Philadelphia Housing s Recovery Becomes More Equitable in Q3 Sales surge citywide; house value appreciation strongest in low-priced neighborhoods.

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Philadelphia Housing s Recovery Becomes More Equitable in Q3 Sales surge citywide; house value appreciation strongest in low-priced neighborhoods.

1 Philadelphia Housing s Recovery Becomes More Equitable in Q3 Sales surge citywide; house value appreciation strongest in low-priced neighborhoods. October 13, 2014: After a brisk spring which saw widespread price appreciation across the City, Philadelphia home sales activity followed suit and increased significantly in this past summer. Although the average citywide price appreciation was fairly modest, house prices increased significantly in many of the traditionally lowest-priced areas of the City, while remaining flat or even declining slightly in some of the highest-priced neighborhoods. The average house value in Philadelphia increased by 1.4% in Q3, according to the latest data from the City s Recorder of Deeds. This follows a particularly strong Q2, when citywide appreciation was 6.3% and marked the largest quarterly increase in Philadelphia house prices in two years. Philadelphia s housing recovery also appears to be becoming more equitable, too. While many higher-priced and higher-income neighborhoods have seen significant recoveries in both house values and sales activity since the market hit bottom over two years ago, many other neighborhoods have struggled to catch up. However, this quarter saw some of the biggest post-bubble price appreciation in many of the City s lower-income areas, while higher-income neighborhoods appeared to take a time out. From smallest to largest, the average change in house prices by neighborhood in Q3 were: University City (-1.8%), Center City/Fairmount (-1.5%), Upper Northeast Philadelphia (+1.1%), Northwest Philadelphia (+1.2%), South Philadelphia (+2.5%), Lower Northeast Philadelphia (+2.8%), Kensington/Frankford (+3.2%), North Philadelphia (+4.8%) and West Philadelphia (+6.7%). A further sign of increased equity in housing s recovery is that sales activity has become more widespread across Philadelphia s neighborhoods. Much like prices, home sales activity during the current recovery had also been skewed towards the upper end of the price spectrum. While million-dollar home sales have rebounded strongly to their pre-bust levels, overall home sales have been running below their historic average for the past five years. This quarter, nearly 4,000 homes changed hands under arms-length conditions. This is a 14% increase over the previous quarter, and is the first time since 2010 that home sales levels have been above to their historic quarterly average of approximately 3,800 transactions. 8,000 7,000 6,000 Q1 Q2 Q3 Q4 Number of Philadelphia House Sales* per Quarter: First time that home sales are above their historic average since ,000 4,000 Qtly. Average 3,000 2,000 1, Fels Institute of Government at the University of Pennsylvania 3814 Walnut Street Philadelphia, PA

2 However, even with the recent increases, Philadelphia s housing recovery continues to lag that of most other large U.S. cities. According to Case-Shiller, the Top 10 largest U.S. cities have recovered approximately half of the total housing value lost during the Great Recession, while Philadelphia has recovered only a little more than a third. But, even though its recovery has proceeded in fits and starts, Philadelphia housing s leading indicators continue to give reasons for optimism. Not only is sales volume picking up, but also sales velocity: The average amount of time it takes to sell a home in Philadelphia is currently 68 days, down from 88 days just over a year ago and down from its all-time peak of 95 days back in And, homebuilders continue to feel more optimistic too. The national Homebuilder Sentiment Index 1 recently rose to a new post-bubble high of 59; its highest level since Overall, the latest numbers indicate two consecutive quarters of generally good news for Philadelphia s housing, which is notable for the fact that the post-recession numbers have generally been characterized by an up-anddown pattern from one quarter to the next. While two data points may technically form a trend, optimism should continue to be tempered with realism: National housing analytics firm Zillow currently rates Philadelphia s housing market as cool, and is only projecting house price appreciation to be 0.5% over the course of the next twelve months, compared to an average of 2.3% for all major U.S. metro areas. for Kevin Gillen: gillenk@upenn.edu 1 The National Association of Homebuilders surveys its membership every month to ask them to rate the outlook for their business on a scale of 0 to 100. A number greater than 50 indicates more optimism than pessimism, and a number less than 50 indicates more pessimism than optimism. Fels Institute of Government at the University of Pennsylvania 3814 Walnut Street Philadelphia, PA

3 PHILADELPHIA HOUSE PRICE INDICES October 13, 2014 KEVIN C. GILLEN, Ph.D. Disclaimers and Acknowledgments: The Fels Institute of Government at the University of Pennsylvania provides this report free of charge to the public. The report is produced by Fels Senior Research Consultant Kevin Gillen, in association with the University of Pennsylvania Institute for Urban Research. The author thanks Azavea.com, the Philadelphia Office of Property Assessment, the Federal Housing Finance Agency, Case-Shiller MacroMarkets LLC, RealtyTrac, Zillow.com, Trulia.com and the NAHB for making their data publicly available. 2014, Fels Institute of Government, All Rights Reserved.

4 House Price Indices : 1980Q1=100 Philadelphia County v. Philadelphia MSA and U.S. Average Phila. County* Phila. MSA** U.S. Avg.** Q3 * Empirically estimated by Kevin C. Gillen, Ph.D. **Courtesy of the Federal Housing Finance Agency (FHFA). HPIs are available through 2014Q2 only. MSA =Metropolitan Statistical Area, which is the entire 9-county region.

5 Total House Price Appreciation Rates by Geographic Market Period Philadelphia County* Philadelphia MSA** U.S.A.** 34-Year 140.4% 166.7% 125.2% 10-Year 16.5% 25.7% 11.0% 1-Year 1.5% 0.2% 5.1% 1-Quarter 1.4% -1.3% 0.8% *Empirically estimated by Kevin C. Gillen Ph.D. **Source: U.S. Federal Housing Finance Agency (FHFA). These numbers are through 2014Q2 only. MSA = Metropolitan Statistical Area, which is the entire 10-county region.

6 House Price Appreciation : Philadelphia v. 10-City Composite City Composite* Philadelphia 290 % Change 10-City Philadelphia 1998 to Peak: +173% +136% From Peak: -17% -13% *Source: S&P/Case-Shiller. The 10-City Composite index includes Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, DC. It does not include Philadelphia.

7 800.0 Philadelphia House Price Indices by Neighborhood: Q1= CtrCity/Fairmount Kensington/Frankford Lower NE Phila. North Phila. NW Phila. South Phila. Univ. City Upper NE Phila. West Phila Q3 * All indices empirically estimated by Kevin C. Gillen, Ph.D.

8 Philadelphia House Price Appreciation Rates by Neighborhood Period Center City/ Fairmount Kensington /Frankford Lower NE Phila. North Phila. NW Phila. South Phila. Univ. City Upper NE Phila. West Phila. 34-year 164.3% 153.4% 127.9% 156.2% 169.0% 194.8% 175.5% 161.4% 157.4% 10-year 14.6% 31.2% 15.7% 32.4% 13.7% 53.0% 9.1% 19.1% 38.4% 1-Year 4.0% 2.9% 2.1% 1.7% -1.4% 5.9% 1.5% -1.4% 2.2% 1-Quarter -1.5% 3.2% 2.8% 4.8% 1.2% 2.5% -1.8% 1.1% 6.7% This table gives the total % change in house prices by neighborhood, through 2014 Q3, from different starting points in time.

9 Philadelphia Submarket Boundaries

10 Median Philadelphia House Price v. Indexed Philadelphia House Price $140,000 $120,000 Median Price $100,000 Indexed Price* $80,000 $60,000 $40,000 $20,000 Q3 $0 * Empirically estimated by Kevin C. Gillen, PhD

11 $45,000 Average House Price Minus Median House Price: $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0

12 8,000 Number of Philadelphia House Sales* per Quarter: ,000 6,000 Q1 Q2 Q3 Q4 5,000 4,000 Qtly. Average 3,000 2,000 1, *Only arms-length transactions between private sector entities were included in these numbers.

13 30 Number of Philadelphia Home Sales* per Quarter with Price>=$1 Million: Q1 25 Q2 20 Q3 Q Qtly. Average *Only arms-length transactions between private sector entities were included in these numbers.

14 Philadelphia House Sales in 2014 Q3

15 Center City House Sales in 2014 Q3

16 South Philadelphia House Sales in 2014 Q3

17 Kensington/Frankford House Sales in 2014 Q3

18 West Philadelphia House Sales in 2014 Q3

19 North Philadelphia House Sales in 2014 Q3

20 Northwest Philadelphia House Sales in 2014 Q3

21 Northeast Philadelphia House Sales in 2014 Q3

2014 Q3 House Price Rate of Change by Neighborhood Upper NE Phila: +1.1% North Phila: +4.8% NW Phila: +1.2% Univ. City: -1.8% Lower NE Phila: +2.8% Kensington/Frankford: +3.2% West Phila: +6.

22 2014 Q3 House Price Rate of Change by Neighborhood Upper NE Phila: +1.1% North Phila: +4.8% NW Phila: +1.2% Univ. City: -1.8% Lower NE Phila: +2.8% Kensington/Frankford: +3.2% West Phila: +6.7% Center City/Fairmount: -1.5% South Phila: +2.5% Note: Each neighborhood is extruded by its average change in house values during 2014 Q3 in order to reflect its growth (or depreciation) rate relative to other neighborhoods.

23 +$1 Million Dollar House Sales in 2014 Q3 Address $Price $Price/SqFt 601 ST GEORGE RD $1,035,000 $ PINE ST $1,050,000 $ S 02ND ST $1,065,000 $ SPRUCE ST $1,105,000 $ GASKILL ST $1,157,895 $ LOCUST ST $1,210,000 $ PINE ST $1,216,250 $ FITZWATER ST $1,220,000 $ PINE ST $1,325,000 $ W MERMAID LA $1,350,000 $ ST JOSEPH WAY $1,382,500 $ E HILLCREST AVE $1,445,500 $ PINE ST $1,584,000 $ W GRAVERS LA $1,595,000 $ SPRUCE ST $1,625,000 $ GASKILL ST $1,680,000 $ GASKILL ST $1,7 86,000 $ SPRUCE ST $1,850,000 $ DELANCEY PL $1,900,000 $ S 04TH ST $1,907,250 $ SPRUCE ST $1,950,000 $ W MERMAID LA $2,495,000 $316

24 HPI: 1980Q1= Philadelphia HPI Diffusion Index Philadelphia House Price Diffusion Index 200% 150% % % % % The diffusion index measures how varied the direction of house price changes are across Philadelphia neighborhoods. It is computed as the percent difference between the number of neighborhoods in which prices rose in a given quarter, and the number of neighborhoods in which prices fell. A value of -100% indicates that prices fell in all neighborhoods in a given quarter, while a value of +100% indicates that prices rose in all neighborhoods. A value of 0% indicates that house price changes were evenly split between increases and decreases, across neighborhoods. Diffusion indexes are commonly used in financial economics as a leading indicator of turning points in a market's direction. -100% -150% -200%

25 HPI: 1980Q1=100 Philadelphia House Prices: Declines v. House Price Index % Pct. Declining Philadelphia HPI 90% This chart compares the Philadelphia House Price Index (in red) to the percent of Philadelphia neighborhoods that experienced house price declines (in blue), in each quarter from % 70% 60% 50% % Declining % % % % 0.0 0%

26 % 5.00% Dispersion Index of Philadelphia Housing The Dispersion Index measures how varied house price changes are across the city's neighborhoods. It is computed as the standard deviation of quarterly house prices changes across submarkets. High values of the index imply large variation in house price changes between different neighborhods, while low values imply that house price changes are relatively the same across the city. 4.00% 3.00% 2.00% 1.00% 0.00%

27 Philadelphia Housing Affordability* Index: *Affordability is measured as the ratio of the median Philadelphia house price to the median Philadelphia household income. High values of the index mean that housing has become less affordable to the average Philadelphian. Contact for details.

28 15.0 Average House Price-to-Rent Ratios*: Philadelphia v. U.S U.S. Philadelphia *Computed by taking the ratio of average house price to the average annual rent of a comparable housing unit. The P/R ratio is to real estate what the P/E ratio is to other assets. Contact gillenk@upenn.edu for further details.

29 200.0 Inflation-Adjusted* Philadelphia House Price Index Q1= Linear Trendline *The empirically estimated house price index is deflated by the rate of inflation over time, using the national Consumer Price Index as the proxy for the national rate of inflation. This procedure converts the house price index from "nominal" to "real" terms, and thus shows house price changes net of general inflation. Source: US Bureau of Labor Statistics

30 # Homes Listed "For Sale" 14,000 Philadelphia Houses Listed For Sale: Inventory v. Absorption Rate # Houses Listed For Sale % Absorbed 30% 12,000 10,000 8,000 6,000 4,000 2,000 25% 20% 15% 10% 5% %Absorbed = (#Sales/#Listings) 0 0% %Absorbed is defined as the percent of homes listed for sale in a given month that also sold in that same month. Source: Trend MLS

31 # of Days 100 Average Days-on-Market* for Philadelphia Homes *Days-on-Market (DOM) is the average number of days it takes for a listed house to sell. 30 Source: Trend MLS

32 Index of Homebuilder Sentiment: (Seasonally Adjusted) 80 National Northeast The Index represents the current sentiment of U.S. homebuilders. The index is computed via a regular monthly survey of homebuilders. An index value above 50 indicates that more builder are optimistic than pessimistic, while an index value below 50 indicates that more builders are pessimistic than optimistic. 0 Source: National Assoc. of Homebuilders (NAHB)/Wells Fargo

33 Philadelphia Stock Exchange Housing Sector Index: $300 $250 $200 $150 $100 $50 The PHLX Housing Sector Index is a modified capweighted index composed of 20 companies whose primary lines of business are directly associated with the U.S. housing construction market. The index composition encompasses residential builders, suppliers of aggregate, lumber and other construction materials, manufactured housing and mortgage insurers. Note: the index underwent a significant rebalancing in January of $0 Source: finance.yahoo.com

Philadelphia House Price Index and 1-Year Forecast Zillow currently rates the Philadelphia housing market as cool, and is forecasting Philadelphia house prices to rise an average of

34 Philadelphia House Price Index and 1-Year Forecast Zillow currently rates the Philadelphia housing market as cool, and is forecasting Philadelphia house prices to rise an average of 0.5% over the next year, while forecasting an average increase of 2.3% for all major U.S. metro areas during the same period. Source:

PHILADELPHIA HOUSE PRICE INDICES

PHILADELPHIA HOUSE PRICE INDICES April 14, 2014 KEVIN C. GILLEN, Ph.D. gillenk@upenn.edu Disclaimers and Acknowledgments: The Fels Institute of Government at the University of Pennsylvania provides this