DV Journal

Prices of existing homes are still on the rise. And home prices climbed nearly 19 percent last year, according to the S&P CoreLogic Case-Shiller home price index. 

Will that trend continue through this year? It depends on who you ask.

The National Association of Realtors, after surveying a group of industry insiders, predicts an average increase of 5.7 percent for the price of an existing home through 2022, while Goldman Sachs anticipates a 16 percent increase over the same span. Fannie Mae is expecting an 11.2 percent average increase this year with most increases coming in 2023.

But amidst all this, some see signs of a downward trend. Ian Shepherdson, chief economist and founder of research consulting firm Pantheon, notes homes were selling at an annual rate of 6.02 million as of February. He expects that number to drop to a yearly rate of 4.50 percent by year’s end.

However, those on the frontlines of the housing market are not as pessimistic.

Michele Gavaghan, who works out of a REMAX office in Horsham, says the market is still strong, at least for now.

“The one thing I have seen is that to some buyers if they are on the conservative side, it’s almost a market that makes them a little bit more conservative,” she said. “So, it scares them off a little bit. But, for the most part, I’m not seeing that end of the bubble, at least not for the next few months.”

Janique Craig

Janique Craig of Keller Williams in Doylestown has been involved in real estate since 2004. She says the housing market’s strength is simply a case of demand exceeding the supply of available homes.

“It’s not like 2008, which was (due to) the financial crisis,” she said. “It’s a straight-up supply-and-demand problem right now. There’s not enough inventory which is raising prices at record highs right now.”

Delaware Valley Journal asked Craig if increasing mortgage-interest rates impact the housing market.

“If interest rates keep rising, I think that will balance it out because buyers’ purchasing power will lower,” she said. “But, at the end of the day, it’s an inventory problem. I think this is going to keep going until there is more supply out there.

“These are unprecedented times. I’ve never seen it like this … It’s just out of control right now.”

Craig says the Philadelphia suburbs are where people looking to sell a home should be.

“It started with the pandemic,” she said. “I saw a lot of New York and North Jersey buyers coming into our area, which brought a lot of money into our area. Now, I’m seeing more Philadelphia (buyers) in (the market).  The suburbs are more stabilized. I don’t foresee a crash anytime soon because of the low inventories.”

Gavagahn raises the possibility that the housing market could slow this fall. What signs would indicate the market is cooling off?

“It might be foot traffic,” she said. “Let’s say if you were to show (your home) and you were looking at this market thinking, ‘Wow, this is a really great market for me. I’m going to put my house up. I’m going to ask on the higher end of what I would normally ask for.’ and then you list it and your foot traffic, your buyers and your showings are not what you thought they would be. And that starts to decline and diminish.  Then I would say that’s an indicator where you’re not getting foot traffic.

“And most times, what’s good is when you have showings, you’re going to get pre-approved, qualified buyers, people the bank already said ‘You can afford this place.’

“If you’re not getting those people showing up on your doorstep to see the property, that’s an indicator.”

Craig says rising interest rates could well dictate the future of the housing market.

“That could change the buyer’s purchasing power,” she said,” and the inventory. If more and more inventory comes up, and sellers see they’re going to get the most money for their house right now, and more and more listings come up, it will settle down a bit with more inventory. Hopefully, there is a little more inventory out there for buyers if interest rates go up a little bit.”

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A new top-10 list from realtor.com placed Philadelphia in the top three “trendiest, affordable” metro areas in the nation. But with a red-hot housing market, are the suburbs truly affordable?

Across the nation, buyers have been competing fiercely for the supply of available homes. But some believe the hot Delaware Valley housing market may cool off in 2022.

“When [houses] are on the market, we’re getting tons of buyers,” said Tony Guida, real estate agent at Keller Williams Blue Bell & Conshohocken.

Main Line Regional Vice President of Berkshire Hathaway Fox & Roach Debbie McCabe said constrained supply has been exacerbated by an unwillingness to move.

“People were still not sure how to live their lives with COVID in our world, and people put off the moving decision,” this year, she said.

That limited supply with such high demand created a situation where prices could surge–a “seller’s market.”

So far buyers, despite the reality of higher prices, have remained persistent. Some 15,245 documents relating to property transfers have already been processed this year at the Chester County Recorder of Deeds office. That’s up nearly 3,000 compared to last year’s total, with still time remaining for documents to be processed at this writing.

“People are still buying,” said Chester County Recorder of Deeds Chris Pielli. He added despite weakening signs nationally of home purchase sentiments, the Philadelphia suburbs haven’t seen a similar decline.

“The national trends aren’t applying. You combine the good school districts, low tax rates, good space for development… It’s still very popular,” he said.

McCabe added she believed low interest rates were helping keep the market hot, but also local factors like the stability of the housing market in the area help prop it up too.

“I think Philadelphia as a general region has never seen the extreme highs or extreme lows that you see in some cities,” she said. “So when the market went down in 2011, we did not see the downside as bad as some cities did. When the market is super hot, maybe ours isn’t as crazy. It makes it a very good place to invest in.”

But is the area affordable? That depends.

Guida said it’s all relative to your own budget. “Affordable is kind of whatever works for you.” But from his perspective, Philadelphia is a less pricey area than some others. “I would say Philadelphia is generally affordable when you look at other cities close by. It’s nowhere near New York’s prices.”

And is the hot market being driven by people moving within the area, or are out-of-towners giving the Philadelphia area a try? Both Guida and McCabe said most of the moves in the area have been internal shifting, but McCabe said she saw a spike in new arrivals.

“Maybe they had grown up in this area and their jobs were in New York City, and now they can work anywhere, so they choose to come back to the area they knew and loved,” McCabe said.

Guida added that some of the internal shifts are people in the city moving out to the suburbs because they want more space. But they’re not moving too far away, and there are even many who are moving from further out suburbs to ones closer to the city. “No one wants to be in the city but [rather] close to it.”

After two record years for the area, the question remains whether next year will bring another year of prices substantially above the 2019 market levels. Pielli said some think “you just can’t go so hard and fast for so long,” and to expect a correction next year.

McCabe and Guida both reported seeing some cooling in the housing market, but levels continue to be elevated.

“I still think 2022 is going to be a seller’s market,” McCabe said. But Guida predicted further cooling is coming.

“We’re slowly taking buyers out of the pool so that will ultimately bring down the demand for houses which will bring down [prices],” he said. He added a typical fall in prices around this season occurred this year, which he thinks is a sign all is not only up in this market. “It’s nice to see that’s the trend that is happening even with everything going on.”

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Is now a good time to buy or sell a home? That depends on who you ask. But what is certain is if you’re in the market for a new home you’re likely to be paying significantly more it than would have been the case a year ago.

In Pennsylvania, the price of homes is 8.3 percent higher this year than last year, according to a formula used in the industry. At the same time, the number of homes sold fell 5.8 percent and the number of homes on the market dropped 14.2 percent using the same year-over-year formula.

Bob Wexler of the Mortgage Bankers Association of Eastern Pennsylvania notes prices have been on the rise throughout the Philadelphia area.

“Home values in Philly are up 14.9 percent from last year,” he said. “The story is more interesting in the suburbs though. Homes in the suburbs are selling faster than ever, about twice as fast compared to 2020 and prices are higher.”

In Bucks County, prices were up 17.8 percent over last year. In Chester County, the increase was 14.8 percent. In Delaware County prices rose 18.4 percent compared to a year ago while in Montgomery County the figure was 18.2 percent.

In some municipalities, however, the increase in the cost of a home was even more dramatic. In Schwenksville, the average home sold for $472,500, 45.4 percent more than at this time last year, using the year-over-year formula. But the 21 homes sold in that community were in demand; the median number of days they were on the market was five.

In Royersford, 45 homes sold in September for a median price of $315,000, an increase of 7.1 percent; after being on the market for six days, making it one of the most competitive communities in the state in terms of housing availability according to Redfin.com.

Fannie Mae recently surveyed approximately 1,000 individuals by telephone to get their thoughts on the state of the housing market. Fannie Mae uses responses from its National Housing Survey® (NHS) to create its Home Purchase Sentiment Index (HPSI), which measures consumer satisfaction and concerns about the housing market.

The index measures, among other things, the percentage of consumers who think now is a good or bad time to buy or sell a home as well as their concerns and expectations re: home prices and mortgage rates.

The latest numbers, which reflect conditions in September, show that 66 percent of the respondents believe that now is a bad time to purchase a home. That’s a three percent increase from August. Just 28 percent of the respondents indicated they feel that now is a good time to buy.

Meanwhile, the number of respondents who indicated that now is a good time to sell a home increased from 73 to 74 percent, while just 19 percent of respondents felt the time is not right to sell.  When it comes to home prices, 37 percent of the respondents felt that the housing process will continue to rise in the next 12 months while 24 percent believe they will go down; 33 percent believe they will stay the same.

When the issue is mortgage rates, 8 percent of respondents felt they will go down over the next 12 months while 51 percent expect rates to rise.

Doug Duncan is Fannie Mae’s senior vice president and chief economist.

“Consumers feel it’s a bad time to buy a home,” he said, “but a good time to sell. And they continue to cite high home prices as the primary reason. Across all consumer segments, renters and younger consumers were slightly more likely to indicate it’s a bad time to buy, perhaps a reflection of their generally lower incomes and their observation that the availability of affordable homes is lacking. We’re also seeing a softening in consumers’ expectations that home prices will continue to increase. However, in our view, other housing market fundamentals remain supportive of further home price appreciation, including low levels of inventory and low interest rates.”

Wexler says a lack of inventory impacted the housing market for much of this year.

“But (the situation) has been improving in last few months,” he said.  “It’s been the main force behind higher home prices.”

Wexler notes the housing market is a seller’s market at present.

“It’s definitely a seller’s market with supply so low and homes selling fast due to high competition among buyers,” he said.

“Millennials and Generation Z members are influencing the housing market as well, as some older millennials may be ready to shift to a larger house, freeing up their starter homes for younger millennials and the older Generation Z members who want to purchase their first home.”

Wexler stresses the importance of potential home buyers being well informed.

“Talk to a good local lender or mortgage broker,” he said, “to be prequalified and understand what you can afford.”