Feature Article

Everything You Know About Philly Real Estate Is Wrong

By Christine Speer

Page 3 of 9

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.


 

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User comments

It's different here!
Posted by Anonymous | Mar. 2, 2008 at 8:08 AM
COMMENT:
And the disconnect and denial continues. The favorite realtor mantra "It's different here!" is even tried on a derelict city like Philly.
Thanks for the article PhillyMag!
Posted by Remax City Space | Mar. 4, 2008 at 11:15 AM
COMMENT:
We'll be asking all of our nervous clients who have fallen prey to Mr. Lauer's bubble bursting charms to pick up a copy of the March Issue.
Finally, the truth and numbers are in writing!
Posted by Ryan Quinn | Mar. 5, 2008 at 8:27 PM
COMMENT:
I want to thank the Philadelphia Magazine for doing this article and letting the home owners of Philadelphia know what's going on in our specific market. These are the things that I've been saying for quite sometime. THANKS!
Reversal of Fortune?
Posted by Sandy Bennett | Mar. 6, 2008 at 5:23 AM
COMMENT:
Interesting but highly-expected tactic by Ms. Smerconish and her ilk. Now who, among the well-heeled, BMW-driving realtors, will explain to the Philly area populace just how logical it is to see the obscene increase in prices over the last 6 years? Game time over. Better start looking to lease a Volkswagon, Ms. S.
Well, Of Course....
Posted by Herb Zimmerman | Mar. 8, 2008 at 9:39 PM
COMMENT:
Let us not forget that Lavinia Smerconish (How Matt Lauer Is Wrecking the Philly Real Estate Market, March 2008) has a couple of very good reasons to "talk up the real estate market". For one, the more homes that sell the more she is likely to pocket. And, likewise, the more they sell for, the more she makes. Of course, she wants to paint as bullish a picture of the real estate landscape as she possibly can. Have you ever heard a Real Estate Agent paint a negative picture?
and....
Posted by ben franklin | Mar. 9, 2008 at 9:05 AM
COMMENT:
recession is local too, right?
Reality at its best
Posted by Thea Stinnett | Mar. 9, 2008 at 3:51 PM
COMMENT:
It is wonderful to finaly have the facts about the current real estate market published for the the public to see. Media is doing a good job with scaring people out of making a good investment in real estate. Thank you for writing this article. I hope it gets people to call their local Realtor for information about the market in their area. Realtors have the facts.
^^^Facts?^^^
Posted by Anonymous | Mar. 10, 2008 at 8:29 AM
COMMENT:
There was hardly anything factual about this article. "Realtors have the facts" - are you on crack? Realtors have the same incentive as any other salesperson does - making money and generating business. What a load of BS. On a side note to the editor, will you please rename this magazine Main Line Today, because really, it's the same thing.
Thea Stinnett is a Bucks Cty. Realtor
Posted by Anonymous | Mar. 10, 2008 at 8:45 AM
COMMENT:
Realtors obviously do know best when it comes to marketing themselves.
Real Estate Article Backs Right on to Gay Sex Parlors Article
Posted by Anonymous | Mar. 14, 2008 at 9:19 AM
COMMENT:
Got the March Issue because of the Philly Real Estate article - wanted to pull out the article and tables of home prices to discuss with others, just right up until I realized a photo of a half naked man with a provokative headline about gay sex parlors was on the back of the last page of tables. You couldn't have separated those articles by an advertisement? And since I live in one of the towns on that last page of tables, the part that pertains to me was unusable and could not be shared. Thanks for being so sensitive to that part of the population who isn't on the edge of their seats regarding sex parlor real estate. Most of us are only interested in the real estate that our sofa sits on!
transaction costs
Posted by Jamalogist . | Mar. 16, 2008 at 12:09 PM
COMMENT:
Don't forget, prices here don't actually have to drop at all, for someone to lose when it comes time to sell. Thanks to the 2% buy / 2% sell transfer tax, you will lose 4% even if prices remain completely flat. Combined with 6% broker fee, 1% title insurance, that's 11% right there, even if you sell exactly for the same price. Still think it's a rosy picture?
Rosey Picture
Posted by Savannah Stiles | Apr. 28, 2008 at 9:00 AM
COMMENT:
Its 2% total transfer tax (1% to buyer, 1% seller), not 4%. Also, if you are smart, you won't pay 6% in commissions. Some realtors are dropping their commissions to 5% in order to compete with discount brokers like Assist.2.Sell who will sell for as low as 4% or 1.5%. Buyers are saving money now that mortgage rates are under 6%. And many companies also offer seller and buyer rebates, saving their clients $1,000s more! Its not a rosey picture, but it sure isn't the slippery slope that some people are portraying. And another note: not all realtors are money sucking fact distortors, expecially in this market. I care about my clients and my reputation. If all I cared about was money, I would switch to something like car sales.

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