Prices and sales experience declines in recent quarters.
June 6, 2019: Modest drops in prices and sales, but a stabilization of inventories characterize the current
state of Philadelphia’s condo market. Here’s the latest numbers, courtesy of Allan Domb Real Estate:
- The average price of Philadelphia’s condos declined by 1.0% on a quality- and seasonally-adjusted basis in Q1. This continues the market’s recent trend of cooling prices: four of the last five quarters have seen declines in the city’s condo price index. The last time there were so many consecutive quarters of price declines was in 2011, when the market was still in decline during the last recession. However, these recent declines have all generally been quite modest in magnitude.
- Median condo prices have also been dropping. Also following several consecutive quarters of slight declines, the median condo price in Philadelphia in Q1 was $309,750; down 2.6% from $318,000 one year ago.1
- The Year-on-Year change in condo prices has become negative for the first time since 2012,
when condo prices were nearing their post-recession bottom. The YoY change in the condo price index has been negative for the past three quarters. Currently, the general level of condo prices across Philadelphia is down 4.7% from what it was one year ago.
- Philadelphia’s condo price appreciation has lagged that of other large U.S. cities since the Great Recession. Since hitting bottom in 2012, condo prices in Philadelphia have risen an average of 19%. But in the 5 cities of New York, Boston, Chicago, San Francisco and Los Angeles, condo prices have risen an average of nearly 70% during the same period.
- But, price changes showed significant variation across submarkets. From smallest to largest, the average change in condo prices in Q1 by submarket was: Northwest Philadelphia (-6.4%), Old City (-3.8%), University City (-3.8%), Avenue of the Arts (-1.3%), South Philadelphia (-0.7%), North Philadelphia (0.0%), Art Museum/Fairmount/Brewerytown (+0.2%), Northern Liberties/Fishtown/Kensington (+0.2%), Northeast Philadelphia (+1.7%), Other Center City (+1.9%), West Philadelphia (+2.3%), Rittenhouse Square (+2.6%) and Washington Square (+5.3%).
- Centrality of location remains the key driver of both condo prices and condo price appreciation. Condos located in or very near to Center City not only have the highest prices, but have also experienced the greatest price appreciation (and, to date, the least price depreciation) during the current cycle. Currently, the submarket indices with the highest values are: Rittenhouse Square, Washington Square and the Avenue of the Arts. Conversely, the submarket indices with the lowest values are West Philadelphia, Northwest Philadelphia and Northeast Philadelphia.
- Sales activity also showed a Year-on-Year decline in Q1. 428 condo units changed hands in Q1, down 8.9% from 470 transactions in the same quarter one year ago2. However, unlike house sales, condo sales tend to be less seasonal, so it’s difficult to discern any immediate trend from these numbers. Philadelphia’s condo market previously showed YoY declines in Q1 of both 2014 and 2015, only to resume an upward trend in citywide sales volume for the next several years. Moreover, current sales activity is still running well above its historic average volume.
- Million-dollar sales appear to be trending down. From their peak of 51 sales in early 2017, sales of units with a price of $1m or more have been steadily declining, and currently hit 26 such sales in the most recent quarter. Historically, sales of +$1m units have tended to be very strong leading indicators of the overall direction of both the housing and condo markets.
- In contrast to the market for single-family houses, inventories for condos remain both fairly stable and balanced. The number of condos listed for sale in Philadelphia has been hovering around 800 units for the last several years, while the number of houses listed for sale has been in a steady downward trend during the same period. Consequently, the city currently has a 6.9 months’ supply of condos listed for sale, while it only has a 3.9 months’ supply of houses.3
The current condo market is mirroring the housing market’s unusual combination of strong sales, cooling prices and very tight inventories. Typically, such combinations can signal an impending change in the market’s direction. However, unlike Philadelphia’s housing market, the condo market has experienced a much softer rate of growth—especially in price appreciation—since the current expansion began six years ago. Unlike house values, many condo values still remain below their pre-recession peak of mid-2007, especially in those neighborhoods located further from Center City. So, unlike the market for single-family houses, the condo market would seem to still have significant room for further expansion before entering a contractionary phase.
Said Allan Domb, principal of Allan Domb Real Estate: “While I am seeing signs of a seller’s market, namely due to a lack of inventory, prices seem to have stabilized for condo product under $750,000. I attribute this to two things. The first is a slight increase in interest rates, which affects affordability. And the second is the abundance of new apartment units in Center City and University City which has caused an adjustment in the rental market, and therefore decreased demand by investors. As rental inventory is absorbed, buyer demand will increase and prices should rise. Condos over $1 million in the core neighborhoods of Center City continue to be in high demand thanks to baby boomers returning to the city for a more urban lifestyle. I believe any decrease in the number of those sales is only seasonal.”
Email for Kevin Gillen: Gillen@AllanDomb.com
1. Because real estate prices are highly seasonal, it’s common industry practice to compare current prices to the same period from one year ago rather than to a month or quarter ago. However, the regression that computes the condo price index controls for seasonally-driven fluctuations. So, it is acceptable to compare the current quarterly value of the index to recent quarters.
2. Since property transactions in this region tend to be highly seasonal, it is more commonplace to compare transactions volume in a given period to the same period one year ago (when the same seasonal conditions prevailed) rather to the immediately preceding period.
3. Months’ Supply of Inventory (“MSI”) is the number of months it would take to exhaust the current inventory listed “for sale”, given the current pase of sales.