Home buyers in the Philly area face limited choices and high prices as the market slows

A Montgomery County couple in their 30s bought their first home in 2017, when it was just the two of them, mortgage rates were stable, and the frenzied pandemic housing market was years away. Since then, they’ve had a child, and they’re thinking about expanding their family.

But they want to remain in the Lansdale area, and the larger homes they want are selling quickly. Meanwhile, they’re scared to put theirs on the market without being sure they can snag another.

Real estate broker Richard Strahm, who is helping them search, said theirs is a pretty typical story.

“There’s a lot of fear about entering the market right now on the buyer side and the seller side,” said Strahm, owner of Lansdale-based American Foursquare Realty, which operates throughout Southeastern Pennsylvania. “In part, it’s that fear that is causing our market to be unstable.”

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Rising mortgage rates and economic uncertainty stemming from inflation and recession fears have helped pump the brakes on the Philadelphia region’s housing market. Sales are slower and prices are high. Fewer buyers are searching for homes, but housing supply remains tight, so the ones who remain are still competing.

Following earlier pandemic-era frenzy, the housing market is acting more like normal for this time of year, when activity tends to slow. But the slowdown is more pronounced this year than in typical years, said Lisa Sturtevant, chief economist at the multiple listing service Bright MLS.

“For folks right now for whom moves are discretionary, we do see holding back on the selling and buying side,” Sturtevant said. Households are waiting to see where the economy is headed.

“People are looking for stability,” she said. “We just haven’t had that in the last few months.”

The number of home sales this fall has dropped compared to last year’s swift market. New pending home sales in the Philadelphia metropolitan area were down nearly 27% in September from the same time last year, according to Bright MLS. And the number of sales that closed last month was the lowest for a September since 2015.

In the current housing environment, sellers are adjusting their price expectations, and more are cutting their asking price after discovering they were too optimistic, Sturtevant said.

But the median sales price in the Philadelphia metro area was $330,000 in September — up 6.5% from the same time last year, according to Bright MLS. Prices are rising faster in the Philadelphia region than in other major Mid-Atlantic markets.

That may seem surprising, given less buyer demand and higher mortgage rates that limit buyers’ purchasing power. But the historically low supply of homes for sale in the Philadelphia area is keeping prices high.

The frenzied markets of the last couple of years have helped dry up an already tight housing supply. If the pace of sales stayed steady and no new homes went on the market, the Philadelphia area would sell out of homes in six to seven weeks, according to Bright MLS.

On Oct. 12, eight properties were available for sale in Lansdale, Strahm said, “which in a borough of 18,000 people is next to nothing.”

New listings were down across the Philadelphia region in September compared to the same time last year. A surge in supply would help pull down home prices.

Potential home buyers in the Philadelphia area are facing both high prices and rising mortgage interest rates. The average 30-year fixed mortgage rate was 6.92% as of Thursday, the highest rate in more than two decades, according to government-backed mortgage buyer Freddie Mac.

Rapid fluctuations in the rate this year have made budgeting for homes difficult, and the upward trend in rates has helped to price out some buyers.

“First-time home buyers are getting slammed by this economic uncertainty and rising rates and rising prices,” Sturtevant said. “It’s a triple whammy.”

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Rising mortgage rates also are keeping some sellers from putting their homes on the market, since most homeowners will need to buy another home. Owners who locked in low rates when they purchased or refinanced don’t want to give those up in exchange for the current higher rates, Sturtevant said.

She expected to see a flurry of sellers listing their properties in August before rates could rise further, but that didn’t happen. The good news for potential sellers is that their homes likely appreciated, and they can use proceeds from their sale to put more cash down and take out smaller loans.

Sturtevant said buyers should shop around for mortgage lenders, who are competing for a shrinking pool of buyers and offer wide ranges of rates and terms.

Overall, current mortgage rates around 7% aren’t slowing the market as much as real estate agent Marcie Purcell thought they would.

“It’s just that people are adjusting,” said Purcell, an agent with Better Homes and Gardens Real Estate who works in Bucks and Montgomery Counties. People still need and want to buy homes. But buyers who would have searched in the $350,000 range are now looking for a $325,000 home, she said.

“It is a strong seller’s market now, but that has come down from an insane seller’s market that was literally off the charts,” Strahm said.

Gone are the days of sellers regularly fielding scores of offers and accepting bids tens of thousands of dollars over their asking prices. Strahm said he’s seeing things he hasn’t in years — price cuts and sellers offering to contribute to buyers’ closing costs.

“Buyers have been — depressed may be a good word to use — during most of the pandemic,” Strahm said. The market has become more favorable for them in some ways, but “it’s still a tough time” for buyers.

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Because fewer buyers are looking for homes, properties are staying on the market longer than they had been — but still moving off the market faster than in 2019.

Instead of some homes spending a few hours on the market before getting claimed, homes remain for sale for a few weeks, said Erin Lewandowski, team leader of the Erin Lewandowski Team with Berkshire Hathaway HomeServices Fox & Roach, Realtors based in Moorestown.

Buyers now have more time to strategize and negotiate, she said. They’re not feeling pressured to waive home inspections and other contingencies. They want to find a property they will still be happy with in five years, at minimum, given current home costs.

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But demand is still strong, especially for single-family homes under $500,000, said Lewandowski, whose team operates across South Jersey.

“Overall,” said Sturtevant at Bright MLS, buyers “are still feeling the pressure to act fairly quickly when they find a home that meets their needs.”