This is not a real estate blog but many of our clients have a heavy portion of their net worth invested in residential real estate. So when the Fels Institute of Government at Penn Published a State of the Philadelphia Housing Market in mid November we thought it worthwhile to secure and read a copy.
According to the survey home prices peaked both in the region and the country in the first quarter of 2007. The last time we had seen a decline was from 1990 to 1994. We tend to forget that prices climbed as an amazing rate from 1998 to 2007 and that prices are currently in the same range as they were circa 2004-05. Measured against 10 other metropolitan markets over the past 25 years Philadelphia housing grew 25% less in price than the other cities. But, in typical Quaker style when we did plunge from the high, Philly houses declined by less than one-half of the decline in the 10 composite cities. Where we feel like today is 2005 in home pricing our ten city neighbors are feeling more like mid-2003 in terms of value. Resorts fared the worst with losses of 61% in Las Vegas 51% in Phoenix and 45-48% on the Florida coasts when measured against the high. Only Dallas and Denver fared better than Philadelphia. Even the darling markets of Washington and New York was 26-27% declines from the peak. Still, we will need to recover an additional 14% to get back to our 2007 peak. We may not feel happy about what occurred but our house value declined later and was more modest than in our shoulder cities of New York and Washington, both of which will need to see another 25% price rise to recover that old time 2007 feeling. Meanwhile if you had been in a Dow Jones index fund this entire time you are less than 2% away from the Dow’s all-time high in early October, 2007 of 14,006.
There is another unhappy aspect to consider. Securities are highly liquid. And while we are reporting that home prices are recovering, actual home sales remain very sluggish. From 2002-through the third quarter of 2008 (the Lehman Bros crisis) the Philadelphia market saw pretty steady sales of more than 5,000 houses each quarter, the first quarter of each year excluded. In 2012 just over 3,000 homes sold and our region has not seen us break 4,000 since second quarter of 2010. The quarterly average since 1995 has been about 4,300 homes per quarter and measured by sales alone in contrast to price, the data look more like 1995 than 2005 when we peaked at 8,000 homes sold each quarter. Another approach to this is to look at the number of homes on the market. From 2001 to early 2005 Philadelphia typically had 5,000 6,000 homes for sale each quarter. In 2005 that number began to spike reaching a peak of more than 12,000 homes for sale in late 2006 and again late in 2007. The number has bounced around between 9 and 11,000 homes since late 2007 with the current trend close to 9,000. But this still means that in times of relatively stagnant growth we have one-third more homes on the market than we did eight to thirteen years ago. So the lesson is that if you want your price be prepared to wait a long time and if you don’t have time, your price is going to have to be very competitive.
In the end, the news is not gratifying but before we start complaining it might be wise to remind ourselves that in comparison with almost all of the rest of the United States, we were not badly hurt.