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Philly real estate: fewer sales, higher prices in some areas
By Kevin Gillen & Ed Goppelt
Sunday, 08/17/08
(1219017881170)
Philadelphia house values exhibited resistance to further price declines this spring, even as the number of home sales continued its downward slide.
According to the latest analysis by Wharton economist Kevin Gillen, the typical Philadelphia home increased in value by an average of 1.7% on a quality- and seasonally-adjusted basis. This modest increase comes after three consecutive quarters of house price declines. However, this price appreciation still remains insufficient to offset previous cumulative declines, and house values remain down 6.6% from the peak of where they were one year ago.
The price increases were uniformly distributed across the city’s neighborhoods, with only one exception. From lowest to highest, the price increases by neighborhood were: Upper Northeast Philadelphia (+0.6%), Lower Northeast Philadelphia and Northwest Philadelphia (+0.7%), Center City/Fairmount (+3.0%), West Philadelphia (+7.1%), Kensington/Frankford (+8.5%), South Philadelphia (+10.0%) and University City (+20.5%). The only neighborhood to experience continued price declines this quarter was North Philadelphia (-4.9%).
Philadelphia’s movements in house prices continue to stand in stark contrast to trends in other major U.S. cities. According to Case-Shiller MacroMarkets’ composite house price index, house prices have fallen by an average of 18% in the ten largest U.S. cities, compared to only 6.6% in Philadelphia.
Although Philadelphia’s house prices may be resisting their continued declines, home sales continued their downward plunge this spring. Even though spring is normally the busiest time of year for housing transactions, only 4,546 dwellings changed hands under arms-length conditions this past quarter. This is a 25% drop from spring 2007, and a 42% drop from the housing boom’s peak in the summer of 2005.
The low volume of sales combined with only modest price declines to date typically indicate a significant disparity between sellers’ hopes and buyers’ expectations about what the future holds. As sellers resist dropping their prices, buyers remain reluctant to commit to purchasing. The nationwide credit crunch exacerbates this disparity, as even willing buyers find it more difficult to qualify for a mortgage in the current environment.
The gap between what sellers expect to obtain and what buyers are willing to pay can be measured by the difference between list prices and transaction prices. The median list price in Philadelphia this spring was just under $190,000, while the median transaction price was $107,500. This nearly 77% gap represents a significant difference between what sellers want and what buyers will (and can) actually spend.
When a balance between buyers and sellers will return to the local housing market may be indicated by trends in inventory levels. After rising dramatically over the last several years, the number of homes listed for sale appears to have topped out. After peaking out at over 12,000 units in late 2006, inventories have dropped to just under 11,000 units, where they have remained for the past year. Although both inventories and the average time it took for a home to sell remain at historically high levels, both appear to have finally stopped increasing. While these high levels will continue to exert downward pressure on prices, this pressure at least appears to have stopped growing, and may indicate that a bottom—while still a ways off—may be in sight.
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.