay for improvements to prepare lots for home construction.
The expenses add up and make it hard to build a home that first-time buyers can afford.
Townhouse projects are, in some cases, more feasible.
Berks Homes is starting on a new phase of townhomes in its existing Laurel Ridge development in Hampden Township, near the West Shore Hospital.
Most developers, however, are simply cleaning out corners of land they have left and are not pursuing as many new opportunities, Weaver said. “I think there will be less developments in the future.”