Sales have generally recovered, but prices remain depressed in peripheral locations.

September 5, 2017: The numbers for Philadelphia’s housing market have been very good recently. But,
it’s a more nuanced story for Philadelphia’s condos, with location being the decisive factor. For the 20
years preceding the housing boom of the previous decade, the Philadelphia condo market was a rather
sleepy and niche one. Annual sales averaged only about 340 per year, and annual price appreciation
averaged just under 2%–barely keeping up with inflation.

But in 1998, things began to change, and rapidly. Total sales volume crossed 1,000 for the first time. By
2004, the city was averaging over 3,000 condo sales per year. Prices rose, too. After hovering around
$70,000 from 1980 to 1997, the median condo price in the city crossed the $100,000 mark in 2001. By
2005, it was over $200,000, and in 2007 it hit its pre-recession peak of $336,000. New construction
surged, as well. After hovering around 300 units per year for most of the 1980s and 1990s, building
permits for multifamily properties surpassed 1,000 in 2000. By 2004, they were near 3,000. And much of
this new stock was upscale luxury product. In 1995, there were zero condo sales in Philadelphia with a
price at or exceeding one million dollars. In 2007, at the market’s peak, there were over 2,000 of them.
And then the recession happened. From its 2007 peak, the median Philadelphia condo price fell 28%
before hitting bottom in 2012. Sales plunged, too. After peaking at over 3,600 in 2006, sales volume fell
to only 282 in 2009; lower than even the pre-boom volume of a typical year in the eighties and nineties.
And luxury product was hit even harder. In less than a year, million-dollar condo sales went from their
peak of over 2,000 in 2007 to zero by the end of 2008.

Since then, the market has been in recovery mode. But the numbers indicate that condo market’s
recovery has generally been less robust and more geographically uneven than for single-family houses.
While most neighborhoods in the City have erased their total loss in house values from the recession, that
is not generally true for condos. The following chart shows the price recovery by submarket, since prices
hit bottom in 2012:

The chart ranks (from left to right) condo submarkets by their total percent decline in condo prices from peak to trough. The blue component of each bar represent how much condo prices have recovered to date, while the red component represents how much further they have to rise in order to completely recover the total losses that occurred after the housing bubble burst. Submarkets with red components above the horizontal axis represent markets where prices have fully recovered, and have since moved into net positive territory.

For example, Philadelphia’s average condo price fell by a cumulative 28% from their peak in 2006 to their trough in 2012. To date, they have recovered 17% of that lost value and need to continue appreciating in order to recover the remaining 11%. By contrast, Rittenhouse Square has fully recovered and prices are now an average of 10% above their previous pre-recession peak. In the extreme cases of the Northwest and West Philadelphia submarkets, prices have not recovered at all, and currently remain near their 2012 lows.

Not only is the variation in price recovery large, it is also non-random with respect to location. In general, proximity to Center City appears to be the primary correlate that explains how much condo prices have recovered. Core Center City neighborhoods such as Rittenhouse Square, Washington Square and Old City have completely erased the value lost during the recession, and condo prices in those submarkets are now above their previous pre-recession peak (which is also to say that they are at all-time historic highs). Less centrally located neighborhoods such as University City, Northern Liberties/Fishtown and the Art Museum/Fairmount areas saw prices decline an average of 43% from their previous peak. Since hitting bottom, they have regained 27% of that lost value, and need to rise another 15% to return to their previous peak. The outermost neighborhoods have been especially hard hit, and have been the slowest to recover. In the neighborhoods of Northeast, Northwest, North and West Philadelphia, condo prices fell by an average of 81%, and have since recovered only 16% of that lost value. Moreover, this price recovery is confined only to North and Northeast Philadelphia. Prices in West and Northwest Philadelphia remain near their 2012 bottoms.

The news is better for condo sales, though. After bottoming out in 2009, total condo sales have been steadily increasing and passed the 2,000 mark in 2016. At their current pace, they will stay above 2,000 for the remainder of 2017. While this only about two-thirds the level of their pre-recession peak, it should be remembered that new construction of condo dwellings was much higher during the previous cycle than it is now, and hence skewed sales volume upwards.

The brightest spot of all is sales of million dollar condos. After completely flatlining during the depths of the recession, sales of units at a price of one million dollars or more hit 118 in 2016, just shy of their previous peak of 122 in 2007. And sales of such in units are still running strong. The completion of Dranoff Properties’ One Riverside project this past spring saw 28 units transact at this price point, in addition to 23 units in other upscale properties that also sold in excess of one million dollars during this period.

In summary, the results may be mixed, but they are not random. Core Center City is doing very well, the neighborhoods immediately adjacent to it are still in recovery, and the outer neighborhoods are still struggling to climb out of the depths of the recession. When a full recovery will be complete is still a guess, but recent trends may provide some short-term guidance. Current price appreciation has been rather sluggish. Citywide condo prices are only up 1.3% from a year ago, which is a deceleration from the 4% appreciation rate in the year before that. It is also well below the 9% rate of annual appreciation that single-family houses in Philadelphia are currently experiencing. But, this citywide average masks enormous disparity between neighborhoods, with centrally located ones generally doing much better than the outer ones. As is said in statistics: “If you stick your head in the oven and your feet in the freezer, then on average you’re comfortable.” The large geographic differences in Philadelphia’s rate of condo price recovery need to be reduced before we can be comfortable about calling the market’s full recovery.

Said Allan Domb, principal of Allan Domb Real Estate: “I have always compared Philadelphia’s condo market to a dart board, with the core neighborhoods-Rittenhouse Square, Washington Square, Society Hill-in Center City being the bullseye. This report only confirms that analysis. The areas in the bullseye have historically been, and continue to be, the strongest condo markets.”

Email for Kevin Gillen: Gillen@AllanDomb.com