Everything You Know About Philly Real Estate Is Wrong

PERCEPTION 2.
Anyplace that hasn’t crashed yet — like Philly — is just going to crash next year.

The Philly reality: By all accounts, 2008 promises to be another tough year. But economists say a devastating crash of the caliber we’ve seen in many cities is unlikely because of the ­stable nature of the market; it’s much more probable that the deflation of the Philly bubble will simply continue.

“Housing downturns tend to be longer downturns,” says Kevin Gillen, a Wharton economist and Econsult vice president. “Our last one went from 1989 to 1994. That was a hard landing, because the city was in a fiscally challenged state, and this time, at least we don’t have that. The city is in way better shape. But we’re still searching for a bottom, and we haven’t hit it yet. Look for the number of inventories — that is, homes listed for sale — to start coming down. When that happens, then we can predict when the prices of homes will be back up and the market will return to a balance.”

But, says Gillen, how hard or soft the city’s actual landing will be is impacted by more than just the next few months of market activity. The pending property tax reassessment will inevitably change how much many Philadelphians pay in taxes each year. If City Council cuts tax rates enough to offset the higher assessments, those reassessments won’t cripple the already fragile market. If taxes remain high, though, the reassessed houses (in many cases, now worth more) could wind up on the already-flooded market — with buyers even more reluctant to pony up.

What it may mean to you: For now, patience … not panic.

PERCEPTION 3.
When in doubt, follow the three rules of real estate: location, location, location.

The Philly reality: It seems like a paradox: The places that hold their value best in the long run tend to be some of the most volatile in the short term. But if you’re looking to buy a place and stay for a while, betting on a good location pays off. “Think of it like darts,” Domb says. “If you’re talking Center City, the red bull’s-eye is Rittenhouse Square, Washington Square. The next ring out is the Rittenhouse District, the next is Fitler Square, the next may be Graduate Hospital, and so on. You can overpay in a good location and it’s still a good value, because they’re not building more.”

The constrained supply also accounts for the volatility, Gillen explains. In a good market, when there’s lots of demand, prices rise noticeably in time-honored favorites (like Rittenhouse and Bryn Mawr), because “unlike a place like Omaha, where there’s lots of cheap land on which to build more homes to meet demand,” what’s there is there. Conversely, in a down market, prices drop farther in these areas than in others, to more closely match what a wider public can afford, so they’ll appeal to more potential buyers. But, says Gillen, outside short-term market fluctuations, the most desirable areas do reliably appreciate through time.