Real Estate Market Trends for Greater Philadelphia and Southern New Jersey

A reader (Ed), commented on the following

"You did not mention the effect of foreclosures on inventory. Might that change the long term forecast?"

To reiterate my prior comment, I suggested that in the short term (the next several months), values are likely to rise slightly due to the fact that we are currently in the seasonal  spring-summer market.  however my longer term forecast is that this market will continue to see a steady decline in values based on the continued deterioration in the employment market in the Philadelphia region. 

In response to your comment Ed, foreclosures are definitely a factor to consider and I believe they will continue to place downward pressure on values.  In fact, this provides additional support for my longer term forecast.  In the short term however, I believe that seasonality will have a stronger affect than foreclosures. 

To take this a step further, I researched foreclosure statistics on several national web sites (including Realty Trac and Foreclosure.com) and found that they reported significantly different foreclosure numbers.  Based on my research, I believe that the statistics from Foreclosure.com are more accurate.  They reported 3,025 properties currently in "pre-foreclosure".  These properties haven't actually been foreclosed upon yet, rather, they are nearing the end of the foreclosure process and all of the properties have a reported auction date.  An additional 666 properties are reported as being "foreclosed".  There are 661,958 households in Philadelphia (as of the last census in 2,000), thus the rate of foreclosure is 1 in every 994 homes.  Properties classified as being "Pre-foreclosure" are not included in this ratio.  For comparison purposes, a number of large metropolitan areas have a much higher rate of foreclosure.  For example, Los Angeles is 1 in 405; Atlanta is 1 in 77; Miami is 1 in 36.

It should also be noted that a ban on foreclosure sales and evictions on  Fannie Mae and Freddie Mac owned properties was eliminated on March 31, 2009.  The moratorium on foreclosures began during the 2008 holiday season as an effort keep people in their homes as the government tried to come up with homeowner rescue plans.  This will probably lead to an increase in foreclosures in the coming months.  From the Washington Independent:  Fannie, Freddie Quietly Lift Moratorium on Foreclosures. 

Most of the Residential Real Estate Market Trends that are typically published in the news today are "macro based".  This means that the data is focused on an entire market area; for example the city of Philadelphia, or an entire county or metropolitan area.  When analyzed in this manner, there are several issues that undermine the credibility and accuracy of the trends.

1.  Lack of Conformity:  Because we are including all of the sold properties in a large geographic area, the resulting data is very non conforming in nature; in other words, the properties make up the whole spectrum of the market i.e., 100 year old colonials, new construction, 40 year old split level homes, as well as 6,000 square foot colonials, etc.  A significant change in sales volume in any one of these sub-markets, has the potential to reduce the credibility and accuracy of the resulting trend.

2.  Changes in buyer preferences:  this is related to lack of conformity but is an important point to consider.  When demand for a particular market segment changes, the credibility of the resulting trend can be adversely affected.  For example, if there is a lack of demand for moderate and higher end homes (while the low end reflects increasing absorption), the market trend may automatically reflect a decline in values.  Though a decline may be indicated, the rate of decline may be exacerbated by the change in demand.   

In order to "paint" a more accurate and credible representation of local Real Estate Market Trends, our ongoing objective in this blog is to analyze areas that are reasonably conforming in nature.  Submarkets will be selected from our geographic coverage area which includes:

• Philadelphia, Chester, Delaware, Montgomery and Bucks Counties in PA
• Camden, Burlington, Gloucester, Mercer and Salem Counties in NJ
• New Castle County in DE

Our first posting today focuses attention on a sub-market of Philadelphia...specifically, the Mayfair and Castor Gardens sections in the Northeast.  This is an excellent Real Estate market area to focus upon due to it's conforming nature. More specifically the data that we pulled consists of all 3 bedroom row homes, ranging in size from 1,100 to 1,390 square feet. 

The resulting graph (below) tabulates the trend for 2,055 sales that closed during the period from 4/1/2006 to 5/14/2009.  The numbers are calculated based on a three month rolling median, and reflect a steady decline (with seasonal variations) over the period. 

• Year over year, values have declined 4.2%
• Over the last two years, values have declined 11.5%
• Over the three year period, values have declined 17.9%  

Based on these trends and understanding that we are currently in the seasonal spring-summer market, we expect this market area to experience a slight increase in median values over the next several months.  Our longer term view however, is that this market will continue to see a steady decline in values.  We base this view on the continued deterioration in the employment market in the Philadelphia region.  But of course, this is just our best guess. 

In our next posting, we will select a different sub-market area.  In addition to reporting median value trends, the following long term trends for sold residential properties will also be analyzed:

• Price per square foot
• Days on market
• Sale to list price ratio