There has been much written about how well the commercial sector of the real estate market has been doing, in a time when the residential sector was experiencing a drawback from its 2004 peak. Here are some prime examples:
- Press Release, Feb 22, 2007 courtesy of National Association of Realtors
- PA's Commercial Market: A Bright Spot' in the Economy? courtesy of PA Association of Realtors
- Southeastern PA Housing Market Facts Sheet courtesy of http://www.buyersmarket2007.org/
National averages and national statistics are useful if you are the Chairman of the Federal Reserve, but not if you are buying, selling or investing in local real estate. In a real sense, statistics and market analyses need to be specific to the three cornerstones of real estate:
In Southeastern Pennsylvania, in the City of Chester, Delaware County, we have a real estate market that has bucked the national trends in the Single- and Multi-Family Residential categories as well as in the commercial sector. While "bucking the trend" might be a good thing when the market is moving downward, but not when the trend being bucked is moving upward.
Why is Chester's real estate market being so contrary?
On the residential side, the answer is simple. While much of the region experienced unsustainable increases in home prices, which resulted in pricing the first time home buyer out of the market in many areas, Chester's home prices remained within reach. While Delaware County as a whole has experienced only a 25% total increase in average residential sales prices from 2003 to 2006, Chester experienced a 54% increase in single family homes, and a 71% increase in multi-family units over the same time period. With the average sale price at $65,090 in 2006, this remains within easy reach of the first time home buyers entering the marketplace. Add to this combination the availability of mortgage rates near historic lows, and it becomes clear why Chester's residential real estate market is chugging right along.
The answer is more complex on the commercial side. Chester once had a booming economy with many industrial jobs, and low unemployment. Over the years, for reasons irrelevant to this analysis, that has changed. Now there is high unemployment, and stagnancy within the commercial real estate market in Chester. Throughout all of 2005, there were only 7 commercial transactions recorded. In 2006, there were 14, but the average commercial sale price from 2005 to 2006 dropped from over $400,000 to under $150,000 -- a drop of more than 64%. This type of stagnancy seems to arise from a particular mindset apparently shared by many speculators who now hold the vacant or underused sites throughout Chester. It may be an unconscious thought process, but I believe if we could tune in to it, it might sound something like this: "Harrah's has opened up their casino, and lots of deep-pocketed corporations are going want to come and build hotels and other businesses here. I am going to hold on to my investment until they make me an offer beyond my wildest imaginings." That would be great, but it is based on at least two faulty presumptions. First off, the large corporations will only invest if they see a market worth investing in. A stagnant market will do little if anything to draw those deep-pocketed corporate investors in. Secondly, and possibly most damaging, is that it presumes that we need outside investors to revitalize the local economy.
What is needed to revitalize the economy is useful activity. I am not talking about the concept of "highest and best use" but simply forward progress. The speculators who are sitting on properties need to stop sitting and start selling. There are buyers who are trying to revitalize Chester who are being virtually locked out because of the apparent unwillingness of speculators to accept anything less than an offer from Donald Trump. Sell your properties to those that will put them to use. Accept a moderate profit and move on. The business they then build in Chester will foster the revitalization needed to truly attract the deep-pockets. Use the proceeds from your sale to invest in other distressed properties, and then sell them to those that will utilize them also. If you remove greed from the picture, you may find that you will end up reaping much more than if you simply sit on a property waiting for Donald Trump to call. Chester can be our Field of Dreams--remember, "If you build it, they will come."