Scranton-Wilkes-Barre Area Ranked High for Home Purchases

A new study confirms that purchasing a house in the Scranton/Wilkes-Barre/Hazleton metro area is a sound investment, even as the national market rells.

The Washington D.C. based National Low Income Housing Coalition and the Center for Economic and Policy Research looked at the cost of housing and the likelihood home buyers would build equity in the nation's 100 largest metro areas. The study found that someone who recently purchased a home in the local metro area could build about $40,000 in equity by 2012, a stark contrast to the dire assessments nationally.

"Your area didn't have the run-up in home prices other regions did, so buyers are looking at an accumulation of equity in the near term," said Danilo Pelletiere, co-author of the report. "Other areas are worried about continued declines in home values."

The region's situation looked all the better when stacked up against some of the nation's dysfunctional bubble markets, many of which have just begun to see their housing prices collapse.

Finding the bottom
In those troubled markets, a bottom is in sight based on the average rental prices in an area. Historically, home prices and rents are closely related, with median home prices roughly 15 times the average annual rent price. When the price-to-rent ratio is more than 18 to 1, it's a bubble market. When home prices rose to 20 times the average rent prices in the late 1970s, they quickly fell back in line.

At the peak of the bubble in 2007, national home prices surged to 25 times average rent prices. It should have been easy to tell that prices would collapse, the report concluded.

In 2008, home prices continued to decline while rents moved modestly upward. In fact, some hard hit markets, such as Orlando-Kissimmee, Fla. and Cape Coral-Ft. Myers, Fla., have bottomed out, the report said, and new buyers there are looking at equity gains in the near term.

A look at the local metro area shows the region is at the 15 to 1 ratio. Average annual rental costs in the region are about $9,000 or $750 per month. Multiply that by 15 for a target median home value of $135,000.

"This study tells us what we've known all along," said Steve Farrell, owner of Classc Properties real estate firm in South Abington. "Our region has sidestepped this mess because we didnt' have speculators in the market. For all the bad news, real estate is local, often even neighborhood-by-neighborhood."

Right time to buy
Many people may be holding off purchasing a home because they fear prices will drop and they will be "upside down" with the mortgage - owing more than the home is worth. home prices in many hurting markets are still not at their historic norms, making the accumulation of equity remote. For example, those who recently purchased a home in Bridgeport, Conn., could expect to lose about $165,000 in equity over the next four years, according to the study.

Thirty-two of the nation's largest metro areas are in a situation where new buyers will lose equity between now and 2012 as prices continue to fall. Even recent home buyers in the nearby Allentown / Bethlehem/Easton metro area are looking at negative equity, or declining home values, of between $600 and $2,200 over four years, the report found.

Those purchasing homes in the Scranton/Wilkes-Barre/Hazelton metro area, however, will have equity gains of between $38,000 and $40,000 over the next four years, according to the report.

The study argues that the federal government should not directly intervene in overheated housing markets to support still-high home prices.

"Why would we direct public policy to prop up out-of-whack housing prices that will continue to decline and leave buyers with negative equity?" Pelletiere asked. "Instead of keeping home prices high, let's create jobs and promote increasing income."

dfalchek@timesshamrock.com