The Lehigh Valley ranked No. 61 in annual price increases among the top 282 metropolitan statistical areas, according to a home price index released Thursday by the Office of Federal Housing Enterprise Oversight.
The Valley moved up 30 spots in the ranking from last year, despite a slower rate of appreciation. This indicates that other housing markets cooled off even more. For 2005, the region was No. 91 nationally after home prices rose 14 percent.
Last year's 9 percent Lehigh Valley increase was stronger than the national and state averages. Prices rose about 6 percent nationally and 7 percent in Pennsylvania. In some areas of the Midwest and some cities in California, home prices even fell.
While York ranked No. 57 nationally, ahead of the Allentown area, the Valley more or less leads the state in home appreciation because its economy is twice the size of York's, said Ryan Sweet, an associate economist with Moody's Economy.com in West Chester.
The federal statistics are based on price changes in repeat sales or refinancings of homes whose mortgages are purchased or secured by big mortgage-finance companies Fannie Mae or Freddie Mac. It covers homes sold by real estate agents and individual homeowners, but largely excludes new construction.
Statistics from the Lehigh Valley Association of Realtors pertain to homes sold by real estate agents. The association has said the average price of existing homes rose 10 percent to $228,000 in 2006.
The Office of Federal Housing Enterprise Oversight predicts the rate of appreciation will continue to slow nationally. Here in the Valley, Sweet predicted appreciation will continue to narrow until, in 2008, it returns to historic norms. But home values will continue to rise in the Lehigh Valley because the area is creating jobs, and more affluent people are moving here.
"It has seen strong employment growth," said Sweet, of the Lehigh Valley. "From that perspective, Pennsylvania's gem is Allentown."
Typically, homes in the Valley appreciate about 5 percent a year. In 2004, and 2005, houses sold in a matter of weeks, properties received multiple offers and home prices rose at double-digit rates. Last year, by contrast, was a period of growing inventory and fewer sales. The shift favored home buyers, who regained a flexibility to negotiate that had been lost in the boom years.
The number of homes sold last year fell 3.5 percent. It was the first year that sales dropped in more than 10 years.
The drop in sales stemmed partly from the large number of homes for sale. New listings outpaced home sales by nearly two to one last year. The local housing stock has swelled, with the construction of dozens of new subdivisions in the last 10 years.
The bigger supply of available houses allowed buyers to be more selective. Houses below $200,000 sold quickly, but higher-priced homes lingered on the market.
Nonetheless, the value of homes in the Valley is at an all-time high.
In the past five years, home prices in the Lehigh Valley have risen nearly 70 percent, according to OFHEO. That means a home that was purchased here for $150,000 in 2001 is now worth more than $250,000 -- provided it appreciated at average rates.
Low interest rates for mortgages have brought many first-time buyers into the local housing market, while newcomers fleeing high prices in New York and New Jersey have pushed up the average cost of a home here.
Economists had predicted appreciation would slow because annual double-digit price increases are unsustainable in the long term. Incomes just can't keep pace. But two of the underlying factors that drive the housing market -- income levels and employment growth -- remain strong. And interest rates, another key factor, remain low.
"We are in a bit of an unusual situation because we've seen appreciation rates decline dramatically but we have not seen much softening in any of those [factors]," said OFHEO economist Andrew Leventis in an interview.
He added, "Market conditions are still very favorable toward house price growth. It's just that we've seen so much appreciation that in some ways the market may have gotten ahead of itself."
How much homes will appreciate and how quickly they will sell in 2007 remains an open question, after four blockbuster years. The Realtors association does not release a forecast, nor does OFHEO. In January, the number of homes sold fell 16 percent. It was the eighth consecutive month home sales fell in the Valley. Home prices rose 1 percent in January, compared to the same period last year.
The peak selling season of spring and summer are still ahead. The highest number of homes are listed and sold in those months. Most real estate agents think the market will rebound somewhat, after the paltry sales of the past few months.
"I think we will have a pretty good spring," Loren Keim , who owns Century 21 Keim Realty in Allentown, said last month. "There will be pent-up demand. Buyers will have to adjust."
Keim, who develops proprietary data on the local housing market, predicts sales will be flat in 2007, or drop slightly. He also expects a modest increase in prices.
A key factor will continue to be the going rate for homes in New Jersey. According to OFHEO, a homeowner who paid $100,000 for a home in Pennsylvania in 1980 now has a house worth an estimated $409,000. A homeowner in New Jersey who paid the same amount in 1980 now has a home worth $585,000, or 43 percent more.
jeanne.bonner@mcall.com
610-820-6539
HOW WE STACK UP
How Lehigh Valley home-price increases last year ranked: Pennsylvania No. 2 United States No. 61
`
