If warning signs of a possible U.S. recession are currently flashing, Valeria Kremser doesn’t see them in the Philadelphia housing market.

Instead, she sees a market where homes are selling quickly, where bidding wars still exist, and where buyers must submit offers on several homes before one pans out. Take it from Kremser: Since June, the 40-year-old Philadelphian has toured 15 homes. She’s bid too little or too slowly on three. Finally, this month, she and her husband put a cozy two-bedroom in Point Breeze under agreement, nabbing it for about $200,000 just two days after it was listed.

It might: In some parts of the Philadelphia region, the housing market remains just as busy as ever.

Since the local housing recovery began in 2012, after almost five years of decline that started just before the Great Recession, the Philadelphia housing market has experienced a rise that is extraordinary for this historically gritty, underdog city. In the last seven years, Philadelphia home prices have risen nearly 46%, data from local economist Kevin Gillen show. Neighborhoods grappling with disinvestment have seen housing and retail sprout. Population has grown, income has jumped, and nearly 6,000 vacant units have vanished. “The city feels like it’s getting a face-lift,” said Mark Zandi, chief economist of Moody’s Analytics.

A home in Mantua sits in disrepair in July 2017. Philadelphia has long struggled with a vacant-home problem, but according to U.S. Census Bureau data, the number of vacant homes in the city has declined by nearly 6,000 between 2010 and 2017.
CAMERON B. POLLACK / File Photograph
A home in Mantua sits in disrepair in July 2017. Philadelphia has long struggled with a vacant-home problem, but according to U.S. Census Bureau data, the number of vacant homes in the city has declined by nearly 6,000 between 2010 and 2017.

Crossing county lines, the Philadelphia suburbs have experienced growth, too — though not at nearly the same rate as the city. Housing prices in the suburbs have grown almost 21% in the last seven years, according to Gillen, though, recently, they have been rising faster than Philadelphia’s. Homes in the region now sit on the market for fewer than 60 days on average. And in the second quarter of 2019, 252 million-dollar homes were purchased in the suburbs — an all-time high.

Experts say this unprecedented growth has cemented housing as a crucial part of the local economy, adding jobs, investment, steady work, and more.

Which raises an important question: If a recession were to come, would all of this go away?

No ‘major hangovers’

Since President Donald Trump escalated the trade war with China in recent weeks by imposing another round of tariffs on Chinese goods, the conversation surrounding a possible recession has swelled.

The U.S. stock market tumbled dramatically, before climbing again. Google searches for “recession” spiked.

And analysts sounded alarms after the notorious yield curve inverted, meaning long-term interest rates in the bond market fell below short-term ones. This happens when investors, worried about the near-term economic future, begin piling into long-term bonds, such as 10-year Treasury notes, to take advantage of the higher returns that they typically offer. Yet as demand for these bonds rise, interest rates fall, and the cycle continues. Economists widely view the inverted yield curve as a recession indicator. (Plus, it’s occurred before every recession in the last 50 years.)

To be sure, there are plenty of other reasons that suggest a slowdown is coming. Manufacturing hiring has slowed, as has the industry’s output. Corporate executives say they are more nervous. Central banks, including the U.S. Federal Reserve, have cut rates to help stave off a downturn. All the while, researchers have begun to study whether Trump’s tweets change uncertainty in the economy. (The answer, according to a University of New Hampshire honors thesis published last year, is they do.)

But it isn’t all bad. Consumers, whose spending accounts for more than two-thirds of the economy, continue to shop. Unemployment is low. And many housing markets, such as the Philadelphia region’s, are still humming. In Philadelphia alone, nearly 5,500 zoning and building permits were issued in August — down only slightly from May’s 6,010 permits, a more than 12-year high.

Meanwhile, between April and June, housing prices in the city jumped 8.5 percent compared with the year before — nearly double the historic average. The median house price in the city now sits just under $175,000.

That strength in the local housing market, analysts say, puts the region in a strong position to weather a recession. Philadelphia and its suburbs tend to be less volatile than most other metro areas, meaning the region’s housing market doesn’t usually rise as high during boom times as that of its peers — such places as Miami, Tampa, or Phoenix. But it also means that when the market crashes, the Philadelphia area tends to not fall as hard.

Take, for example, the years after the Great Recession, when real estate markets crumbled — the result of a subprime mortgage crisis that gave risky borrowers even riskier loans. Between 2007, the year the recession started, and 2012, housing prices in the Las Vegas metropolitan area plummeted nearly 62% — by far the steepest drop of 21 of the largest U.S. cities. Housing prices in the Miami metro area dropped 51%; near Washington, they declined nearly 33%.

Philadelphia’s housing prices, meanwhile, fared far better than most other cities', with a decline of 20.2%, according to data prepared for The Inquirer by Gillen, the Drexel University economist who is also a senior economic adviser for Houwzer. The Philadelphia suburbs saw prices drop slightly more, 23.3%.

Still, those modest local drops proved beneficial during today’s recovery. With less ground to make up after the crash, a home that was worth $200,000 in 1999 in Philadelphia is worth more than $526,000 today. In Las Vegas, comparatively, that same 1999 home is worth slightly less than $400,000.

“The reason for our relative stability during the last boom is the same reason as during the current one: We’re not overbuilt, we’re not over-leveraged, and we’re not over-speculating,” Gillen said. “... We don’t get the major hangovers that come from getting over-developed.”

An atypical recession

The Great Recession was unlike any other U.S. economic slowdown.

While the U.S. had plenty of other downturns after the Great Depression of the 1930s, the Great Recession struck like an earthquake. Economists failed to see it coming, and millions of families were affected: As unemployment skyrocketed and debt mounted, households that had been given risky mortgages suddenly could not handle payments when the housing bubble burst. Financial institutions that had built their businesses on investing in bundles of the risky mortgages collapsed. People lost jobs, homes, savings.

“Everyone was under the impression that home prices could basically never go down,” said Daryl Fairweather, chief economist for Redfin, an online real estate brokerage. “And when it all came crashing down, that brought down the economy. The recession didn’t cause the housing bubble to burst. The housing bubble bursting caused the recession.”

Yet the national housing market’s collapse during that time was an anomaly, Fairweather said. U.S. housing, as a whole, does not typically suffer during a downturn. In the four recessions that preceded the Great Recession, national home prices declined an average of just 2.7 percent from the start of the slowdown to its end, a Redfin study found.

“Typically you don’t see outright declines in prices,” said Zandi, of Moody’s. “That was a very unique feature of the Great Recession that speaks to how overvalued and speculative the housing market was prior to the financial crisis.”

The Philadelphia housing market tends to not rise as high as other markets during boom cycles, or fall as hard during busts. A house valued at $200,000 in 1999 is worth more than $526,000 today.
Charles Fox / File Photograph
The Philadelphia housing market tends to not rise as high as other markets during boom cycles, or fall as hard during busts. A house valued at $200,000 in 1999 is worth more than $526,000 today.

Less risk in Philadelphia

By many standards, the U.S. housing market is much healthier today.

Lenders have been giving mortgages to less risky buyers, and federal agencies are continuing to better police the industry. The country doesn’t have the oversupply of homes that the 2000s had.

Instead, today’s rapid rise in prices can be partly attributed to too few homes on the market. In the Philadelphia area, supply is hovering near all-time lows.

Still, many markets have begun to deflate, especially along the West Coast — such places as Seattle and San Francisco — as fierce competition for too few homes is forcing many to abandon the market. Some have also speculated that buyers may be retreating due to recession fears. Others say it may be an effect of flippers leaving West Coast markets.

In the Philadelphia suburbs, however, the number of single-family home sales reached more than 19,000 between April and June — one of the highest volumes since the housing recovery began, according to Gillen’s data. (Gillen defines the suburbs as Bucks, Chester, Delaware, and Montgomery Counties in Pennsylvania; Camden, Burlington, Salem, Mercer, and Gloucester Counties in New Jersey; and New Castle County, Del.)

Sales in Philadelphia, in contrast, declined 15.4% from the year before, though they remain much higher than the historic average.

Still, Fairweather from Redfin said Philadelphia’s metro area remains less at risk for a significant housing downturn if a recession were to hit: Homeowners in the area tend to hold more equity in their homes, the market has comparatively fewer flippers, the job market is fairly diversified, and the local economy is less reliant on exports than other metro areas.

“I haven’t noticed any acute response or panic from the market — no one has called me and said, ‘I need to sell right now because of the recession, or I need to buy now because of the recession,’ ” said Jeff “City” Block, a real estate agent at Compass. Then again, he joked, as the old saying goes, the market “has predicted nine of the last five recessions.”