Real estate observers did a double take when a city that once defined the term “rust belt” came in first or tied for first in five national rankings of the best cities for first-time buyers and millennials over the past year. After the big steel mills closed 40 years ago, Pittsburgh’s housing market plunged into a multi-year economic depression. It never experienced the housing boom 15 years ago. During the boom and the recovery from the Great Recession, home prices in many markets rose much faster than they did in Pittsburgh.
In some ways, Pittsburgh’s real estate economy was several years ahead of national trends. By 2010, years before the recovery took hold in most markets, homes in Pittsburgh started to appreciate as the regional economy went through a transition. Once synonymous with shuttered steel mills and unemployment peaks, Pittsburgh has quietly undergone an economic renaissance and today is a hub for artificial intelligence, robotics, and biomedical companies. Pittsburgh recovered from the Great Recession faster than most markets, but never experienced the rampant appreciation that characterized most East and West Coast markets.
When the housing bubble burst in 2008, Pittsburgh was already in recovery. However, unlike many markets that flourished during the boom and the recent recovery, appreciation in Pittsburgh never exceeded local income levels. “Unlike in other cities, home ownership in Pittsburgh has little risk but also little reward. From almost any perspective, Pittsburgh’s housing market lagged or ran counter to the national trends,” commented Pittsburgh’s MetroGuide Magazine.
All Real Estate is Local
Pittsburgh is an excellent example of the maxim “All real estate is local.” The superheated real estate markets that developed in response to millennial-generated demand and shrinking inventories is now a liability. First-time buyers, who are critical players in housing markets, are driven away by prices far above their means. They are discovering markets like Pittsburgh that never experienced the volatile booms and busts of recent years.
Some 71% of average wage earners could not afford to buy a home in 71% of America’s counties in the first quarter of 2019. The lack of affordable housing has risen to critical levels in the past three years. Unaffordability is now the most crucial factor for prospective first-time buyers. Though largely immune from national trends as it experienced its renaissance, Pittsburgh prices are currently rising faster as inventories shrink and demand grows. Pittsburgh home values are forecasted to grow 7.1% in 2019 but Pittsburgh will remain a good buy for the near future; its median home was $142,800 in 2018, only about 55% of the national median of $259,300.
In many markets today, many first-time buyers who qualify for a mortgage still can’t find a home they can afford. More expensive markets have severe shortages of starter homes that first-time buyers and low-earning households can afford. Pittsburgh did not experience the conversion of large numbers of foreclosures into rentals that reduced single-family housing stocks in many markets after the housing bubble burst. It also has a healthy supply of condos and townhomes for first-time and lower-income buyers. Some 55.8% of Pittsburgh families who make $55,000 or less in household income owned a home in 2017.
Pittsburgh’s housing stock is growing slowly. Just like the rest of the nation, new home construction has not kept up with demand. “During the nine years since the recession started, there has been an average of 1,920 new single-family detached homes started. The average for the last five – which covers the period in which Pittsburgh saw strong job growth – has been 1,962,” reported Pittsburgh Metroguide.
Pittsburgh is an excellent market for first-time buyers because of the unique path its local economy took over the past 20 years. While other markets experienced a boom and bust cycle from 2008 to 2013, Pittsburgh improved incrementally as local employment and incomes grew. In recent years, however, Pittsburgh is developing problems common to other major markets. Prices are forecasted to rise faster than the national median this year. Rising demand is putting pressure on supplies, and new construction is not filling the gap.
Pittsburgh in the Spotlight
Here is what recent national rankings have said about Pittsburgh.
HSH.com ranked Pittsburgh first among ten metros that cost less than $1000 a month. With a 10% down payment, homebuyers in the Pittsburgh metro area would need an annual income of $42,611.03, as the PITI (and mortgage insurance) payment would rise to $994.26 per month.
According to the 2019 Bankrate Best/Worst Metros for First-time Buyers Study, Pittsburgh topped the list of metropolitan markets where homeownership is attainable, safe and fun for residents. Markets were ranked by affordability, culture, job market, market tightness, and safety.
Pittsburgh tied with Cleveland for first place as best for first-time homebuyers. Using data from its mortgage platform, LendingTree created a winning profile for Pittsburgh:
- Average down payment amount: $34,049
- Average down payment percentage: 15%
- Share of buyers using an FHA mortgage: 36.5%
- Average FHA down payment as a percentage of the average down payment for all loans: 31.2%
- Percentage of buyers who have credit scores below 680: 41.3%
“Pittsburgh, Cleveland, and Oklahoma City offer first-time homebuyers the easiest time purchasing a home. While these metros may not necessarily have the lowest credit score requirements or down payments in the country, they consistently rank highly across all six metrics that were considered in this study. Overall, Pittsburgh and Cleveland are tied for first place, while Oklahoma City is third,” said LendingTree.
“The Steel City secured the top spot as the best city for first-time homebuyers. According to our data, the average price per square foot of a home in Pittsburgh is only $91, 13th-lowest in our study,” concluded SmartAsset’s Best Cities for First-Time Homebuyers in 2018.
“First-time homebuyers can also feel relatively confident that their home won’t lose value right off the bat. Pittsburgh had zero quarters of negative growth in home values between 2012 and 2017. For that metric, the city is tied for first,” the study found.
“No. 1 Pittsburgh tops the list of the best metros for millennials, with high marks for jobs and affordability,” the Apartment List’s Report Card: What are the Top US Metros for Millennials? reported. The city earns higher than average livability scores, with renters particularly satisfied with the city’s low crime level and options to date and make friends. Devastated by deindustrialization and the collapse of the steel industry in the 1980s, Pittsburgh has been undergoing a revitalization.
“The city has moved away from factory jobs and today attracts young, educated workers. The number of Pittsburgh residents 25 years of age and older with a college degree grew by 37.3% between 2000 and 2013. Tech giants, such as Apple, Facebook, Google, and Uber, have opened offices in Pittsburgh, and the city has a thriving food and art scene,” wrote Apartment List’s Sydney Bennet.
“While large coastal metros, from San Francisco to New York City, offer strong job markets and plenty of entertainment options, affordability concerns make them a poor choice for many millennials. Inland metros, including Pittsburgh, Provo, and Madison, are some of the best locations for millennials. These metros offer millennials more than just affordable housing options. They also provide strong job markets and vibrant social scenes” she said.