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Philadelphia home values down for the year
By Kevin Gillen & Ed Goppelt
Tuesday, 02/05/08
(1202232460267)
Philadelphia home values ended the year slightly down, the first year-on-year citywide price decline since 2002.
House prices declined citywide by an average of 4.4% in the fourth quarter of 2007 after season and quality are taken into account according to the latest analysis by Wharton economist Kevin Gillen. This is the largest quarterly drop since the first quarter of 2003, when prices fell by an average of 6% citywide.
Although prices were still rising as recently as last spring, house values fell by total of 0.6% compared to a year ago.
No single neighborhood was spared from declining prices, but there was significant variation. Declines were largest in North Philadelphia (-7.5%), West Philadelphia (-7.1%) and South Philadelphia (-7.4%). Neighborhoods with more modest price depreciation included Center City (-2.3%), Kensington-Frankford (-2.3%), Northeast Philadelphia (-1.75%) and Northwest Philadelphia (-1%).
The news was equally bad for sales volume. Only 4,725 homes changed hands under arms-length conditions in Q4; the lowest level of transactions since the spring of 2003.
Philadelphia is at least not alone in these conditions. The latest research by Case-Shiller indicated that house prices fell by an average of 7.7% in the twenty largest U.S. cities, on an annualized basis.
The primary culprit for such a problematic market likely remains the high levels of homes listed for sale. Nearly 11,000 homes are listed for sale in Philadelphia, which is nearly double the amount in 2004, before inventories began to swell to their current levels.
As prices have remained persistently high while supply continued to rise, buyers have become increasingly reluctant to commit to a purchase. Also making the market more difficult are the tighter mortgage lending conditions attributable to the subprime fallout. As local sales volume contracted while inventories rose throughout 2007, sellers have seen persistent erosion in their ability to negotiate the price they want.
This gap between buyers’ willingness and sellers’ expectations is also revealed in the latest data. The median list price in Philadelphia is currently $180,000, while the median transaction price is only $110,500. That represents a difference of nearly $70,000 between what sellers want and what buyers are actually willing to pay.
These conditions will likely continue until the current level of inventory begins to decline and restore more balanced conditions between buyers and sellers. On the optimistic side, this actually did happen this past quarter, when the total inventory of listed homes fell by about 1,500 units. However, this is a common seasonal pattern as sellers and agents often pull a listed home from the market during the slow winter season in anticipation of re-listing it again when the busier spring season arrives.
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.