Monday, August 7, 2017

As Philadelphia’s housing market booms, economists warn the city may be in a bubble—or something worse

Drew  Nugent and his band at realtor's open house in Philadelphia's  Kensington section

Jim Saksa reports for Plan Philly:

Stephanie Somers knows how to throw a party.
At an open house for a set of townhouses built out the shell of an 105-year-old rectory, the realtor picked a Prohibition theme. Curious neighbors and would-be buyers sipped speakeasy cocktails while a jazz band played and a burlesque troupe dressed up like flappers danced the the Lindy Hop. Between the performances, guests admired the arabesque bathroom tiles, reclaimed-wood floors, and impressive roof deck views.
Swanky open houses are rare, but not unheard of, in some of Philadelphia’s wealthier neighborhoods, where asking prices this high — $680,000 for a three bedroom rowhome — are par for the course.
But not here. This open house is in East Kensington, just a few blocks from some of the most notorious drug corners in the United States, let alone Philadelphia. For decades, this neighborhood attracted more blight than developers, even separated from the most disinvested parts of Kensington by Lehigh Avenue and Conrail’s railroad tracks.
But attitudes are changing enough to justify home values more than four times the city’s median sales price of $143,000. Just a few weeks after the open house, all but one of the five units were under contract (that lone holdout was still under construction, not yet ready to be shown to potential purchasers). According to Somers, the young professionals and empty nesters buying expensive homes in places like Kensington, Francisville, Brewerytown and Point Breeze aren’t letting a neighborhood’s tough reputation keep them away.
“I think there is a level of familiarity that doesn't scare off these buyers from purchasing an exquisite piece of property there, on the border of Kensington and East Kensington,” said Somers.
“Y'know, it’s Kensington,” added Somers. “I mean, they're buying in Kensington.”
According to data compiled by Drexel University economist Kevin Gillen, the average home for sale in Philly spends less than two months on the market before it’s sold. That’s a turnaround time Philly hasn’t seen since just before the housing bubble broke in 2007.
After years of anemic economic growth, the city has finally started to recover from the Great Recession. Lots of long-time renters are ready to buy for the first time. Those first-time buyers allow sellers to cash in the equity from their starter homes in order to upgrade. Many are opting to stay in the city and buy new construction filled with amenities: The latest appliances, granite countertops, central air, a roof deck, and off-street parking figure prominently in the listings.
Parrish House
The $168,000 Parrish House townhomes feature granite countertops,
stainless steel appliance and reclaimed wood cupboards
.
The combination of pent-up demand and a housing market where supply is lagging means skyrocketing prices.
“Right now, Philadelphia is outperforming not only most other metro areas in other cities, but even its own suburbs,” said Gillen. “That's good news for us because, for quite a while, house prices here were depressed. House prices in Philadelphia County fell about 23 to 25 percent from peak to trough during the recession.”
While the timing of the city’s recovery from the recession partly explains the increase in demand for new houses, this may also mark a shift in consumer preferences.
Cities today aren’t as smelly, dirty and dangerous as they were forty, twenty or even ten years ago. Like many other cities growing again after long post-war population declines, Philadelphia has seen its violent crime rates steadily decline.
And the buyers spending nearly $700,000 for a rowhome in East Kensington, or a half-million for homes in Brewerytown or Point Breeze aren’t purchasing a starter home.
Jennifer Tran 
Jennifer Tran and Eric Griffin in the spacious, airy kitchen of their Francisville home

In Francisville, Jennifer Tran and Eric Griffin have no intention of leaving. The couple in their early thirties purchased a lovingly restored four-bedroom rowhome for $500,000 back in 2013. “We tried to build in all the things we need to stay here [and] not have to leave the city just go get a yard or get some outdoor space,” said Griffin.
The house has a large back yard for their dog, Olli, and enough space to raise a family if and when the time is right. “[We] tried to have everything here that would keep us here in the city, longterm.”
Tran and Griffin are the kind of couple that a decade or two ago would have moved to the suburbs. She works at the Navy Yard and he works in Manayunk, which would have made a home somewhere along the Main Line just as convenient a commute as Francisville. But they’ve made a commitment to Francisville, and so far that bet is paying off. 
When they bought it, their home was the most expensive one on the block. Since then, the vacant lots across the street have been replaced with new condos and they no longer own the priciest parcel on the street. As Francisville fills, housing prices continue to rise.
Ruokai Chen made a similar bet along the border of Fishtown and East Kensington, purchasing a home for $415,000 last year. Based on neighborhood trends and comparables, the actuary expects the value of his home to continue to go up. In his late twenties, Chen managed to save for the large down payment thanks to the combination of a high-earning job and having graduated debt-free courtesy of a Curtis Institute education. 
It’s the same story all across the neighborhoods surrounding Center City, fueling the highest housing prices the city has ever seen. “The level of house prices in Philadelphia is at an all time high,” said Gillen. “It’s about 12 or 14 percent higher than its previous peak back in 2007, during the previous peak before the boom.”
Notably, Tran, Chen, and other buyers PlanPhilly spoke with for this article all mentioned—without prompting—the quality of their local neighborhood school, noting it in marked, favorable contrast to their lowly impressions of the School District of Philadelphia as a whole.
Ironically, part of what is fueling Philadelphia’s housing demand, and thus the spike in housing prices, is the city’s relative affordability compared to other metro areas, says Nela Richardson, an economist with the web-based real estate company, Redfin.
“I went to school in Philly 20 years ago,” said Richardson, who graduated from the Wharton School at the University of Pennsylvania, “The city already had it [back then], and people finally awakened to the to the fact that you can get the Philly urban experience for half the cost of DC and a quarter of the cost of New York.”


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