Gradual recovery seen for Philadelphia-area housing market

Two neighboring houses offered for sale on Maple Avenue in Haddonfield are both under agreement. But median prices in the South Jersey borough have fallen 6.8 percent from 2011 and 30 properties there are listed in some stage of foreclosure.
Two neighboring houses offered for sale on Maple Avenue in Haddonfield are both under agreement. But median prices in the South Jersey borough have fallen 6.8 percent from 2011 and 30 properties there are listed in some stage of foreclosure. (ALAN J. HEAVENS / Staff)
Posted: July 30, 2012

Signs point to improvement - more home sales than in 2011, and slower price declines - but the Philadelphia area's residential real estate market is still some distance away from full recovery.

The first six months of 2012 saw a 12.7 percent year-over-year increase in sales of previously owned homes, according to Prudential Fox & Roach's HomExpert Market Report, which is based on Trend Multiple Listing Service sales data by zip code.

Quarterly breakdowns show a 9 percent rise in sales during the first three months of this year over last year's January-to-March period and an 8.1 percent gain in the second three months from 2011's April-to-June period.

Still, a "normal" resale market in the eight-county region sees 50,000 transactions a year, said Kevin Gillen, vice president at Econsult Corp. of Philadelphia, who tracks local real estate.

During the housing boom, the market peaked at 70,000. Right now, Gillen said, it's running below 40,000.

Before the bubble burst in 2006-07, the market here was almost predictable.

"If you were a seller with a house in good condition, in the right location, and at the proper price, you were pretty sure that it would eventually have a buyer," said Noelle Barbone, manager at Weichert Realtors' Media office.

"These days," she said, "there is no such guarantee."

Nationally, said Jed Kolko, chief economist at the real estate search engine Trulia, "recovery is 32 percent of the way from its worst point back to normal levels." Though new-home construction starts rose in June, the mortgage-delinquency and foreclosure rate rose and sales fell off.

"While tighter inventory is good for sellers and a necessary step on the road to recovery, [it] hurts buyers and much of the real estate industry," Kolko said.

In this region, there were fewer home resales between January and June in many municipalities than in the same period in 2010, especially in towns with a preponderance of first-time buyers.

Attribute this to the $8,000 tax credit that, before its end in April 2010, boosted sales out of the recession doldrums of 2008 and 2009.

"The tax credit really imparted a synthetic lift to both sales and prices that would not have occurred otherwise," Gillen said.

Economist Patrick Newport, of IHS Global Insight in Lexington, Mass., said, "Sales climbed in the second half of 2009 and early 2010, but then plunged in May 2010 and have yet to surpass the April 2010 level."

Mark Zandi, chief economist at Moody's Analytics in West Chester, said the tax credit "helped give buyers a reason to buy, which helped break the deflationary psychology that had infected the housing market."

But the end of the credit virtually eliminated first-time buyers from the 2011 U.S. housing market, handing it over to cash-heavy investors.

In 2012 thus far, most bets in real estate seem to be off. Maybe all, in fact.

Take the situation Susan Azar, of Long & Foster Real Estate, faced in the spring.

A recurring nightmare for real estate agents is when a house is listed for sale, then the property next door is, too. In Azar's case, she was the listing agent for two adjacent houses in the 300 block of Maple Avenue in Haddonfield.

"I had wondered about having both properties side by side and what the neighbors thought," she said. "I later found out that most of the neighbors thought that there was no way" she was going to sell those homes.

Azar proved them wrong.

Both properties - one listed for $365,000, the other for $380,000 - were carefully staged and photographed, then placed on the market, "not at the same time, but close enough," she said. As a result, both houses had a "ton" of prospective buyers.

"I knew that it would be a matter of time when I would get them under contract," Azar said. "I did."

About the same time, a house in the 100 block of Maple sold for $495,000. (It had been listed at $499,000.)

Haddonfield gets buyers' attention because of its school district and upscale small-town ambience. Yet median prices fell about 7 percent there from 2011, and Trulia lists 30 properties in the borough in some stage of foreclosure.

The median is the middle number; half the houses sold for more, half for less. Median prices are an inherently flawed measure of value, since a lot of expensive houses or lower-cost properties can skew results.

Barbone said she has seen that sort of thing happen in Media Borough, where prices are down 2 percent from 2011 while sales are up 36 percent.

"There are more inexpensive homes in the mix," she said, and "not a lot of multimillion-dollar buyers."

Haverford (zip code 19041) had an 11 percent median-price drop, HomExpert Market Report data show, but Main Line broker John Duffy noted that lower-price Havertown and higher-price Lower Merion sales are in that calculation, and "million-dollar sales can skew everything."

Gillen's crunching of sales numbers for Philadelphia shows "the spread between the median and average house price soared to an all-time high this past quarter." That means a 7.6 percent increase in the price index he calculates using single-family home sales (condos excluded) from the Recorder of Deeds Office, "a gain we haven't seen since the boom years."

It suggests, Gillen said, that credit conditions are loosening and buyers are getting back into the market, but, as is in the suburbs, "these buyers are the most qualified and relatively higher-income of all potential buyers that are out there."

The reason for the spread between median and average prices is multiple bids at the higher end. Agents in the city and the suburbs acknowledge more multiple bids, but nothing like what went on during the boom, or even under so-called "normal" conditions.

The multiple-bid phenomenon targets price ranges - Media's is $250,000 to $300,000, Barbone said, while in Havertown six buyers are competing for a $230,000 house, according to Duffy.

"Unlike the boom, when buyers competed against one another, they are all battling the seller," Barbone said. "If they don't make the cut, they know they can go on to the next house."

At the current sales pace, there is an 8.6-month supply of available houses, higher than the six months experts consider market equilibrium.

"These people are tough," Barbone said, "which means that the listing agent has to be equally tough on the seller. A high percentage of homeowners don't maintain their properties, so they are priced according to condition."

After home inspections, "buyers are looking for price cuts of $20,000, where in the past it usually amounted to $1,000," Duffy said.

And the winning buyer is not necessarily the highest bidder, but the one the agent thinks "has the financial capability to end up at the settlement table," Barbone said.

There are a lot of prospective buyers out there, but a lot are easily eliminated because of their credit scores.

"The guidelines from the mortgage companies are stricter," said Diane Williams, a Weichert agent in Blue Bell. "The banks and mortgage companies do not want anything risky."

They're scrutinizing "the open credit lines - credit cards, student loans, and the like," Williams said. "There [also] is greater emphasis on employment history, credit payments, and assets."

Prospective buyers at an open house might look as if they can qualify, but, she said, "When they meet with the mortgage broker without this history, it's over."

"What this means," Duffy said, "is that the sale price is typically the asking price, or a few hundred dollars more, not 10 percent or 5 percent more."

Is the "normal" market of old anywhere on the horizon?

"It won't be a straight line for the housing market, particularly over the next six to nine months," Zandi said, "but I expect the market to kick into full gear by 2014."


Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com, or follow on Twitter @alheavens.

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