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City housing market: brisk decline continues
By Kevin Gillen & Ed Goppelt
Monday, 05/12/08
(1210602110401)
Philadelphia home values and home sales continued to slide briskly downward this past winter. According to the latest analysis by Wharton economist Kevin Gillen, the typical Philadelphia home fell in value last quarter by an average of 2.7% after accounting for quality and season.
From the market's peak in Spring 2007, prices have declined a total of 8% in just nine months’ time, twice the rate at which house prices fell during Philadelphia’s last housing downturn in the early 1990s. This erases the gains from last year and effectively resets citywide home values to mid-2006.
Home sales volume was off, too. Just 4,000 homes changed hands under arms-length conditions in Q1, which is a 15% drop from the 4,725 homes that sold last fall. Although home sales volume usually declines in the winter months, this was the slowest winter since 2003.
Unlike last quarter, when every neighborhood experienced declines, this quarter’s results did vary substantially by neighborhood, with even a few slight price increases. From lowest to highest, the price declines by neighborhood were: West Philadelphia (-10.7%), Kensington/Frankford (-7.1%), University City (-6.7%), South Philadelphia (-5.1%), Lower Northeast Philadelphia (-3.9%), Upper Northeast Philadelphia (-2.3%), Center City/Fairmount (-0.6%), Northwest Philadelphia (+1.1%) and North Philadelphia (+1.5%).
The numbers on inventories are mixed. The number of homes listed for sale stayed approximately flat throughout the winter at just under 11,000 units. Although the rate at which homes sold increased slightly, the average time it took for a home to sell rose to an all-time high of 77 days.
As prices decline and homes linger on the market, many recent buyers may be feeling the pinch. Mortgage delinquencies rose to 3.5% of all outstanding mortgages, up from their low of 1.8% in 2006.
If there is any good news, it is that the pain here appears to be less than what is being felt by homeowners in many other cities. The latest research by Case-Shiller indicates that house prices have fallen by an average of 14% from their peak in the ten largest U.S. cities, compared to only an 8% decline in Philadelphia.
Moreover, declining prices move a lot more dwellings into the range of affordability to many home owners. At the market’s peak, Philadelphia was rated by a national consulting firm to be over-valued by 15%. But the recent price deflations have led this rating to be reduced to only 8%.
Whether or not the worst is behind us or more declines are in the future will likely be indicated by the current spring selling season, usually the busiest time of the year for home sales. The gap between sellers’ expectations and buyers’ willingness still appears to be large. The current average list price in Philadelphia is $190,000, while the current average sales price is $100,000.
This $90,000 gap represents a significant disparity between what sellers want and what buyers will actually pay. At the current low rate of home sales, it would take just over ten months for all current inventory to be sold. In a market that is more balanced between buyers and sellers, a six-month supply is considered the norm. By summer, we should know if these two parties have started to see eye-to-eye again, or whether current trends will simply continue.
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.