In a suburban real estate market described for years as sluggish, it might seem as if, finally, the region is experiencing the recovery it needs.
From April to June, all but one suburban county in the region experienced a rise in property values over the previous year. Several zip codes had increases of more than 50 percent in median home prices. Municipalities that just last year had only a handful of sales nearly doubled their numbers this spring and early summer, and one almost tripled them. The region as a whole recorded 15,636 sales in the three-month second quarter, the most on record in more than a dozen years.
It's a kind of house-hunting frenzy that some experts say they have never seen before: The number of homes for sale is at record-low levels, and buyers are becoming increasingly desperate to secure the home they want. No longer is it unusual for homes to sell just one or two days after going on the market, and real estate agents say open houses are flooded all day with shoppers.
"They want the home that is in truly move-in condition and they'll pay a premium for it," said Kathleen Hartnett, a Narberth-based real estate agent with Duffy Real Estate.
The result has been bidding wars, offers well above asking price, and buyers willing to take the risk to waive their standard protections, such as mortgage and appraisal contingencies, to beat their competitors. All the while, it presents a strain on millennials and middle-income buyers, who are finding a dwindling supply of starter homes for sale in the seven-county suburban region, as builders have focused on more expensive homes amid high land and labor costs and tight lending standards in order to turn a profit.
If the shot of energy flowing through the suburbs seems too good to be true, rest assured that it just might be. In both individual municipalities and the suburban region as a whole, the housing recovery is complicated and fickle — the spring and early summer months are typically the hottest times in the market — and there's no guarantee the rush will last.
"The numbers clearly indicate that Philadelphia's housing market had its best quarter since the recent housing-driven recession," said Kevin Gillen, a senior research fellow at Drexel University's Lindy Institute for Urban Innovation, who gave the Inquirer an analysis of home sales from the Trend Multiple Listing Service and Houwzer. But, he continued: "We've been here before. … There have been other recent quarters where [the numbers have spiked] as well, only to subsequently slump again."
Despite sizable gains this quarter, the suburbs still have room to grow: According to Gillen's data, home values across most counties in the region — Delaware, Bucks, and Montgomery in Pennsylvania, and Gloucester, Camden, and Burlington in New Jersey — still remain below their pre-recession peaks (Chester County is nearly even with 2007's home value). South Jersey in particular has struggled — in Camden and Burlington Counties, for example, home values, on average, linger 25 percent lower than they were in 2007. In Philadelphia, meanwhile, home values have surged 17 percent higher than their former peak, making the suburban slump even more jarring.
Part of what is curbing the housing recovery, experts and real estate agents say, is a suburban region that had much further to fall after the bubble burst. For the last four years, New Jersey and Pennsylvania homeowners have fought to dig themselves out of debt, grappled with foreclosure, and delayed plans for buying and selling as their property values took a hit. Many homeowners in the region still remain underwater, owing more on their homes than their mortgages are worth.
"In many places, the suburbs were the places hit hardest by the recession because that's where owner-occupiers lived," said Ralph McLaughlin, chief economist at the real estate website Trulia. "When there was reckless lending, they were disproportionately hit hard when it came to the recession."
Psychologically, experts say, that suburban home values remain below their previous highs could be contributing to people's reluctance to put their houses on the market, a phenomenon plaguing the region and the nation. If homeowners see that their home is not valued where it was in 2007, they may delay plans to sell, hoping they will eventually make gains.
"A homeowner might say, 'Well, it traded once at $200,000, what's to say that it can go back up to that?' That can affect the behavior of homeowners," McLaughlin said.
Still, even the number of houses on the market remains at record lows, the region still experienced record highs. In the second quarter, the more than 15,000 sales recorded marked a 20 percent spike from the 13,061 sales in 2016. At the same time, the median price of a suburban home in the second quarter jumped to $249,900, a 4.1 percent increase from 2016, Gillen's data showed.
"Sales and inventories are a chicken-and-egg question in housing economics," Gillen said. "One tends to lead the other. When inventories increase from low levels, that can draw more buyers into the market, and sales increase. Moreover, those buyers have to list their homes for sale, and this further increases inventories, leading to more sales."
According to an Inquirer analysis of Gillen's data, in the 20 zip codes that experienced the largest spike in sales during the period, only four — Avondale and Devon in Chester County, Warrington Township in Bucks County, and Hatfield Township in Montgomery County — had median home prices in 2017 higher than $249,900, the region's midpoint. Otherwise, buyers were most actively seeking homes more moderately priced homes in the $100,000-to-$200,000 range, the data show.
"What's taking a hit are these scenic neighborhoods that have the half-acre to one-acre lot that cost $2 million several years back," said Hartnett, the Narberth real estate agent. "Now, those are down to the $1.4 million or $1.5 million mark. … They are beautiful neighborhoods, but you have to drive several miles to get to a store or get to the schools."
"People want that ease of living and want being in more of a community," Hartnett said. "They are willing to give up land and square footage of their homes."
In general, more affordable Main Line zip codes, and other townships with walkable downtown areas or strong school districts saw some the largest increases in activity and prices in Pennsylvania this quarter. According to Gillen's data, in Ardmore and West Chester — with central shopping centers and restaurants and more moderately priced homes — sales jumped 49 and 38 percent between April and June. Meanwhile, buyers were also flocking to Merion Station, Gladwyne, and Bala Cynwyd, the data revealed, with the Lower Merion School District luring buyers.
In South Jersey, by contrast, areas hit hard by foreclosure welcomed buyers pouring in, real estate agents say. (Though South Jersey zip codes with strong schools drew heavy buyer interest, too.) Willingboro, in Burlington County, for example, saw 182 single-family homes sell to new buyers, a spike of nearly 57 percent in activity from the year before. The median price of a home in Willingboro climbed 21 percent, to $135,750, up from $112,000 in 2016.
The problem, real estate agents say, is that South Jersey's foreclosure rate continues to remain the highest in the region, and on average, the Garden State takes more than 1,300 days to move a home through foreclosure. For homes that were foreclosed years ago, that means that only recently have they been coming onto the market.
"There is a backlog of foreclosures, and when they start to be released … investors [come out] in our marketplace," said Martha Boyer, owner of Imani Realty & Associates in South Jersey. For places like Willingboro, the City of Beverly, and Edgewater Park Township in Burlington County, where buyer interest spiked, "it's most definitely investors that are driving sales that high," she added.
Still, real estate agents said, the millennial home buyer emerged in spring and early summer. Nationally, the home ownership rate for buyers under 36 rose to 35.3 percent in the second quarter, a 1.2 percentage point increase from last year, according to the Census Bureau. Locally, real estate agents say, that's likely been driven by increasing rents in Philadelphia. According to the apartment website Apartment List, rent in the city ticked up 2 percent in August year over year, with the median price of a two-bedroom now at $1,160. And as millennials continue to age, many have become more interested in getting married, settling down, and purchasing their first homes.
"I think they have been waiting and instead of buying that first property … they bought the house that they think is their forever house," said Rosanne Gentile, a Realtor with Weichert Realtors in Moorestown. "It was totally a different buyer that was out this spring and summer. The amount of inventory that moved and as quickly as it moved … it's taken us by surprise."