State of the Philadelphia Housing Market

Transcription

1 State of the Philadelphia Housing Market September 18, 2013 KEVIN C. GILLEN, Ph.D. Disclaimers and Acknowledgments: The Fels Institute of Government at the University of Pennsylvania provides this report free of charge to the public. The report is produced by Fels Senior Research Consultant Kevin Gillen, in association with the University of Pennsylvania Institute for Urban Research. The author thanks Azavea.com, the Philadelphia Office of Property Assessment, the Federal Housing Finance Agency, Case-Shiller MacroMarkets LLC, RealtyTrac, Zillow.com, Trulia.com and the NAHB for making their data publicly available. 2013, Fels Institute of Government, All Rights Reserved.

2 After 6 years, the recovery has finally arrived!! House Price Indices : 1980Q1=100 Philadelphia County v. Philadelphia MSA and U.S. Average +7.7% increase since hitting bottom Phila. County* Phila. MSA** U.S. Avg.** Q2

3 The recovery is also occurring nationally: House Price Appreciation : Philadelphia v. 10-City Composite City Composite* Philadelphia % Change 10-City Philadelphia 1998 to Peak: +173% +135% From Peak: -27% -15%

4 Philadelphia generally outperformed most U.S. cities during the downturn: Housing's Road to Recovery: %Lost v. %Recovered 10% 0% 0% 1% -10% -20% -11% -15% -9% -11% -8% -8% -4% -15% -16% -17% -20% -11% -11% -10% -13% -16% -23% -24% -21% -21% -37% -15% -26% -17% -32% -24% -16% -17% -17% -28% -30% -40% -50% -60% %Remaining %Recovered -18% Now that the housing market's recovery appears to have arrived, this chart shows how much house prices need to rise in each city in order to erase the cumulative losses from the bust. The total rebound (to date) in house prices is shown by the blue bars, while the remaining losses are shown by the red bars. For example, Philadelphia county's average house prices fell by a cumulative 21% from peak to trough. To date, they have rebounded by 8%, which implies they need to rise another 13% in order to return to their pre-bust peak levels. Source: Kevin C. Gillen, PhD. All other cities courtesy Case-Shiller MacroMarkets LLC. -16% -21% -22% -9% -33% -23% -35% -24% -38% -70%

5 Home sales also starting to recover? 8,000 Number of Philadelphia House Sales* per Quarter: ,000 6,000 5,000 4,000 Q1 Q2 Q3 Q4 Qtly. Average 62% decline from peak, but are now trending up. 3,000 2,000 1,

6 Million dollar-plus home sales remain strong: 30 Number of Philadelphia Home Sales* per Quarter with Price>=$1 Million: Q1 25 Q2 20 Q3 Q Qtly. Average

7 # Homes Listed "For Sale" Fundamentals indicate the recovery is for real: 14,000 Philadelphia Houses Listed For Sale: Inventory v. Absorption Rate # Houses Listed For Sale % Absorbed 30% 12,000 10,000 8,000 6,000 4,000 Both housing inventories and their absorption rate have returned to being very close to their pre-bust levels. 25% 20% 15% 10% %Absorbed = (#Sales/#Listings) 2,000 5% 0 0%

8 The news is especially good for condos: # Condos Listed "For Sale" 2,500 Philadelphia Condos For Sale: Inventory v. Sales Rate Source: TrendMLS, courtesy of # Condos Listed For Sale % Sold 35.0% 30.0% 2,000 1,500 1, % 20.0% 15.0% %Sold=(#Sales/#Listings) 10.0% % %

9 Housing fundamentals appear to be back in line with their historic norms: 15.0 Average House Price-to-Rent Ratios*: Philadelphia v. U.S U.S. Philadelphia *Computed by taking the ratio of average house price to the average annual rent of a comparable housing unit. The P/R ratio is to real estate what the P/E ratio is to other assets. Contact gillenk@upenn.edu for further details.

10 Economy recovering, but sluggishly:

11 Unemployment trending down, but still high:

12 Interest rates are heading up again:

13 Growing Shortage of Developable Land: NAHB: Last month, 59 percent of builders surveyed said lot supply was low or very low. [This is] the largest low supply percentage we ve seen since we began conducting these surveys in The survey found that lot shortages tended to be especially acute in the most desirable, or A, locations. Thirty-four percent of builders said that the supply of A lots was very low, compared to 18 percent for lots in B and 12 percent for lots in C locations. The shortage of lots is slowing the housing recovery David Crowe, NAHB Chief Economist

14 What to Expect Going Forward? The Good: Housing is recovering for real, prices are appreciating, inventories down and fundamentals are in line with their historic norms. The Bad: Still some headwinds, sluggish GDP and income growth, persistently high unemployment, rising interest rates, tight credit, shortage of developable land (may be good for cities, though) The Uncertain: Actual Value Initiative, City s disposition of vacant land, property tax delinquency, and Ten-Year Abatement

15 Actual Value Initiative Corrects decades of inaccurate assessments Corrects decades of inequitable assessments Had to be done sooner or later Makes broader tax reform possible Is an ongoing process, not a one-time event!

16 Property Tax Delinquency ~103,000 Delinquent Properties owing ~$515m in taxes Delinquency Rate second only to Detroit $9.5bn in diminished property values Mayor has vowed crackdown, and delinquency rate s growth has recently slowed

17 Vacant Land 40,000 properties either vacant land or with abandoned structure, ~13,000 cityowned Vacancy imposes costs: direct, indirect and opportunity costs. PRA leading effort to value and sell off cityowned vacant properties Discussion of a land bank

18 Ten-Year Tax Abatement Since 2000, the value of all improvements to real estate in Philadelphia are untaxed for 10 years. Recently, Councilman Goode has introduced a bill limiting and shortening the abatement. The alleged criticisms of the abatement: Abatement is unnecessary Abatement is unfair City needs the revenue Will make housing development more equitable

19 Abatement is unnecessary?

20 Abatement is unfair?

21 City is foregoing revenue? Problem: people see the abatement as a debit with no offsetting credit

22 Will make housing development more equitable? Single largest developer/land lord of taxabated properties in Philadelphia is our own Philadelphia Housing Authority!

23 Ten-Year Tax Abatement Every single criticism of the Ten-Year Abatement is completely unsupported by the data. Curtailing/eliminating the Abatement will results in: Less development Fewer Jobs Lower Tax Revenues Real rationale for the abatement: our exceptionally high construction costs. Without addressing this, curtailing the abatement will have only adverse economic effects.

24 Summary and Conclusions The recovery is here and here to stay! Prices back in line with fundamentals, supply of inventories has normalized, sales picking up. But, some headwinds will make this a relatively sluggish recovery: high unemployment, slow economic growth, rising mortgage rates, shortage of (large, suburban) lots. Outlook is modestly bullish: going forward, expect house price appreciation and sales growth, but of a relatively slower variety compared to the past. To promote a more robust and sustainable recovery, get involved with local issues: AVI, tax delinquency, vacant land, and especially: the 10- Year Abatement!!

25 What do you think of eliminating the Abatement?