New data show Philly’s housing market is still in a tough place

New data out of Philadelphia draws a familiar conclusion about the city’s housing market: It’s a rotten time to be a potential first-time buyer.

Mortgage rates have come down a bit, but remain elevated. Home prices are still considerably higher than they were pre-pandemic. And inventory is low, in part because existing homeowners aren’t selling.

“We’re in the bad times,” said Mark Zandi, chief economist at Moody’s Analytics.

“It’s uncomfortable for people in the housing market. And if you’re a realtor, this is really bad. If you’re a single-family home builder, it doesn’t feel all that good.”

The silver lining? The conditions in Philly aren’t nearly as bad as what’s happening in housing markets in other big cities like Austin or Phoenix.

“It’s a steady market. You get smaller gains in the boom times, but the good part of that is you get less severe declines in the bad times,” said Zandi.

The volume of home sales declined sharply across the Philadelphia region during the fourth quarter of 2022, according to an analysis conducted by the Lindy Institute for Urban Innovation at Drexel University.

During the first quarter of last year, there were 8,655 sales — a highest total since 1980. During the final quarter of 2022, there were 4,263 transactions.

“We know that’s largely driven by higher interest rates, which are making mortgage payments more expensive, which is leading a lot of people to back out of the market or not be able to enter it even if they wanted to,” said economist Kevin Gillen, who crunched the numbers.

The current average rate for a 30-year fixed mortgage is 6.72%. The rate was less than half that during the height of the pandemic amid soaring home prices.

The average price of a Philadelphia home declined again during the fourth quarter of 2022, but prices still remain about 2% higher than they were a year ago, according to Gillen’s analysis. And they remain higher than they were pre-pandemic.

Nationwide, prices are up an average of about 38%. Philly’s housing market is still up 25-30% compared to pre-pandemic prices, said Zandi.

The median price for a home in Philadelphia is now $210,000.

“Sales over the last six months have become skewed towards the lower segment of the market. And that’s corroborated by the fact that we’ve seen a significant drop in the million dollar sales. So there’s also going to be big drops in home sales of $700,000, $800,000, as well,” said Gillen.

Economists say it could be at least another year before mortgage rates come back down, though home prices could start to fall before that.

“I expect prices to kind of more steadily fall in 2023 and 2024 to restore that affordability in the face of higher mortgage rates and also in the face of a relatively tough economy,” said Zandi.