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Million-dollar homes in West Philly? A new hot neighborhood? The latest on Philadelphia's housing market

Drexel economist Kevin Gillen's third quarter housing report reveals some interesting trends about the way the Philadelphia housing market is changing. Between million-dollar home sales sprouting in West Philadelphia and the Northeast, and with home values increasing in neighborhoods such as Bridesburg and Port Richmond, it's clear that the city's prosperity is expanding beyond Center City.

This graphic shows average home price per square foot in Philadelphia.
This graphic shows average home price per square foot in Philadelphia.Read moreStaff

Even as Philadelphia moves further away from 2017's warmer months — traditionally the busiest times of the year in real estate — the city's housing market has continued to flourish. Home values have appreciated, sales have been strong, and formerly disinvested neighborhoods have seen increasing activity as Philadelphia's newfound prosperity has spread.

The combination has created a local housing market that shows few signs of slowing. According to Drexel economist Kevin Gillen, Philadelphia home values in the third quarter of 2017 jumped 10.6 percent compared with the year before — more than double the city's average historic appreciation rate of 4.5 percent. During that same July-to-September period, the median price of a Philadelphia home was $159,900.

Still, inventory — the number of homes on the market — remains tight, meaning buyers too often are competing for too few homes. As a result, prices are rising, buyers are staying put, and owning a home has become increasingly unattainable for first-time buyers — many of whom are saddled with student loan debt. Meanwhile, as development continues to stretch into lower-income neighborhoods, concerns remain over whether affordable housing will dissipate or whether longtime residents will be displaced.

The Inquirer and Daily News analyzed Gillen's third-quarter housing report, which does not include condos. Here are the top five takeaways.

1. Some new “hot” neighborhoods

Over the last decade, neighborhoods that are walkable, in strong school catchments, and close to transit lines and trendy restaurants have thrived, while others have progressed slowly. So it should come as no surprise that the 19146 zip code, for example, the Graduate Hospital neighborhood, has seen the greatest change in median home price in the last 10 years ($302,000 in 2017, compared with $111,000 in 2007).

Similarly, zip codes for Kensington, Fishtown, and University City have experienced the greatest increases in the last decade, with the median price in each zip code more than doubling.

But an analysis of Gillen's data reveals that prosperity is shifting. In the last year alone, home prices have increased dramatically in less obvious areas — ones slightly farther from popular Center City offshoots. Since the third quarter of 2016, for example, Philadelphia's 19142 zip code in Southwest Philadelphia, near the Delaware County border, experienced the greatest spike in median price. Following closely behind were Philadelphia's 19138 zip code, the West Oak Lane neighborhood in the Northwest section of the city, and the 19121 zip code, which contains Brewerytown.

At the same time, sales are spiking in outlying areas: Bridesburg led the city for the greatest increase in sales in the last year, followed closed by Strawberry Mansion's zip code.

2. Home values performing better than the U.S. average

Compared with other large cities and the U.S. as a whole, Philadelphia's home values have performed better within the last decade.

Part of the reason the U.S. average has been sluggish is that it includes all housing markets, including rural areas, which generally have much lower rates of appreciation than urban ones. But Philadelphia, in particular, has had a standout recovery in recent years, economists say, one of the strongest among the country's larger cities.

According to Gillen, there are two reasons for this: Philadelphia did not peak as high as other cities during the bubble, meaning that it did not crash as hard during the recession. Philadelphia "recovered at a slower pace," Gillen said. "[Others] have since moderated their house-price appreciation while ours has picked up."

3. Million-dollar sales beyond Center City and Society Hill

Before the 2000s, sales of homes priced at $1 million or more were sparse in Philadelphia — happening three or four times per year. But that changed during the housing boom: Starting in 2004, Philadelphia was seeing 40 — even 60 — million-dollar sales annually. And it happened repeatedly until 2008.

Like elsewhere across the nation, the surge in million-dollar sales in Philadelphia was another example of the inflated prices that the market experienced as the housing bubble grew. "Homes that typically went for $600,000 to $900,000 began selling for $1 million to $1.3 million," Gillen said.

But other factors include Center City's revitalization, increased household wealth, and market demand. In 2016, the city recorded 92 million-dollar sales. So far this year, Philadelphia has had 109.

Interestingly, the third-quarter data showed million-dollar sales occurring beyond Center City. Now, sales are sprouting in Chestnut Hill and Mount Airy, West Poplar and Powelton Village.

4. Inventory possibly rebounding

In a perfect world, a healthy housing market would have five to seven months' supply of inventory — meaning it would take that long for all houses in a given market to sell if no more listings were added and if all homes sold at a constant rate. In reality, of course, housing markets only occasionally end up in that sweet spot.

Since the first quarter of 2016, Philadelphia has been experiencing low inventory, giving sellers the upper hand.

According to an October report from the National Association of Realtors, sellers are typically staying in their homes for a median 10 years, higher than the six-year tenure that most experienced during the mid-2000s boom. That means homes are less frequently cycling through the market, compared with before.

Still, there are signs that inventory could be improving: After falling steadily for years, inventory's decline has slowed throughout the last few months of 2017, Gillen said.

5. Price-per-square-foot can indicate change

When it comes to determining a home's value, the golden metric is price per square foot.

In many ways, it makes sense: The analysis can provide a reasonable estimate of a home's value compared with similar homes in an area. But the metric is often criticized for its limitations: that it does not take into account upgrades, special features or land, or that smaller homes, generally, have a higher price per square foot than large ones.

Highly valued homes are still concentrated around Center City, Gillen's data reveal, as well as throughout the Northwest section of the city, near neighborhoods such as Chestnut Hill and Mount Airy. In contrast, the most inexpensive homes remain clustered in West and North Philadelphia.

But mapping the price per square foot side-by-side also can be helpful in identifying change. High-priced and lower-priced homes sitting side-by-side can be an indicator of gentrification, Gillen said. There are clusters of lower-priced data points and higher-priced ones together in University City, the Riverwards section, Brewerytown and the Cecil B. Moore neighborhood — all places that have been experiencing significant change.