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Greg Rothman: 5 reasons to be optimistic about Central Pennsylvania real estate in 2013

January 2, 2013

It is no secret now that my company, RSR REALTORS® is the “optimistic glass half full” real estate company. 

There are certain principles to valuation and real estate decision-making that require the consumer to make optimistic assumptions. Real estate purchases are often made based on principle of substitution (it is cheaper to buy than to rent or it is cheaper to sign a year long lease than to stay at a hotel).

Another long-standing accepted principle is leverage. As real estate appreciates, the return is on the cash invested, so using a bank’s financing increases the return on investment.

There are five pretty good reasons to be optimistic about 2013.

The first are the low interest rates. The second is the abundance of new domestic energy availability and its effect on our economy. The third is the labor force in our market. The fourth is the quality and affordability of our real estate supply and activity.  The final reason is an intangible one that after nearly a quarter century working in Central Pennsylvania and nearly a half-decade living here – I am convinced is a fact.  We have a great attitude and are optimists. 

I will explain each of the reasons and why they will be the driving forces out of the current economic malaise.

1. Interest Rates

RSR was founded in 1970 and sold homes when interest rates topped 18 percent in the early 1980’s. A $200,000 mortgage payment in 1981 was $3,012 per month. In 1989, when I started in real estate, the rates were 9 percent, so a $200,000 mortgage payment was $1,609 per month. In 1990, rates were as high as 10.90, making the same mortgage $1,889.55. Consider a borrower purchasing a $200,000 at interest rates just five years ago, when at the typical 6% interest rate would pay $1,200 per month in principle and interest. Today, a borrower can obtain a 30 year fixed conventional mortgage at 3.4%. The $200,000 mortgage would cost you $883 per month.

Year      Interest Rate     Monthly Payment

1981      18.45%               $3,102.43

1990      10.90%               $1,889.55

2000      8.05%                 $1,474.51

2005      5.09%                 $1,087.67

2010      4.69%                 $1,036.07

Now      3.37%                  $883.64

Borrowing power is at an all-time high.  It will allow purchasing to be cheaper than renting. 

2. Domestic Energy 

The domestic energy boom in Pennsylvania and middle-America has the potential of creating another economic revolution rivaling the “Tea Pot” oil field which drove our country’s first Industrial Revolution. Cheap natural gas will attract manufacturing and improve the quality of life for Pennsylvanians. Both the Marcellus Shale formation and now the Utica formation provide the proximity for transportation of the natural gas. 

Although we've known for many years that natural shale gas and oil shale reserves were located in hard dense deposits of shale formed from ancient sea basins millions of years ago, we did not have all of the technologies needed to access these resources economically until recently. As a result, previously uneconomic resources are now available for exploration and development. Since 2006, natural gas reserves grew 30 percent and in the last few years alone onshore natural gas production has increased by more than 20 percent.  And the shale definition is more than just natural gas, the Energy Information Agency (EIA) reports: "Shale plays known primarily for natural gas production-or where horizontal drilling initially targeted natural gas-are also seeing accelerating oil-focused drilling."

Already innovators are looking at ways to convert natural gas into liquid (LNG) and compressed gas (CNG) for use in motor vehicles. Fuel stations from truck stops to convenience stores are looking for ways to meet the expected demand for this abundant fuel found in our states backyard. The auto manufacturers are producing more vehicles that can use natural gas to fuel travel and transportation.

Central Pennsylvania has been an interstate transportation hub since the days of the Conestoga Wagon. With private investment in dispensing and continued production of natural gas, Pennsylvania can once again lead the country in the distribution and transportation industry.

Shale natural gas market expansion leads to American jobs here by attracting manufacturers and processors back to the United States. 

"The development of shale gas plays has become a "game changer" for the U.S. natural gas market."  - U.S. Energy Information Association

3. Real Estate Affordability & Quality

Both commercial and residential real estate remains relatively inexpensive in Central Pennsylvania. Consider the average price home in Central Pennsylvania is $200,000 or $100 per square foot. Our rivals in Southeastern Pennsylvania pay an average of $200 per square foot for their homes. 

The quality of the real estate supply is also exceptional.

We know how to build in Central Pennsylvania. And our residential real estate is more affordable than competing regional markets.  The chart below shows average price per square foot in Harrisburg vs. Philadelphia, Baltimore, Trenton, and even New York City.  Only Pittsburgh is more affordable.

Average Residential Price Per Square Foot

Harrisburg   Philadelphia    Baltimore  Trenton    New York City    Pittsburgh

   $101             $140                  $138          $135             $1,297                $95

 

4. Labor Force Stability

The labor force in Central Pennsylvania includes some of the hardest working, dedicated employees and entrepreneurs in the country. Our agrarian roots taught us a work ethic that has built the region into an economic powerhouse.

Hershey Chocolate and HARSCO are among the local companies that have changed the world. D & H Distributors, quietly based in uptown Harrisburg, and Ollie’s Outlet Stores have experienced tremendous growth in recent years and continue to contribute on many levels in the region.

According to Bill Rothman: “Employers will find no better workers anywhere. No stronger backs, no nimbler fingers, no sharper minds – than the workers of Central Pennsylvania.” 

Our area schools and colleges like Dickinson College, Messiah College, Shippensburg University, Penn State Harrisburg, Lebanon Valley College, Franklin & Marshall College and the Harrisburg University of Science and Technology provide the high level of training for which our employers are looking.

5. Attitude

It has been said that farmers are by nature optimists.  Who else would till a field, plant a seed, nurture it and expect it would grow into a productive product? Central Pennsylvania is made up of optimists. It is in our DNA. 

Founded in 1970, RSR REALTORS has survived and thrived through much adversity including: Hurricane Agnes; the Vietnam War; Watergate; inflation; 18 percent interest rates; the Oil Crisis; Three Mile Island; the Iran Hostage Crisis, the recession of the late 70’s; the Tax Reform Act of 1986; Black Monday, Oct. 19, 1987; the recession of the late 80’s; the S & L Crisis; Iran-Contra; the first Gulf War; the recession of the early 90’s, the impeachment of Bill Clinton, the Internet Bubble; the recession of the late 90’s, the Sept. 11 terrorist attacks; the recession of 2007; the Great Recession and Housing Bubble; and the current economic crisis.

We have decided that the only way out of this economic malaise is to do it ourselves.  We invite our past, present and future real estate clients to join us to Bring America Back starting here in Pennsylvania.

We will do this by optimistically focusing on the positive. We will talk about 93 percent employment; the lowest interest rates in history; the powerful and hard-working labor force in Central Pennsylvania; the incredible natural resources and quality of life in the Susquehanna Valley.

A glass at 50 percent capacity will always be “half-full” to those of us at RSR REALTORS®.  We are optimists and we know optimism is contagious. We will start work a half hour earlier and work a half hour later in 2013.  We have always gone the extra mile for our clients -- in 2013, we will go the extra two miles. We will give more to our community in time, talent, and treasure.

We believe that if we work a little harder, think longer about finding positive solutions, and cooperate with this amazing community, we can accomplish anything.  Including turning this economy around: with positive ENERGY!!!

As we enter 2013, I hope you will join us.