Home Economics: Comparing the housing slump of 1994 with today's

The year 1994 was a bad one for real estate. In fact, by then, things had already been difficult for several years.

In 1987, the bottom had fallen out of the national market, the result of unsustainable price increases and overbuilding. By early 1990, the Philadelphia region had been caught up, too. And by some measures, the early to mid-1990s were even worse here than the current downturn has been, with Philadelphia taking the biggest hit.

From 1990 to 1994, city prices fell 17 percent, compared with 2 percent in the suburbs, according to economist Kevin Gillen, vice president of Econsult Corp. in Philadelphia, and it took 10 years, until 1997, for them to recover to 1987's levels. Since 2007, he said, home prices have fallen 16 percent in the city and 20 percent in the suburbs.

Late in 1994, a group of experts was asked to weigh in with ideas on how to jump-start real estate. This week, a few of those same people were asked again for their thoughts.

Eighteen years ago, one recommendation involved reducing Philadelphia's real estate transfer tax, typically split between buyer and seller. It had already been trimmed once, from 5.07 percent.

"It has been a long time since I rallied the troops to go to City Hall and scream our lungs out to get it reduced to 4" percent, said Prudential Fox & Roach vice president Joanne Davidow.

In the context of today's market, Gillen proposed that Philadelphia offer a holiday on its portion of the tax, 3 percent (the state gets the other 1 percent) for six months to a year.

"Unlike many other cities, our problem is not plummeting prices but plummeting sales," he said. "We currently have a large backlog of inventory that we need to clear before we can return to a more balanced market.

"Giving people incentive to get into the market," he said, "would get the proverbial chain of dominos to start falling and clear that inventory."

Applied all over the region, it's an idea that could help reduce overall settlement costs, making home purchases easier for qualified buyers with good credit and jobs but low savings.

One difference between 1994 and now? Condo supply.

Production of condos accelerated after 1994, but as their numbers increased and prices soared, too many developers focused on units ranging from $1 million to $3 million instead of those that people could more readily afford.