11/09/07 Philadelphia Experiences First Citywide Drop in House Values Since 2002 (Kevin Gillen & Ed Goppelt)

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Philadelphia Experiences First Citywide Drop in House Values Since 2002
By Kevin Gillen & Ed Goppelt Friday, 11/09/07 (1194636410199)

How well— or poorly —Philadelphia’s housing market is faring these days can depend upon which way you’re looking.

If you compared our latest stats to those of just the past few years, the news looks pretty grim:

Just under 6,000 homes changed hands during the third quarter—the fewest sales since 2003 Q3.
With sales volume slumping, the number of homes lingering “for sale” on the market continued to climb, to nearly 12,000 units—more than double the amount listed in 2004.
With the fallout from subprime and the tightening of mortgage credit, foreclosures rose in the third quarter to just over 900 homes—about fifty percent higher than in 2005. (link to slide 35)
And, for the first time since 2002 Q3, house prices declined citywide on a quality- and seasonally-adjusted basis—about minus 1.1%

Conversely, if you compared Philly’s stats to those of other cities, we actually look pretty good:

Price declines are a lot more pronounced in other major U.S. cities. According to the team of Case-Shiller Macromarkets, prices are down 10.1% in Tampa, 9.3% in Detroit, 7.2% in Washington DC, 3.6% in Boston and 3.8% in New York.
Moreover, these aforementioned price declines are YoY—indicating that house prices in these markets have been declining for some time.
Currently, about 2.94% of households in Philadelphia are delinquent on their mortgage payments, which is below the national average of 3.41% and well below places like Miami (5.63%), Las Vegas (4.9%) or Detroit (4.71%).
And actual foreclosures are affecting less than 1% of all Philadelphia households, which is also below the national average.
Lastly, Philadelphia’s degree of over-valuation is estimated to be only 14%, well below that of Los Angeles (51%), Phoenix (43%) or even nearby neighbors Baltimore (28%) and Atlantic City (64%).

Whether Philadelphia will continue to merely slump, or instead joins these other markets in a “hard landing” depends upon a number of things.

Philadelphia’s homes roughly doubled in value over the past five years. While this is remarkable by our own historical standards, it is actually quite modest compared to most other large U.S. cities. So, it could seem logical to argue that a modest run-up during the boom years would likewise be followed by only a modest deflation, now that the bust times have arrived.

On the other hand, Philadelphia was quite late to what amounted to the nation’s housing party: while other markets were booming in 2003 and 2003, Philadelphia didn’t begin its remarkable ascent until 2004. And, just as we were one of the last ones to arrive to the party, we’ve also been one of the last ones to leave, too: as other markets began cooling in 2005 and experiencing subsequent price declines in 2006, we were still chugging along, albeit at a slower pace. In this context, the recent quarter’s price decline may be just the beginning.

One thing is for sure, though: the party is over. Tighter credit conditions and the surplus of homes lingering for sale point towards a prolonged period of challenging conditions. And, if history is any guide, then just as the recent boom market lasted several years, then so too should the bust. The only thing that it’s too early to say is whether we’ll wake up from the party with a hangover.

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Webmaster's note: Dr. Kevin Gillen is Research Fellow of the University of Pennsylvania and a V.P. of Econsult Corp. Using data provided by Hallwatch, Gillen publishes his Philadelphia House Price Indices on a quarterly basis as a public service to the Philadelphia real estate community. The production of these indices is made possible with the generous support of Econsult Corporation.