2009 Q2 Philadelphia Housing Market by Kevin C. Gillen Ph.D prepared for Prudential Fox & Roach. Prudential Fox & Roach, REALTORS, the nation’s fourth largest provider of home services in the United States, is an independently owned and operated member of the Prudential Real Estate Affiliate, Inc. and the largest Prudential affiliate in the country. As the Greater Philadelphia’s real estate leader, the company has more than 64 sales locations and 4200 associates. Through its affiliate, the Trident Group, the company provides one-stop shopping and facilitated services to its clients including mortgage financing and title, property and casualty insurance. If you looking to buy or sell your home, you can visit our site at http://www.prufoxroach.com for all your home service needs.

1. State of the Philadelphia Housing Market: 2009Q2
Kevin C. Gillen, PhD
Prepared for PrudentialFoxRoach
August 14, 2009
Summary:
This past spring, the Philadelphia housing market appeared to exhibit some signs of
stabilization, with several indicators pointing towards a bottom in the current slump.
In Philadelphia county, house prices rose an average of 6.8% in Q2, while in the suburbs
they increased by 2.7%. This is the first region-wide increase in house prices in two
years, and follows a sharp decrease in house prices in Q1.
Sales volume increased significantly, but remains well below historic levels. There were
14,199 arms-length transactions of single-family homes this spring. This is up 63% from
the previous quarter of 2009Q1, but well below the mid-decade peak of 20,000-25,000
sales per quarter.
This price increase erases some of the losses in local house values since the bursting of
the national housing bubble over two years ago. This past winter, Philadelphia-area
house prices had fallen a cumulative total of just over 15%. But with the most recent
increase, prices are now down by an average of only 12% from their peak two years ago.
Cumulative house price declines in Philadelphia continue to be much less than in most
other large U.S. cities. While house prices in Philadelphia have fallen an average of 12%
from their peak, the average decline in the ten largest U.S. cities has been over 30%.
Some other signs of stabilizations include: a leveling-off in inventories (homes listed for
sale), an increase in the sales rate of inventories, and a drop in the average time it takes
to sell a home.
While it would likely be premature to say that these latest statistics indicate that the
market has reached its bottom, it would seem to indicate that it has passed its inflection
point. While some further house price declines may be ahead, the majority of large
price declines appears to be behind us.
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2. The Philadelphia region’s house prices increase in the second quarter of 2009:
On a quality- and seasonally-adjusted basis, house prices increased an average of 3.8%
in the spring of 2009.
However, the price increase was significantly larger in the city than in the suburbs. In
Philadelphia county, house prices increased by an average of 6.8% in Q2, while in the
suburbs they increased by 2.7%. This comes after a quarter when house prices fell in
the city by more than in the suburbs.
Adding this decline to previous price declines since the bursting of the national housing
bubble in 2006, house prices have fallen a total of 11.5% in the city and 11% in the
suburbs.
With these declines, the region’s housing values have re-set themselves back to where
they were in the spring of 2005.
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3. Almost all counties in the region experienced positive house price appreciation in 2009Q2:
In ascending order, the average house price increases by county were:
o Chester (+0.1%)
o Montgomery (+0.4%)
o New Castle (+0.4%)
o Camden (+0.8%)
o Burlington (+1.7%)
o Salem (+2.4%)
o Bucks (+3.6%)
o Philadelphia (+6.8%)
o Delaware (+6.9%)
Mercer County, New Jersey was the only county in the region to experience continued
house price declines (-3.2%).
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4. Philadelphia’s house price declines have been significantly less than the average for large U.S.
cities.
This chart compares movements in the Philadelphia region’s average house value
(orange line) to that of the average in the ten largest U.S. cities (black line).
During the boom years in the first half of this decade, house prices rose by an average of
174% in the ten cities, but only 114% in the Philadelphia area.
This is largely due to the fact that prices didn’t start exhibiting sharp appreciation in
Philadelphia until 2003, whereas prices began their acceleration in the ten other cities
after 1998.
Conversely, house values in Philadelphia have not fallen as much as in other large U.S.
cities. While house prices have fallen an average of over 30% in the ten peer cities, they
have declined only 12% in Philadelphia; or about a third as much.
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5. Philadelphia’s house price declines have been less than in many other large U.S. cities.
This chart shows how much house prices have fallen in large U.S. cities, since the
bursting of the housing bubble.
House prices in Philadelphia have declined by an average of 11.5% since their peak in
2006.
Compared to Philadelphia, seventeen cities have had larger cumulative price declines,
while only three cities have had smaller cumulative price declines.
At the most extreme, house prices in the Sunbelt cities of Phoenix, Las Vegas, Miami and
San Francisco have fallen by over 40%, and in some cases by more than 50%. This is
more than four times the amount that house prices in Philadelphia have declined.
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6. Home sales still remain depressed:
Across the ten-county region, there were 14,199 arms-length home sales in 2009Q2.
This is up more than 60% from an all-time low this past winter, but still well below
normal sales volume.
This past spring was the slowest spring selling season since 2001.
Thus, house sales continue to remain more adversely than house prices as a result of
the current downturn.
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7. The average time it takes for a home to sell in the Philadelphia declined this past spring:
In 2009 Q1, the average time it took to sell a house in the region was nearly 100 days;
an all-time high.
By the end of 2009 Q2, the average time it took to sell a house had fallen to 87 days.
Although the 87 DOM for houses is well above its historic average, it does represent a
decline from its all-time peak.
However, the average time it takes to sell a condo in Philadelphia increased to 110 days;
an all-time high.
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8. Leading indicators suggest that market activity is increasing:
At current rates of sale, it would take 11 months to sell the current inventory of condos
listed on the market, and just over 8 months to sell the current inventory of houses.
While these are above their historic average—due to the large inventory of unsold
dwellings that remain—they have fallen sharply during the last few months from their
respective peaks of 19 and 16 months.
This indicates that sales activity—as measured by the number of homes under
agreement—appears to have picked up in the last several months.
Since supply has remained essentially unchanged, this implies that buyers appear to be
re-entering the market.
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9. Foreclosure rates in the Philadelphia still remain well below that of other large U.S. cities:
In 2009Q2, 0.60%--less than of one percent—of Philadelphia households were in the
process of foreclosure1.
While this ratio includes all households, rather than just ones with a mortgage, it still
reasonably captures Philadelphia’s ranking compared to other cities.
Philadelphia’s foreclosure rate is slightly above that of other nearby Mid-Atlantic cities,
it is well below that of other Sun Belt cities that have experienced the largest decreases
in house values, such as Las Vegas (7.45%), Phoenix (5.73%), Miami (3.54%) and Los
Angeles (2.41%).
This implies that Philadelphia’s current foreclosure rate would appear to be insufficient
to induce the large price declines here that have been experienced by those cities.
1
Source: www.realtytrac.com
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10. The typical Philadelphia home is now considered to be “Under-Valued”:
The typical Philadelphia home is now considered to be “under-valued” by 3.2%2.
This is down from its peak of being considered “over-valued” by 15% just three years
ago.
Interestingly, Philadelphia was considered more over-valued during its last housing
boom in the late 1980s than it is now, despite the fact that house price appreciation
during the recent 2003-2006 boom was much greater.
This implies that the fundamentals of Philadelphia’s housing sector are perceived by the
market as being in relatively better condition now than they were during the last
downturn in 1989-1995.
2
Source: IHS Global Insight, April 2009.
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11. Independent analysis indicates that Philadelphia is currently considered to be more under-
valued other nearby Mid-Atlantic cities 3:
Philadelphia’s classification of being “3.2% under-valued” places it near the bottom of
other Mid-Atlantic cities.
Only New York, Trenton, Washington DC, and Pittsburgh are considered more under-
valued than Philadelphia. By contrast, Atlantic City (44%), Ocean City (34%), Vineland
(20%), Camden (9%), Wilmington (5%) and Baltimore (1%) and are classified as “over-
valued”, and often by considerable margins.
This provides further support to expectations that any future downward pressure on
house prices in Philadelphia will be relatively modest compared to its peer cities.
3
Source: IHS Global Insight, April 2009.
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