LOCAL & NATIONAL FOOTPRINT

Philadelphia’s Housing Market:

Where Are We…and Where Are We Headed?
Presented by: Kevin C. Gillen Ph.D.

January 2020 | Philadelphia Business Journal

2 January 2020 | PBJ

NUMBER ONE

Where is our housing market at?

3 January 2020 | PBJ

CITY’S PRICES ARE AT ALL-TIME HIGHS

House Price Index for Philadelphia County

Source: Kevin C. Gillen, Ph.D.

Price Index for Single-Family Houses in Philadelphia: 1980-2019

1980Q1=100
600.0
House prices have risen 46% since
550.0 2012, and are now 16% higher than
their previous peak in 2007.
500.0

450.0

400.0

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0
4 January 2020 | PBJ

THE CITY HAS OUTPERFORMED THE SUBURBS!

House Price Indices: City v. Suburbs v. USA

Source: Kevin C. Gillen, Ph.D.
Philly beat
Philadelphia Regional House Price Indices 1980-2019
City v. Suburbs v. U.S. Average.: 1980Q1=100
the ‘burbs!
590.0

540.0 U.S. Avg.**

Phila. Suburbs*
490.0
Philadelphia*

440.0

390.0

340.0

290.0

240.0

190.0

140.0

Q2
90.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Note: The suburban index includes all counties in
*Empirically estimated by Kevin C. Gillen, Ph.D. the regional index, except for Philadelphia county.
5 January 2020 | PBJ

SALES ARE AT POST-RECESSION HIGHS

House Sales for Philadelphia County

Source: Kevin C. Gillen, Ph.D.

Number of Philadelphia House Sales* per Quarter: 1980-2019

8,000

Q1
7,000
Q2
Q3
6,000
Q4

5,000

4,000 Qtly. Average

3,000

2,000

1,000

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
6 January 2020 | PBJ

+$1M HOUSE SALES HAVE BEEN SETTING RECORD HIGHS

+$1m House Sales in Philadelphia
Source: Kevin C. Gillen, Ph.D.

Number of Philadelphia House Sales* per Quarter

with Price>=$1 Million: 1997-2019
50

45 Q1

40 Q2

35 Q3

30
Q4

25

20

15
Qtly. Average

10

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
7 January 2020 | PBJ

CONDOS ARE ALSO DOING REASONABLY WELL

Condo v. House Price Indices for Philadelphia County

Source: Kevin C. Gillen, Ph.D.
Philadelphia Condo Price Index v. House Price Indices: 1980-2019
1980Q1=100
590

540 Phila. HPI

490
Phila. CPI

440

390

340

290

240

190

140

Q2
90
1980

1982

2005

2007
1981

1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

2006

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
U.S. HPI courtesy of FHFA.gov.
Philadelphia HPI and CPI by Kevin C. Gillen, Ph.D.
8 January 2020 | PBJ

LOCATION IS CRITICAL FOR CONDOS, THOUGH

Condo Price Indices for Philadelphia County

Source: Kevin C. Gillen, Ph.D.

Condo Price Indices by Submarket

700.0

Phila. CPI
600.0
Core Ctr. City

500.0 Adj. Ctr. City

Outer Nhoods
400.0

300.0

200.0

100.0

0.0
1986

1993

2015
1980
1981
1982
1983
1984
1985

1987
1988
1989
1990
1991
1992

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

2016
2017
2018
2019
9 January 2020 | PBJ

CONDO SALES DOING BETTER THAN PRICES, THOUGH

Condo Sales for Philadelphia County

Source: Kevin C. Gillen, Ph.D.

Number of Philadelphia Condo Sales per Quarter: 1980-2019

1000
Q1
900 Q2
Q3
800
Q4

700

600

500

400

Qtly. Average
300

200

100

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
10 January 2020 | PBJ

AND +$1M CONDO SALES ARE DOING BEST OF ALL

+$1m Condo Sales in Philadelphia
Source: Kevin C. Gillen, Ph.D.

Number of +$1m Philadelphia Condo Sales* per Quarter: 1980-2019

60
Q1
Q2
50 Q3
Q4

40

30

20

10

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
*This chart plots the number of condo sales that
occurred at prices of $1 million dollars or more.
11 January 2020 | PBJ

NUMBER TWO

Where is the housing market

headed?
12 January 2020 | PBJ

INVENTORIES ARE EXCEPTIONALLY LOW

Houses Listed “For Sale” in Philadelphia County

Source: Bright MLS, Kevin C. Gillen, Ph.D.

Philadelphia Houses Listed For Sale: Inventory v. Sales Rate

14,000 45.0%

# Houses Listed For Sale

% Absorbed
40.0%
12,000

%Absorbed=(#Sales/#Listings)
# Houses Listed "For Sale"

35.0%

10,000

30.0%

8,000
25.0%

20.0%
6,000

15.0%

4,000

10.0%

2,000
5.0%

0 0.0%
2001
2002
2002
2002
2003
2003
2004
2004
2004
2005
2005
2006
2006
2007
2007
2007
2008
2008
2009
2009
2009
2010
2010
2011
2011
2012
2012
2012
2013
2013
2014
2014
2014
2015
2015
2016
2016
2017
2017
2017
2018
2018
2019
13 January 2020 | PBJ

IS LOW SUPPLY DRIVING HOUSE PRICE APPRECIATION?

Months’ Supply of Inventory in Philadelphia County

Source: Bright MLS, Kevin C. Gillen, Ph.D.
Months Supply of Inventory in Philadelphia
20.0
Months Supply of Inventory measures how many months it
would take to completely burn off the existing inventory of
18.0
homes currently listed for sale, given their current pace of
sales. 5-7 months is considered a normal, balanced market.
More than 7 months indicates a Buyer's market, and less
16.0 than 5 months indicates a Seller's market.

14.0

12.0

10.0

8.0 Buyer's Market

6.0 Balanced Market

4.0
Seller's Market
2.0

0.0
2010

2013
2001
2002
2002
2002
2003
2003
2004
2004
2004
2005
2005
2006
2006
2007
2007
2007
2008
2008
2009
2009
2009

2010
2011
2011
2012
2012
2012
2013

2014
2014
2014
2015
2015
2016
2016
2017
2017
2017
2018
2018
2019
14 January 2020 | PBJ

BUILDING PERMITS HAVE LEVELED OFF

Residential Building Permits in Philadelphia County

Source: U.S. Census

Building Permits Issued for Construction of Residential Units in Philadelphia 1990-2019:

Single-Family v. Multifamily
4,500 195,000

4,000 Single-Family* 190,000

Multifamily**
3,500 185,000
Center City Pop.
3,000 180,000

Population
# of Units

2,500 175,000

2,000 170,000

1,500 165,000

1,000 160,000

500 155,000

0 150,000
1994

2013
1990
1991
1992
1993

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

2014
2015
2016
2017
2018
2019***
*Structures with 1-4 dwelling units ***Note: 2019 Numbers are YTD numbers Sources: U.S. Census,
**Structures with >=5 dwelling units through October 2019 only. Center City District
15 January 2020 | PBJ

APARTMENT COMPLETION APPEARS TO HAVE PEAKED

16 January 2020 | PBJ

RENT APPRECIATION HAS BEEN STEADILY DECELERATING

YoY Change in Median Monthly Rent in Philadelphia

Source: Zillow.com

YoY Change in Median Monthly Rent in Philadelphia 2010-2019

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
2012

2014

2016
2017

2019
2011

2012
2012
2012
2013
2013
2013
2013
2014
2014

2014
2015
2015
2015
2015
2016
2016
2016

2017
2017
2017
2018
2018
2018
2018
2019
-2.0%

-4.0% Rent appreciation has decelerated 67%,

from a peak of 8.5% per year to 2.9% now.
-6.0%

-8.0%

-10.0%
17 January 2020 | PBJ

HAVE SALES PEAKED?

House Sales for Philadelphia County

Source: Kevin C. Gillen, Ph.D.

Number of Philadelphia House Sales* per Quarter: 1980-2019

8,000

Q1 25% YoY
7,000
Q2 Decline…
Q3
6,000
Q4

5,000

4,000 Qtly. Average

3,000

2,000

1,000

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
18 January 2020 | PBJ

SIMILAR PATTERN FOR CONDOS

Condo Sales in Philadelphia

Source: Kevin C. Gillen, Ph.D.

Number of Philadelphia Condo Sales per Quarter: 1980-2019

1000
Q1
900
23% YoY
Q2
Decline…
Q3
800
Q4

700

600

500

400

Qtly. Average
300

200

100

0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
19 January 2020 | PBJ

IS THE PACE OF SALES SLOWING?

Average DOM in Philadelphia

Source: Kevin C. Gillen, Ph.D.

Average Days-on-Market* for Philadelphia Homes

100

90

Appear to be increasing
80
# of Days

70

60

50

40
*Days-on-Market (DOM) is the
average number of days it takes
for a listed house to sell.
30
20 January 2020 | PBJ

THREE QUOTES FROM LOCAL REALTORS

“Why are inventories in the city so stubbornly low?

Three reasons:
First, baby boomers who would be willing to sell find themselves unable to afford to
downsize. The homes that they would move into in an over 55 community cost
more than they can get for their own home.

Secondly, our old and aging housing stock does not necessarily appeal to many
millennial first-time buyers. Many homes would require a lot of updating in order to
make the home salable and many older owners can not afford to do so. Therefore
they remain in their home despite the fact that they’d like to move.

Lastly, there was a surge of both institutional and individual investors buying up
single family homes for rentals following the bursting of the housing bubble. Since
rents remain high, these rentals are producing strong positive cash flow and so they
are not selling these. Normally this inventory would come into the market every 7 -
10 years and instead they are remaining as rentals.”

-A SVP with a major local brokerage firm

21 January 2020 | PBJ

THREE QUOTES FROM LOCAL REALTORS

“I sell 50-60 homes per year, mostly listings, across all price
ranges in Philadelphia County. Starting in about July, I’ve
noticed a significant slowdown in the number of showings on
my listings, an increase in the amount of time most of my
listings are taking to sell, the need for price reductions –
sometimes multiple reductions before procuring offers, and
interested buyers often taking days and weeks to make
decisions. I’ve also seen a rather dramatic increase in the
number of withdrawn, expired, and cancelled listings on a daily
basis.”
-A realtor specializing in single-family homes
22 January 2020 | PBJ

THREE QUOTES FROM LOCAL REALTORS

“Days on Market are way up for existing, older condos right

now because of both market and demographic forces. Most
condo buyers right now are empty-nester boomers or first-time
millennials buyers. The boomers want luxury product while
the millennials want fully amenitized “lifestyle communities”.
Older product doesn’t’ fit either of those profiles.

To me, these are tell-tale signs that we’ve rounded the corner
from the pinnacle of the market and could be plateauing or
headed down the other side.”

-A realtor specializing in Center City condos

 23 January 2020 | PBJ

WHERE ARE OUR DIFFERENT SECTORS IN THE CYCLE?

Expansion Hypersupply
Decreasing Vacancy Deceleration and
Increasing Rents flattening of all
Increasing Prices market indicators
Timeline Increasing Starts

Contraction Recovery
Increasing Vacancy Deceleration and
Declining Rents flattening of all market
Declining Prices indicators
Declining Starts
 24 January 2020 | PBJ

WHERE ARE OUR DIFFERENT SECTORS IN THE CYCLE?

Single-Family Housing
The Economy
Condos Rentals

Expansion Hypersupply
Decreasing Vacancy Deceleration and
Increasing Rents flattening of all
Increasing Prices market indicators
Timeline Increasing Starts

Contraction Recovery
Increasing Vacancy Deceleration and
Declining Rents flattening of all market
Declining Prices indicators
Declining Starts
25 January 2020 | PBJ

THE ABATEMENT

Major changes will take place to the 10-year

Tax Abatement at the end of this year:

1) Will apply only to all-new ground-up

residential construction.
2) Abated takes are reduced by 10% in each
year the property is abated.
3) Estimates show this will reduce the market
value of new housing by 8-9%.
26 January 2020 | PBJ

Thank you!!!
For any questions or further information, please contact:

Kevin C. Gillen, Ph.D.

Senior Research Fellow, Lindy Institute for Urban Innovation, Drexel U.
Kevin.C.Gillen@Drexel.edu
215.880.6630