The average price of a home in Philadelphia rose 22.2 percent over the past year, according to an Econsult study released this week.
But the trends convinced financial analytics researchers at MarketWatch to name Philly the nation’s newest hot housing market.
— MarketWatch Economy (@MKTWeconomics) May 24, 2017
This could mean a lot of different things for our city, depending upon how you look at it.
The data for the study was compiled Kevin Gillen of Drexel University’s Lindy Institute, which has been indexing home prices in Philly since 1980.
From a real estate perspective, the price surge is not entirely a phenomenon. It’s more of a simple formula.
The low supply of homes is leading to an increase in prices. Currently, the housing supply in Philly is 4.4 months, meaning it would take 4.4 months to sell every house on the market. Economists say a balanced housing supply is 5 to 7 months. The last time supply was this low was 2004.
Another possible reason for the housing price increase is that while average home price is rising, the median home price is falling. This means that houses at the top are steeply increasing in price, while houses at the bottom are stagnating.
In Philly, this means certain neighborhoods are thriving while others are showing little signs of improvement.
The neighborhoods experiencing the biggest changes are Kensington, South Philadelphia, and West Philadelphia. In the past quarter, prices in these neighborhoods went up 10.5 percent, 9 percent, and 7.9 percent respectively.
Fishtown and Kensington are the fastest growing neighborhood in the city. Over the last six years, the median price for a home in the 19122 zip code that borders Fishtown (Olde Kensington) increased by 94 percent. That’s the largest increase in the city over that time.
The sight of rapidly rising prices may be worrisome to some, and the surge causes some economists to think about the 2008 housing bubble that created the worst economy since the Great Depression.
“People are over-leveraging themselves to buy houses, thinking of their houses not as places to live but as investments. They are rushing to buy in Fishtown, in South Philly, in University City before the prices rise too much higher,” Economist Jonathan Tannen wrote in the study.
Prospective buyers might wonder whether the surge is sustainable or if this is just new air in the next housing bubble.
Others might see the rising prices and think of gentrification and how local low-income families will cope with being priced out of their homes. Homeowners in booming areas are constantly facing investors looking to buy their homes. Some are even looking at the possibility of eviction.
Rising prices don’t have to be a bad thing, though.
The optimist would say the surge is simply an indication that Philly is a growing city. Urbanization is going through a rebirth, and Philadelphia is becoming a more attractive place to live every day.
It’s also not definite that a bubble will ever form. The study indicates that the continued high demand and low median of home prices leaves plenty of room for growth in the city.
“This is, on net, a good story,” Tannen wrote. “These shifts in preferences are likely due to (1) our city becoming a better place to live, with lower crime and better amenities and (2) a decrease in overt racism, as new-comers are willing, or at least less likely to outright reject, moving to the ‘inner city’.”
So if you’re renting, or if you don’t make enough money to buy a house, or if you’re unsure you want to live here long term, at least you can enjoy watching things get a little more pleasant.