RENT versus OWN ANALYSIS

With historically low interest rates, homeownership has risen steadily in the last decade. Homeownership is at an all time high of 68% versus a twenty year average of 65%. The issue of home affordability varies greatly across the United States. To this end we can attempt to quantify home affordability in the subject property market and compare it to rental rates.

To determine the housing choice ratio the first step is to examine median home values, median income values, and rents in the metropolitan Harrisburg market. Median mortgages can be quantified and added to property taxes and insurance as well as the tax benefit homeowners derive from interest and property tax deductions. Home affordability can be gauged by calculating qualifying lending ratios and median income levels and median mortgage payments.

The rent vs. own ratio of monthly mortgage payments to apartment rent payments in the market is based on a value of “1”. A value of “1” means the cost of the mortgage equals the cost of the monthly rent. In a national study by LaSalle Investment Management[1] found that the five markets where the gap between rents and median mortgage payments is the widest are as follows: Orange County, CA; Newark, NJ; San Jose, CA; San Francisco, CA; and Middlesex, NJ. The five markets where rents most closely approximate median mortgage payments are: Philadelphia, PA; Atlanta, GA; Houston, TX; Dallas, TX; and Minneapolis, MN.

The median housing value in the Harrisburg MSA is $138,000. The current residential 30 year mortgages are readily available for interest rates of six percent (6.0%). Typical financing for first-time homeowners and/or entry-level mortgages involves an equity requirement of three to five percent, for the purpose of this analysis I will choice equity of 4% and financing of 96%. The mortgage debt service on financing $132,480 over a thirty year amortization at six percent is equal to $790.33 per month. In the subject market real estate taxes are based on market value of the real property. Using a market value of $138,000 and a typical millage rate in the market area of 21 mils, the annual real estate taxes (county, municipal, school and library) are $2,901 or $241.75 per month. The annual insurance cost for a $138,000 residential owner-occupied property is $600.00 or $50.00 per month. The total monthly housing cost (Principle, Interest, Taxes and Insurance) are $1,082. Most American homeowners qualify for deduction of principle, real estate taxes and insurance. Using an amortization schedule the homeowner can expect to pay an average of $7,900 in principle each year in addition to the taxes and insurance. Using the annual taxes of $2,901 and the annual insurance of $600 the annual amount that may be deducted for household expenses is $11,401. Using a combined tax rate of 25%, the net tax savings benefit to the homeowner is $2,850 annually or $237 per month. As a result the net housing expense for the median homeowner is $845 per month.
[1] Home Ownership and the Impact on Apartment Demand, by Todd A. Canter and Ben Lentz 2002.

Harrisburg University Update

Check out this month's newsletter from the Harrisburg University of Science and Technology.

2005 Residential Appreciation....

8.8%

It appears a slow last quarter knocked our residential appreciation numbers down below 2004 (9.5%). I had predicted double-digits. I was wrong! Thanks to the Fed raising short-term interest rates 10 straight times and the continual drum-beat of the coming bust to our housing boom. Can you say "self-fulfilling prophecy" ????

RSR YEAR IN REVIEW

2005 YEAR in REVIEW

HIGHLIGHTS:

Sold and leased over $338 million in real estate transactions, a sixty-five percent (65%) increase from 2004’s record $220 million. We completed over 450 transactions in 2005.

The appraisal division, RSR Appraisers & Analysts completed over 220 commercial appraisal assignments and over 350 residential appraisal reports and reviews.

RSR Appraisers and Analysts acquired L.G. Connor Appraisers, ranked #5 on the Central Penn Business Journal’s Book of Lists of Commercial Real Estate Appraisers. L.G. Connor was founded in 1957 and has been led by Karen Darney for the last ten years. Darney and Pam Rittenbauch will join RSR as General Certified Appraisers.

RSR Appraisers and Analysts were ranked #1 Commercial Appraisal Company again, this makes every year since the CPBJ began ranking appraisers in 1997.

Named by the Central Penn Business Journal “Fifty Fastest Growing Companies” in the region (#28), after being #33 in 2004.


We now represent four of the finest homebuilders in the area:

Classic Communities, Inc. Silver Creek of Hampden
Fine Line Homes Hearthside Manor
Haubert Homes Creekstone Manor
McNaughton Homes Deer Path Woods
OM Management Houses at Oakhurst

DEALS OF INTEREST:

Listed and sold Pennsboro Commons Shopping Center to Cedar Shopping Centers for $17,750,000. The shopping center consisted of 110,000 square feet with a 66,000 square foot Giant Food Store as the anchor.

Listed and sold 24.5 acres approved for 176 residential units in Hampden Township, to Classic Communities, Inc. for $2,500,000.

Listed and sold 1854 Brookwood Street, Harrisburg, a facility leased to the Commonwealth of Pennsylvania for $6,000,000.

Sold 38 residential townhouse rental units at Stanford Court in Hampden Township to Cumberland Valley Real Estate, LLC for $4,000,000.

Listed 4775 Linglestown Road, Lower Paxton Township that sold to Touchdown Flannery, consisted of two office buildings with approximately 24,000 square feet for $2,550,000.

Sold a 8,000 square foot office condominium in Saratoga Office Center for $500,000 to Classic Communities, Inc. for use as their offices.

Listed and sold 4800 Linglestown Road, Lower Paxton Township, that sold to Kusic Capital, consisting of 40,000 square feet of office space for $2,500,000.

Listed and sold 3.5 acres of residential land to be developed with 14 units at the Woods of Waterford in Wormleysburg, representing the seller and the buyer Classic Communities, Inc. for $555,000.

Sold 70 acres along the Carlisle Pike in Silver Spring Township to Bobby Rahal & Ferris Development for $3,500,000.

Sold the Hoover Plaza in Lemoyne Borough, a 50,000 square foot retail strip center to State College Premier Rentals for $2,100,000.

Sold 553 Bridgeview Drive in Bridgeport Condominium in Lemoyne Borough for $1,200,000.

Listed and Sold the Cliffdale Office Center on Cedar Cliff Drive, New Cumberland for $1,201,000.

Sold ten townhouses to be built on Shady Lane in Enola to Pin Kuo to be built by Haubert Homes for $1,235,000.



Greater Harrisburg Association of REALTORS® WINNER’S CIRCLE

Commercial
Top 1% William Rothman
Jim Koury
Al Simokat
Residential
Top 1% Greg Rothman
Top 10% Garrett Rothman
Top 20% Jennifer Kerr


AWARDS:

Agent of the Year Jim Koury
Commercial Agent of the Year Julie Trogner
Residential Agent of the Year Garrett Rothman
Platinum Club for Production Gordy Banzoff
Jamie Berrier
Keith Sultzbaugh


Partner James Helsel served as a Board Member and member of the Finance and Executive Committees of the National Association of REALTORS®.

Greg Rothman graduated top in his class from Johns Hopkins University with a Masters of Science in Real Estate with a 3.96 GPA. He received an award from the Maryland Chapter of the Appraisal Institute for best thesis.

Jamie Berrier was elected to the Board of Directors of the Greater Harrisburg Association of REALTORS.

Greg Rothman was appointed Vice-Chairman of the Cumberland County Economic Development Corporation and was appointed by the Cumberland County Commissioners to a three year term on the Cumberland County Industrial Development Authority where he was elected Secretary.

Greg Rothman is serving on the Board of Directors of the United Way of the Capital Region.

Partner William F. Rothman served on the Board of Advisors to Shippensburg University’s Grove School of Business.

Garrett Rothman, Esquire was named to the Board of Directors of the Harrisburg Young Professionals.

Garrett Rothman served on the Harrisburg Area Community College Multi-Cultural Advisory Committee and Channels, a non-profit food distribution agency.

Jackie Eakin served as President of the Investment Commercial Industrial Council of the Greater Harrisburg Association of REALTORS®.


New Additions:

Nicholas Paul Berrier, born February 22, 2005, son of Shawn and Jamie Berrier.
Chloe Mills Herbert, born to Melissa and Grant Herbert on April 13, 2005.

FHA Changes

Effective December 19, 2005, FHA will no longer require automatic repair on minor property conditions including, but not limited to:

1. Missing handrails
2. Cracked or damaged exit doors that are otherwise operable
3. Cracked window glass
4. Defective paint surfaces in homes constructed after 1978.
5. Minor plumbing leaks (like leaky faucets)
6. Defective floor finish or covering
7. Trip hazards (cracked or partially heaving sidewalks)

FHA will no longer automatically require an inspection for the following:

1. Wood destroying insect inspection.
2. Well water test.
3. Septic test or inspection.
4. Flat roof or unobservable roof.

Thank you to Carolyn Albright at GMAC (717-975-8012) for this update.

Milton Hershey Book hits stores tomorrow...

Joel Berg of the Patriot News called me the other day to get my take on the new book by Michael D'Antonio on Milton S. Hershey. I wrote a 4,000 word biography on Mr. Hershey in the Winter 1996/1997 issue of Cigar Aficionado.

I received an advance copy this morning and have been speed-reading for a review. The author is a Pulitzer Price winner who has authored five other books. The book clearly reveals "new" stories about Milton Hershey gleened from secondary sources and the Hershey Archives.

However, the book is like the crazy custom I recently read about in Dillsburg. A local candy shop sells chocolate covered pickels on New Year's Eve. The indepth research of Milton Hershey is the chocolate on the outside. Revelations about Hershey's gambling; his wife's affliction with syphilis; references to drinking alcohol during Prohibition; and Milton's missing out on the premiere of The Birth of a Nation; are the sour, center of the pickle.

Maybe I haven't read enough, but I didn't find many references to Milton's habit of smoking 8 to 10 cigars a day. He also wasn't that tall, perhaps illiterate, and from a broken home. Worst of all... he failed in business in Lancaster, Philadelphia, Denver, New York, Colorado.

I guess smut sells, but D'Antonio should know something about Central Pennsylvania and our relationship with Milton Hershey. We could care less about the warts. None of us are perfect. Milton Hershey's legacy is seen in the town, the company, and the school.

The world needs more Milton S. Hershey's...warts and all.

HAPPY NEW YEAR!!!!

Happy New Year. Last night the City of Harrisburg and Mayor Steve Reed outdid themselves with a fantastic firework display after the strawberry dropped on Market Square. I could have sworn I was in San Francisco, Boston, Washington or New York City.

2005 was a record year for Harrisburg Real Estate, RSR REALTORS and me personally. I sold and settled on $30,000,000 in transactions. In 2004, I sold and settled $22,000,000. And in the last five years I have sold a total of $100,000,000.

RSR sold nearly $300,000,000, up from $220,000,000 in 2004. We had our best year in the appraisal division as well with over 210 assignments completed.

The other highlights of 2005:

I graduated from Johns Hopkins University with a Masters of Science in Real Estate.

The Cumberland County Commissioners appointed me to the County's Industrial Development Authority and Economic Development Corporation.

My largest deal was the sale of 38 townhouses in Stanford Court, Hampden Township for $4,000,000.

I am excited about the market for 2006. Don't believe the doomsayers, pessimistics and bubble-bursters.

I am proud of my fellow Marines who are in harm's way in Iraq. I pray for them and their station in life should put all our troubles in perspective.

My son, Niko, made the varsity soccer team at Cumberland Valley as a freshman. He scored two goals, had two assists, and made me proud. My highlight of the season might have been the pass he made to set up the winning goal in overtime during the first game of the season against Erie Prep: or his goal and assist against Red Land; or his game-winning goal against Cedar Cliff in the rain. The highlight was after the Chambersburg game when I asked him about spending the entire game warming up, but not getting in he replied..."I had the best seat in the house." Good kid.

Congratulations to Joe Paterno, who like the real estate market, defied the naysayers.

My New Year's resolution is to post to my blog on a daily basis during the week. So far, one day down and 364 to go.

My "Man of the Year" is my little brother Garrett. He would have been MOY in 1971 also, but I didn't award it then. Garrett graduated from Penn State, spent three years in Poland with the Peace Corps, went to Catholic University for Law School, clerked for a judge in Washington, moved back to Harrisburg and joined McNees Wallace and Nurick as a legal associate.

During a jog over Thanksgiving two years ago, he told me he wanted to stop being a lawyer and come sell real estate at RSR. I was skeptical since he had a family and I made a whopping $8,000 my first year in real estate.

He ignored my discouragements and began selling real estate in January 2004. In 2004, he was RSR's Rookie of the Year and named Outstanding New Associate for the Greater Harrisburg Association of REALTORS. In 2005, he was RSR's Top Residential Agent.

It has been a dream come true to work with my father for the last 16 years. Imagine how lucky I am to work with my little brother as well.

I wish you all the most prosperous and healthy 2006. Keep coming to my blog.