Philadelphia Housing Holds Steady in Q3 by Kevin Gillen
Prices, sales remain flat, although inventories continue to decline.
October 24, 2013: Philadelphia’s housing market continued its stop-an-go pattern of recovery this past summer, with both house prices and sales remaining essentially unchanged from the previous quarter, even after rising sharply this past spring.
The average house value in Philadelphia declined by 0.7 percent in Q3, according to the latest data from the City’s Recorder of Deeds. This number is considered small enough so as to be statistically indistinguishable from zero.
House prices were generally flat citywide, with a few exceptions. From smallest to largest, the average change in house prices by neighborhood in Q3 were: North Philadelphia (-1.2%), Upper Northeast Philadelphia (-1.1%), Lower Northeast Philadelphia (0.0%), Northwest Philadelphia (0.0%), Center City/Fairmount (+0.2%), Kensington/Frankford (+0.7%), University City (+3.7%), South Philadelphia (+4.0%), and West Philadelphia (+8.1%).
The median house price in Philadelphia increased to $139,900 in Q2, a 6.0% increase over the median price of $132,000 in the previous quarter and a 7.6% increase over the median price of $130,000 one year ago. However, these increases are disproportionately due to sales being skewed towards the upper end of the market, as many relatively lower-income households remain on the sidelines of the current recovery due to sluggish economic conditions and tight credit conditions. Evidence of this is given by the continuing divergence between Philadelphia’s median house price (which is affected by this upward bias towards higher-priced homes) and the indexed house price (which is computed via a regression that eliminates this upward bias). This spread currently stands at nearly $50,000, and has been growing ever since the housing bust effectively eliminated many low income buyers from the market, In addition, home sales in the million dollar-plus price bracket remain well above their historic levels, despite overall home sales still remaining below their average historic levels.
Currently, Philadelphia’s housing stock has recovered 9% of its lost value since the bursting of the housing bubble in 2007. Because house values here fell an average of 21% during the bust, this implies that they need to appreciate by another 12% in order to fully recover the value lost during the recession.
Home sales activity was also flat this quarter. There were 3,614 arms-length transactions in Q3, which was exxentially unchanged from the previous quarter, but is up 9/2% from 3,311 sales one year ago.
Philadelphia’s recovery still stands in stark contrast to those of other cities. Although Philadelphia’s housing neither appreciated nor depreciated as much as most other large U.S. cities during the housing boom and its subsequent bust, it is still lagging in its recovery. House prices in cities such as Atlanta, San Francisco, Portland, and Minneapolis have recovered approximately half of their lost value, while Philadelphia has recovered only a little more than a third. In Dallas and Denver, house price increases have been sufficiently large that not only have these cities fully recovered their lost values, but house price levels there are currently above their pre-bust peaks.
The following chart ranks large U.S. cities by their total peak-to-trough decline in house prices, with the blue areas of each bar indicating the percent that house prices have recovered their value and the red areas indicating the percent that remains before the total loss is completely recovered.:
While Philadelphia’s housing market does generally tend to lag national trends, the currently sluggish recovery may be a sign that the market remains uncertain about the future of various local public policies that are likely to affect the future of our housing market. These issues include: the next round of AVI assessments, the possible creation of a land bank, potential reductions in our high delinquency rate of property taxes, and the future of the Ten-Year Tax Abatement.
For more information about Philadelphia’s Housing Market and past market updates, CLICK HERE