Sales take a sharp decline but prices hold steady.

September 16, 2020 Sales are down, but prices are only slightly down. Here are the latest numbers, courtesy of Allan Domb Real Estate:

  • The average price of Philadelphia’s condos decreased by 0.2% on quality- and seasonally-adjusted basis in Q2. This continues the condo market’s general trend of relatively small price movements. Quarterly changes in Philadelphia’s condo price index have averaged only 0.6% over the last several years. By contrast, citywide prices for single-family houses have averaged a quarterly growth rate of 1.4% over the same period; more than double the rate of condos.
  • Philadelphia’s condo prices are currently down an average of 1.8% from where they were one year ago (YoY). By contrast, Philadelphia house prices are up an average of 8.9% from one year ago. However, house sales have been skewed towards the upper end of the market in the wake of the COVID-19 pandemic and subsequent civil unrest.
  • The median condo price rose significantly YoY, but the median condo price per square foot (psf) declined during the same period. The median price of sold condos in Philadelphia increased from $306,500 to $337,500 from Q2 of last year to Q2 of this year; an increase of 10.1%. By contrast, the median psf decreased from $316 to $312, a decrease of 1.3%. This implies that sales have become more recently skewed towards larger (and thus more generally expensive) units.
  • Centrality of location remains a key driver of condo price appreciation. More centrally located condos continue to hold their value better than more peripherally located ones. The price index for condos located in “Core” Center City increased by 1.0% YoY in Q2, while falling by 7.2% in neighborhoods adjacent to Center City and by 12.6% in Philadelphia’s outer neighborhoods; esp. Northeast Philadelphia.
  • Price levels continue to show significant variation across submarkets, with central locations and newer products commanding significant premiums. From smallest to largest, the median price per square foot of sold condos in Q2 was: West Philadelphia ($86), Northeast Philadelphia ($133), Northwest Philadelphia ($155), University City ($168), North Philadelphia ($261), Art
    Museum/Fairmount/Brewerytown ($288), Old City ($297), Northern Liberties/Fishtown/
    Kensington ($312), South Philadelphia ($323), Washington Square ($362), Avenue of the Arts ($380), Other Center City ($394), and Rittenhouse Square ($469).
  • Philadelphia’s condo price appreciation has generally been lagging other major U.S. cities during the current expansionary cycle. Over the course of the past year, condo prices have risen an average of 0.1%, 0.8%, 1.1%, 2.9%, and 3.6%, respectively, in the cities of New York, San Francisco,
    Chicago, Los Angeles, and Boston 1. However, like Philadelphia, condo price appreciation in these cities has also been relatively low compared to their own house price appreciation.
  • Sales activity did experience a sharp plunge in Q2. 333 condo units changed hands in Q2, which is down 26% from 447 transactions in the previous quarter, and down an enormous 47% from the same quarter one year ago 2. This last fact is especially notable because sales activity almost always increases from Q1 to Q2, regardless of the overall state of the market, due to the more favorable spring weather. Obviously, this plunge is directly attributable to the COVID-19 pandemic and subsequent quarantining/work stoppage.
  • Million-dollar condo sales also dropped precipitously in Q2. There were just 14 sales of condo units at a price of $1m or more in Q2, a decline of nearly 60% from the same quarter last year. This was the lowest level of +$1m condo sales since 2011 when the local real estate market was still in a contractionary phase.

The fact that sales activity fell so suddenly and dramatically this past spring should not—with the benefit of hindsight—be surprising, given the extremity of recent current events. But, there are multiple reasons why condo prices have held fairly steady. First, neither Philadelphia’s population or economy was hit as hard by the pandemic as nearby New York’s, nor did it experience the sustained levels of civil unrest that afflicted cities like Portland or Minneapolis. Second, unlike housing inventories, Philadelphia’s condo inventories have not been as consistently low: although the condo market has generally leaned towards being a seller’s market, it has oscillated back and forth between a balanced market and a seller’s market, thus relieving the condo market of the sustained upward pressure on prices that the housing market has experienced. Third, there has also been relatively new little supply of new condo product built during the current cycle, which has favored multifamily apartments over high-rise condominiums. But lastly, it should be remembered that real estate prices tend to react to market conditions more slowly than the volume of real estate transactions. Consequently, the relative steadiness of Philadelphia’s condo prices under current adverse conditions may desirable, but could also be temporary.

Said Allan Domb, principal of Allan Domb Real Estate: “While the condo market has slowed down due to the current events of 2020, I don’t believe that we are going to see a major decrease in values in the long term. Sales volume is off due to a lack of demand as many condo buyers have steered clear of the city in the last six months. And those who have had to sell during the pandemic are seeing lower values. But as the city continues to reopen—companies bring their employees back to work, restaurants expand their dining options and cultural institutions open their doors—the lifestyle will become desirable again. This will swing the pendulum back and demand for condos will return.”

1 Source: S&P CoreLogic Case-Shiller

2 Since property transactions in this region tend to be highly seasonal, it is more commonplace to compare transaction volume in a given period to the same period one year ago (when the same seasonal conditions prevailed) rather than the immediately preceding period.