State of the Philadelphia Real Estate Market

Transcription

1 State of the Philadelphia Real Estate Market January 14, 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. 2013, Fels Institute of Government, All Rights Reserved.

2 After 6 years of declines, the recovery is here: House Price Indices : 1980Q1=100 Philadelphia County v. Philadelphia MSA and U.S. Average +8% increase since hitting bottom Phila. County* Phila. MSA** U.S. Avg.** Q4

3 But, we continue to lag national trends: House Price Appreciation : Philadelphia v. 10-City Composite City Composite* Philadelphia % Change 10-City Philadelphia 1998 to Peak: +173% +135% From Peak: -20% -16%

4 How we compare to other U.S. cities during the boom and bust: Housing's Road to Recovery: %Lost v. %Recovered 10% 0% 4% 4% -10% -19% -21% -8% -9% -9% -12% -12% -12% -14% -21% -14% -16% -19% -21% -25% -18% -25% -25% -19% -29% -20% -10% -37% -40% -39% -6% -17% -17% -15% -49% -30% %Remaining -17% -14% -21% -17% -18% -27% -40% %Recovered -11% -21% -50% -60% Now that the housing market's recovery appears to have arrived, this chart shows how much house prices need to rise in each city in order to erase the cumulative losses from the bust. The total rebound (to date) in house prices is shown by the blue bars, while the remaining losses are shown by the red bars. For example, Philadelphia county's average house prices fell by a cumulative 21% from peak to trough. To date, they have rebounded by 9%, which implies they need to rise another 12% in order to return to their pre-bust peak levels. Source: Kevin C. Gillen, PhD. All other cities courtesy Case-Shiller MacroMarkets LLC. -11% -17% -13% -70%

5 Home sales also starting to recover? 8,000 Number of Philadelphia House Sales* per Quarter: ,000 6,000 Q1 Q2 Q3 Q4 5,000 4,000 Qtly. Average 62% decline from peak, but are now trending up. 3,000 2,000 1,

6 Million dollar-plus home sales remain strong: 30 Number of Philadelphia Home Sales* per Quarter with Price>=$1 Million: Q1 25 Q2 20 Q3 Q Qtly. Average

7 Fundamentals indicate the recovery is for real: # Homes Listed "For Sale" 14,000 Philadelphia Houses Listed For Sale: Inventory v. Absorption Rate # Houses Listed For Sale % Absorbed 30% 12,000 25% 10,000 20% 8,000 15% 6,000 10% 4,000 %Absorbed = (#Sales/#Listings) 2,000 5% 0 0%

8 One relative success story: condos! # Condos Listed "For Sale" 2,500 Philadelphia Condos For Sale: Inventory v. Sales Rate Source: TrendMLS, courtesy of # Condos Listed For Sale % Sold 35.0% 30.0% 2,000 1,500 1, % 20.0% 15.0% %Sold=(#Sales/#Listings) 10.0% % %

9 Homebuilder confidence is up: 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

10 Housing-related stocks are up: $300 Philadelphia Stock Exchange Housing Sector Index: $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

11 Philadelphia s housing recovery is uneven: Median Philadelphia House Price v. Indexed Philadelphia House Price $140,000 $120,000 $100,000 Median Price Indexed Price* A $38,300 difference $80,000 $60,000 $40,000 $20,000 Q4 $0

12 Philadelphia s housing recovery is uneven: $250,000 Median Regional House Price v. Indexed Regional House Price $200,000 A $16,500 difference Median Price Indexed Price* $150,000 $100,000 $50,000 $0 *Empirically estimated by Kevin C. Gillen, PhD

13 Philadelphia s housing recovery is uneven:

14 Economy recovering, but sluggishly:

15 Unemployment trending down, but still high:

16 Mortgage rates are heading up again:

17 What to Expect Going Forward? The Good: Housing is recovering for real, prices are appreciating, inventories down and fundamentals are in line with their historic norms. The Bad: Still some headwinds, sluggish GDP and income growth, persistently high unemployment, rising interest rates, tight credit, uneven geographic distribution of recovering sales and prices. The Uncertain: Actual Value Initiative, City s disposition of vacant land, property tax delinquency, and Ten-Year Abatement

18 Actual Value Initiative Corrects decades of inaccurate assessments Corrects decades of inequitable assessments Had to be done sooner or later Makes broader tax reform possible Is an ongoing process, not a one-time event!

19 Property Tax Delinquency ~103,000 Delinquent Properties owing ~$515m in taxes Delinquency Rate second only to Detroit $9.5bn in diminished property values Mayor has vowed crackdown, and delinquency rate s growth has recently slowed

20 Vacant Land 40,000 properties either vacant land or with abandoned structure, ~13,000 cityowned Vacancy imposes costs: direct, indirect and opportunity costs. PRA leading effort to value and sell off cityowned vacant properties Land Bank moving towards reality, but imperfect

21 Ten-Year Tax Abatement Since 2000, the value of all improvements to real estate in Philadelphia are untaxed for 10 years. Recently, Councilman Goode has introduced a bill limiting and shortening the abatement. The alleged criticisms of the abatement: Abatement is unnecessary Abatement is unfair City needs the revenue Will make housing development more equitable

22 Abatement is unnecessary?

23 Abatement is unfair?

24 City is foregoing revenue? Problem: people see the abatement as a debit with no offsetting credit

25 Will make housing development more equitable? Single largest developer/land lord of taxabated properties in Philadelphia is our own Philadelphia Housing Authority!

26 Ten-Year Tax Abatement Every single criticism of the Ten-Year Abatement is completely unsupported by the data. Curtailing/eliminating the Abatement will results in: Less development Fewer Jobs Lower Tax Revenues Real rationale for the abatement: our exceptionally high construction costs. Without addressing this, curtailing the abatement will have only adverse economic effects.

27 Summary and Conclusions My prediction from last year s conference: Expect the recovery to be sluggish: proceeding in fits and starts. Good news: The recovery is here and here to stay! Prices back in line with fundamentals, supply of inventories has finally normalized, sales picking up. But, some headwinds will continue to make this a relatively sluggish recovery: high unemployment, slow economic growth, rising mortgage rates. Outlook is modestly bullish: going forward, expect house price appreciation and sales growth, but of a relatively slower variety compared to the past recoveries. To promote a more robust and sustainable recovery, get involved with local issues: AVI, tax delinquency, vacant land, and especially: the 10-Year Abatement!!