The Philly region’s luxury housing market is chasing the middle market’s success
Homes priced at a few hundred thousand dollars are driving the region's "hot" real estate market more so than luxury homes, despite the pandemic's greater impact on lower income residents.
As a dentist, Judee Hashem-Rapoza sees about 50 patients a day at her Plymouth Meeting office. She’s listened as person after person has told her how fast a neighbor’s house sold or how the house across the street went for more than the asking price.
Her two daughters are adults now, and she and her husband, Anthony, know it’s time to downsize from their 8,600-square-foot house on seven acres in Eagleville, Montgomery County. They decided about a month ago to list the $1.95 million property, which includes a long, private driveway and a 4,000-square-foot barn.
“Since the market is so active, it just seemed to be the perfect time to put the house on the market,” Hashem-Rapoza said. “We don’t expect the activity that the range of, let’s say under a million or a million dollars would get. Because this is a $2 million property. And it’s not going to go as readily as an average-priced home. ... We realize that as soon as you hit that $2 million market, it limits your buyers.”
Overall, housing demand in the Philadelphia region has been stronger over the last few months than at this time last year, at least partly because of activity deferred from spring pandemic shutdowns. Historically low mortgage interest rates also are spurring activity across the market and allowing buyers to afford more expensive homes. And the pandemic-induced recession hasn’t hurt wealthy buyers as much as those with lower incomes. But that doesn’t mean the market’s most expensive homes are selling as well as median-priced homes.
While demand is outpacing supply in the middle market, high-end inventory has been boosted by sellers such as Hashem-Rapoza, who are putting their homes on the market at record rates, said Daryl Fairweather, chief economist at Redfin.
Nationally, the number of “luxury” homes — with a median price of $862,700 — for sale from July to September this year was up 8.4% from last year, while the numbers of houses for sale in every other price range were down, according to Redfin. Homes across price ranges are selling more quickly now than they did a year ago, but while luxury homes spent a median of 58 days on the market, homes in the other price ranges sold more quickly — in about a month.
Nationwide, sales of luxury homes were up 41.5% in the third quarter of 2020 compared with a year ago, outpacing sales growth in the other price ranges. But of the top 49 most populous metropolitan areas in the country (excluding New York City), the Philadelphia region was one of two where sales in the top 5% of the market dropped from last year, according to Redfin. Luxury sales in the Philly region — with a median price of $830,000 — were down 8.2% in the third quarter compared with the same time last year.
The region’s $1 million-plus homes
The region’s top-tier homes, those priced at more than $1 million, are “definitely sitting longer than the median priced homes,” said Realtor Helen Kowalchik of the Kowalchik Team, which serves Philadelphia and surrounding counties. Nationwide, about 2% of homes are valued at more than $1 million, according to online loan marketplace LendingTree.
“All in all, I feel like the market is very strong,” Kowalchik said. But the luxury and median markets are two different entities.
Homes priced at a few hundred thousand dollars “are the homes that are driving the quote, unquote hot market” where buyer demand is incredibly strong, she said. The luxury market has lots of sellers, so “that inventory is still adequate,” she said. “It’s not a commodity like the median-priced homes are.”
Homes in the median price range are targets for bidding wars that boost sale prices. But the average $1 million-plus home in Philadelphia’s collar counties is almost always selling for less than the original asking price, Kowalchik said. Some sellers of luxury properties who are excited by the strength of the overall market inflate listing prices, which leads to their homes sitting on the market longer. Sellers then are forced to lower prices.
Luxury home buyers also generally aren’t in a rush. They don’t want to compromise and are more likely to pull out if they believe that they are not getting what they wanted, she said. Not many buyers can afford homes in this range, so they know they have fewer competitors.
“They know that they have the upper hand in that situation almost always, especially in the suburbs,” Kowalchik said.
Over the last few months, she has had to withdraw offers in the $1 million to $3 million range after buyers tell her they no longer want to buy a home. Sometimes it’s because of news, she said. Potential buyers at the high end of the market are more wary of their investments in general now because of uncertainty during the pandemic.
One of Kowalchik’s clients put in an offer on a home but lost income and no longer qualified to purchase it. Another client was shopping for a home when he received notice from his employer that he may have to transfer, so he suspended his search.
Fairweather, the Redfin economist, said that although the recession primarily is hurting low- and middle-income people most, “as it goes on, it could start to impact luxury buyers more." She said low interest rates that are spurring buyers in the middle of the market aren’t having as big an effect on wealthier potential buyers in the higher-end market.
Still, "for people who are fortunate and do have means, the rate can get them over the top” to afford top-tier homes, said Chris Finnegan, chief marketing and communications officer of the listing service Bright MLS. “These higher-priced properties are now a little bit more attainable because you’re going to be saving because of the lower rates.”
The number of homes priced at or above $1 million that are selling across the Philadelphia metropolitan region and the speed at which these homes are selling makes this segment of the market the strongest it’s been “in recent memory,” Finnegan said. Sales from July to September are up 42% from the same time last year, according to Bright MLS.
That’s at least partly due to the pandemic, which is spurring home buyers to seek more space. They want more rooms, multiple home offices, and space for at-home schooling, if they can afford these amenities, which can drive a home’s price to near or more than $1 million depending on the location.
Center City luxury condos
Philadelphia’s luxury condominium market isn’t getting as much attention now as it had been before the pandemic, said Mike Fabrizio, a Realtor with RE/MAX Access who specializes in Center City condos. High-end condos are having some of the same challenges other types of multifamily buildings are having: Because of the pandemic, some people don’t want to live in shared spaces.
Fabrizio, of Mike Fabrizio Luxury Real Estate, said he’s seeing many more units for sale by owners than usual, in part because some empty nesters are moving up plans to purchase retirement homes and because some residents with two homes are selling their condos. The abundance of inventory is helping drive down prices to 2016 levels, he said. Condos that would normally sell quickly are sitting on the market despite price cuts.
“There’s really amazing opportunities out there right now,” he said. “The savviest buyers are getting the best deals.”
As with sellers of single-family houses, sellers of condos in the high-end market see how strong the housing market is generally and wonder why their properties aren’t selling.
“It’s such a spotty market right now,” he said. “You just have to say, ‘Listen, it’s not this market, it’s this market’" and manage sellers' expectations depending on price and location, he said.