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For the first time in decades – maybe even ever – Buffalo leads the nation in real estate appreciation. In a region known for low-cost homes and a stodgy, slow-to-appreciate market, being the tortoise has paid off. By avoiding the home sales boom and bust that plagued much of the country, a new study shows Buffalo-area home prices appreciated more than any major U.S. city since prices peaked nationally seven years ago.

Data from research firm Clear Capital, published in the January 2014 issue of Kiplinger’s Personal Finance magazine, shows Buffalo prices are up 16 percent since May 31, 2006 – highest among the nation’s 100 largest metro areas.

Buffalo’s increase blew away the competition. All but seven of the 100 cities are still down from their peak, most by double-digit rates. Only one other market exceeded 10 percent growth: Austin, Texas, at 13 percent. The national average home price is still down nearly a third.

“The whole area here is changing, from a blue collar to a white collar,” said Bonnie Clement, a broker with Hunt Real Estate. “Take a look at the city, at how the prices have been increasing in good areas. It’s unbelievable.”

The seven-year growth rate translates to 2.3 percent a year – steady but not stellar, though in the most recent 12 months, home prices in Western New York rose a healthy 6.9 percent. Many cities have seen faster price increases the last couple of years, but they are still down from their peak.

Buffalo’s growth reflects changes in the region. Billions of dollars in public and private investment is pouring into downtown and the suburbs, attracting newcomers, raising confidence and sending a signal that Buffalo is coming back. Mortgage rates remain near historic lows, making it an attractive time to buy. A scarcity of good homes for sale is creating competition among buyers, lifting prices.

Fifteen years ago, Russell Hulsing, a 44-year-old West Side resident, bought a home on Baynes Street from the Department of Housing and Urban Development for $15,000. A few days ago, he sold it – for $130,000.

In between, he and his wife invested $50,000 in the home, shifting walls and putting on a new roof. He says he “had an inkling” that he could sell for a profit. But he never expected to make that much.

“It just kind of blew my mind,” he said.

The couple and their two children are renting an apartment until they find a new home. But now they face the dilemma from the other end: They want to buy a house a few streets over, between Richmond and Elmwood avenues, but those homes now sell for more than $300,000.

“We made a lot of money, but as buyers, we’re also facing a seller’s market,” he said.

Allentown’s boom

Some parts of the market are hotter than others. Data from the Buffalo Niagara Association of Realtors show that for the 12 months that ended Sept. 30, the median sales price in Allentown rose 43 percent from six years ago. Over the same six years, prices rose 31 percent in North Buffalo and 15 percent in the Delaware District.

Even the Elmwood Village area, where the median price was already $230,000 in 2009, is now 13 percent higher, at $260,000. And Susan Lenahan, broker and head of M.J. Peterson Corp.’s city office, said houses west of Richmond Avenue are now selling for more than $200,000. “Whoever thought that would happen?” she said.

In the last few years, hundreds of millions of dollars have been spent developing the Buffalo Niagara Medical Campus, Canalside and Larkinville, drawing new doctors, scientists, professionals, students and tourists to downtown Buffalo.

In turn, that is spurring redevelopment along Main Street and the periphery of downtown. New apartments, office space and hotels are opening, with more planned. Developers are eying opportunities to convert industrial or commercial buildings into new loft apartments, condos, shops, entertainment venues or businesses. “There is a resurgence going on,” said Peter Scarcello, general manager for the Buffalo Niagara region for Hunt.

In the suburbs since 2006, Amherst prices are up nearly 12 percent, East Aurora prices more than 14 percent and Hamburg, 5 percent.

“It all goes to the business district,” Scarcello said. “If you’ve got a strong, viable business district, property values will remain high and continue to appreciate.”

Tortoise vs. hare

The region’s relative stability and consistency likely insulated it from the real estate bubble and bust. While markets like California, Florida, Arizona and Nevada ballooned during the go-go years before the housing crisis in 2006 and 2007, Buffalo prices rose incrementally, just as they have for years. That pace is more sustainable, so it didn’t result in a collapse.

“It is sort of like comparing a one-hit wonder to a band that steadily sells records year after year,” said broker Jean-Michel Reed of Gurney Becker & Bourne. “The band with a small but solid fan base is more sustainable.”

Because prices are low to begin with, consumers didn’t need the kind of unusual and complex mortgages – such as interest-only payments, balloon terms or “no-doc” loans – that were popular in high-cost markets but proved to be toxic. State and local officials also worked to prevent lending and other abuses that contributed to the crisis. Some who tried to profit here by flipping properties without taking care of them were driven out of town years ago by aggressive prosecution of mortgage fraud and housing violations.

All of that held down foreclosures. Nationally, “distressed” sales accounted for 41 percent of all transactions in 2009 and are still about 20 percent. In the Buffalo region, distressed sales never topped 15 percent and are now 6 percent.

The result: Nationally, home prices fell for 20 straight quarters from 2007 to 2011, often by more than 10 percent, according to Clear Capital’s data. But here, aside from a couple of months of declines of less than 1 percent, prices kept rising.

“That stability has really played a good role for this market,” said Alexander Villacorta, vice president of research and analytics at Truckee, Calif.-based Clear Capital. “Even though there have been some minor fluctuations, for the most part, home prices have been relatively steady. It really is a case of the tortoise versus the hare.”

Still affordable

Brokers say home values here remain constrained by the state’s high property tax burden, which can offset any perceived savings on a home purchase. Tammy Capozzi, an agent for M.J. Peterson, cited a recent deal in which the property taxes were equal to the mortgage payment.

Nonetheless, home-price appreciation was healthy across upstate New York. Rochester prices rose 8.9 percent increase and Syracuse prices 6.4 percent.

And despite leading the nation in home-price appreciation, the Buffalo region was ranked by Kiplinger among the 10 best cities for both affordability and the lowest rate of foreclosures. Among the 100 cities, only Syracuse could say the same.

“It’s well-deserved for Buffalo,” said Lenahan of M.J. Peterson. “We know it as the best-kept secret, but Buffalonians are sometimes our own worst enemy. You have to travel to other places to see what a great deal you have in your own backyard.”

email: jepstein@buffnews.com