Right now, the competition for properties is fierce. But the bubble has to pop eventually — right?
So, how out-of-control is the real estate market hereabouts right now?
The following two tales might clue you in.
The first comes from Cherise Wynne, team lead of the Wynne Group at Compass Real Estate, who was helping a woman who had moved here from New York land a house she had her eye on in Germantown. The house, a freestanding structure that complemented the twins to its west, was on a street one block from Cliveden. It had received several upgrades, including a new kitchen, primary bath and sunroom, and was in great shape — at least, on the inside. “The house had a ton of character, which is why people loved it, but it needed a good bit of exterior work,” says Wynne.
She and her client slotted a private showing a few days after it went on the market, immediately after the open house scheduled by the listing agent. A private showing enables buyers to get a closer look at the house and is usually just that — private. But when they arrived, they found they weren’t alone. The open house had ended late, and two other groups of people were already in the house. Another agent was on the porch, waiting to get in. When the other agent told her that she and her client were to be shown the house at 1 p.m., Wynne replied, “Oh, that’s funny. So am I.”
Agents aren’t supposed to double-book showings, especially with COVID safety rules in place, but the listing agent apparently did because so many buyers wanted to see the house. Wynne and the other agent were left to figure out how to work things so they wouldn’t bump into each other while touring the house with their clients.
Then they all went inside. But after five minutes, the crowd grew.
The private showing turned out to be a mob scene. Wynne says there were upwards of 10 groups of buyers and agents going through the house while she and her client were there. And, it appears, all of them submitted offers on the house, which was listed at $239,900. “Needless to say, we wrote an offer. We came in $40,000 over asking, and we were ready to pay the transfer tax and a couple of other charges and have a limited home inspection” instead of a full one, says Wynne.
Even that wasn’t enough. After submitting the offer, she got an email from the agent — a bulk email sent to all the losing bids. It said, in essence: “Sorry, everyone, I hate to do this, but in the course of four days, we had 100 showings and got 25 offers. And we accepted one” — the only bid higher than the one Wynne had put in.
And all this took place while the house was still occupied.
The other story comes from Joshua Pagan, an agent with the Damon Michels Team at Berkshire Hathaway HomeServices Fox & Roach Realtors.
His sellers wanted $260,000 for a three-story rowhouse on Indian Queen Lane, about a block and a half from the main commercial intersection in East Falls. That would be enough for them to pay off the two mortgages they’d taken out on the house, pay off most of a delinquent property-tax bill, and buy a much smaller $30,000 house in Pottsville.
A price in the mid-200s isn’t out of line for that part of East Falls, where similar houses have sold for anywhere from $255,000 to $400,000 recently. But those houses were all in good shape. This one was on the verge of collapsing into itself and had proven impossible to sell over the past few years.
The owners had grown up in the house and lived in it for nearly 70 years. To hear Pagan tell it, however, once they became its owners, they put nary a cent into its upkeep.
“The first thing you noticed when you walked in was it smelled like cats,” he says. So, he thought, we just need to get rid of the cats. But it got worse as he continued on his tour: The electrical wiring on the upstairs floors of the three-story house was shot, and the owners had jury-rigged extension cords to supply power there. The plaster was coming off the living-room walls, the linoleum on the kitchen floor had been half destroyed, and the ceiling in the back room and a room on the third floor were both collapsing. Upstairs, a makeshift second kitchen was being powered by a single extension cord, including its range. One bedroom on the third floor was filled with birdseed, and another had so much water seepage that its ceiling was falling in and the ceiling fan had folded downward.
“I’m surprised everyone left this house unscathed,” says Pagan.
The house had been on and off the market since 2019, when the owners had asked him to list it at $360,000. It sat for months. Just before the pandemic lockdown, he relisted it for $220,000, then pulled it off the market in April 2020 after getting a handful of lowball offers.
Then, at the end of 2020, the owners told him about the property-tax bill and the house they wanted to buy in Pottsville. Pagan reluctantly decided to relist their home in January of this year for $260,000 — and was surprised to receive several calls from people offering all cash, at a lower price. That alone felt like a miracle. Soon after, another agent called to make an all-cash offer at the asking price, sight unseen.
“And I’m like, ‘Are you sure?’ She doesn’t even know what it looks like on the inside.”
But the agent, who wanted to buy the home for herself, insisted she was fine with the offer; her husband was an architect, and they could handle the total rebuild the house would need. Ultimately, the couple decided to finance the purchase, so the journey from agreement to closing took about four months. But Pagan and the owners got every penny of the $260,000 they wanted. The house is now being rebuilt.
The moral of these stories: Right now, the competition for properties is so fierce that decent houses get a flood of offers and sell quickly, and even the turkeys find buyers at asking price.
According to Kevin C. Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation, this market is like none he’s seen in his years of analyzing Philadelphia residential real estate sales. Since last summer, he says, the market has outstripped even the 2008 market, the peak year of the real-estate bubble: “It’s the hottest market I’ve ever seen in terms of turnover rate, the amount of sales, the million-dollar sales, the price appreciation, the rapid turnover of homes once they’re listed. On any metric you want to bring to bear, the market is between red-hot and white-hot.”
Some of this, Gillen says, is due to cyclical factors that routinely affect the housing market. One of those is interest rates that stand at all-time lows: “When interest rates are low, houses become more affordable, and that tends to push prices up.” Combine that with extremely low inventories of houses for sale, and the prices rise even further. “But the other big factor is that after the pandemic, there’s been a structural shift in the economy, from spending outside of the house to spending in the house.”
That’s due to two main factors, he says. “First of all, you have more people working remotely from home than ever before, so your house isn’t just where you live; it’s now your office. Since you spend more time there, you’re incentivized to make the house more pleasant for you.
“On top of that, because of COVID, you couldn’t go out, so all the money that would be spent on dining out or going to the theater and museums or traveling on vacation, people are spending in their home. So your home isn’t just where you live and work; it’s where you play — it’s your gym, it’s your spa, it’s your theater, it’s your restaurant. Your yard is your park.” And people have been willing to spend on home amenities as well as on homes that have them. Gillen says that since the pandemic began, outdoor items such as swimming pools and tennis courts, which usually add no value to a property at best, have skyrocketed in worth. Broker Mike McCann of Keller Williams Philly says that in the suburbs, “People are telling me it takes a year or more to get a pool installed. Even getting servicing for a pool is taking forever.”
Agent-developer Noah Ostroff’s own life this past year exemplifies what Gillen is talking about. Ostroff, who has been in real estate since 2003 and in sales since 2008, is the CEO and founder of Philly Living, a real estate sales team and property management company; he also heads up Keller Williams Philly, the largest single real estate brokerage office in the city. According to Ostroff, cash that used to go to lattes is now being squirrelled away for down payments: “Take Starbucks. People go to Starbucks every day, and they weren’t doing that, and they weren’t taking Ubers as much as they used to. These little things add up over the course of the day and week.”
Did they ever. According to a report in the Wall Street Journal at the beginning of this year, the nation’s savings rate had risen to 13.7 percent at the end of 2020 — 71 percent above its pre-pandemic level of roughly eight percent.
Ostroff acknowledges that this good fortune wasn’t evenly distributed: If you worked in that Starbucks, waited tables at the restaurant or drove that Uber, your income took a hit, and if not for pandemic unemployment assistance, you might have found yourself unable to pay your rent or mortgage. But those who did benefit from this structural shift found themselves with more money that they could put toward a real estate budget.
Ostroff believes the run-up in prices after the lifting of pandemic restrictions led some homeowners to accelerate plans to sell their houses or buy a new one. “People looking to move within the next one, two or three years expedited that timeline because of interest rates being low,” he says.
The trouble is, those people were joined by others who may not have planned on moving at all until the pandemic and the structural shift in work it produced untethered them from the need to be close to their workplaces. This led some city dwellers to seek more socially distant housing in the suburbs. But, Ostroff notes, “We also got an influx of people from New York, D.C., and other regional cities close to us who realized they could keep their New York salaries and work from Philadelphia, maybe going to New York once a week or once a month.”
The result: Even as more people put their homes on the market, inventories remained incredibly low, because even more people were still looking to buy. According to figures from BHHS Fox & Roach for January of this year, 5,225 homes were sold in the eight-county core Philadelphia metropolitan region that month, up nearly 15 percent from the year before and 29 percent from 2019. But average days on market plummeted to 34, down 41 percent from 2020 and 46 percent from 2019.
Alas, nothing lasts forever, and Gillen says the conditions that have produced this insanely competitive market are bound to change. For starters, even work-from-homers will be spending less time there than they have been, as Pennsylvania, New Jersey and Delaware have all lifted most of the capacity and hours-of-operation restrictions placed on restaurants, bars, sports facilities, cultural attractions, and other public gathering places. So some of that money we’ve been socking away will get spent dining out or grabbing a coffee at Starbucks, leaving us to spend less of it on our homes.
Besides, he says, certain fundamentals of the regional economy mean the merry-go-round will have to come to a stop: “It can’t continue for the very simple reason that prices can’t grow faster than their fundamentals can justify indefinitely, particularly relative to incomes and population growth.” Put another way, unless the stream of New Yorkers moving here turns into a flood, it will be difficult for house prices to sustain their current levels based on how many Philadelphians are in the market and what they can afford.
Ostroff doesn’t see that inevitable slowdown happening within the next year, though: “I think the current market will continue for at least the next 12 months, because it takes a while for interest rates to rise. They’re not going to go up a lot in a short period of time.”
He also says that people currently renting, including many millennials, will help keep the market buoyant as they come off the sidelines and start to buy. “And to me, that’s great, because we all thought this [huge seller’s market] was going to end three or four years ago.”
Gillen also sees millennial first-time homebuyers keeping the sales party they started before the pandemic going at the starter-home end of the market: “They’ve got their stimulus money, so they feel richer than they’ve probably ever been. They’ve gotten older, so they’re more mature; they’re pairing up and having kids. And they’ve been cooped up for over a year, so they haven’t been going out and spending money. So their savings accounts have grown, they’ve been paying off their credit cards so their scores are up, and things are opening up, so they feel there’s a general air of optimism.” He does caution that because of a lumber shortage, rising construction costs will likely lead to few if any new houses being built within the price range of those starter-home buyers.
And while Gillen says Philly buyers alone can’t support current price levels, a price drop isn’t the only possibility for the future: “We’re either going to have a significant downward correction, which will be painful, or we’re going to become an unaffordable city, which will also be painful. Neither of these two outcomes will be good. Now, which one is going to happen?”
As for Wynne’s client who lost out on the Germantown home: After she failed to come to terms with the seller of another house, Wynne told her about an off-market house in West Philly’s Cedar Park section that was about to be listed. The client made an early offer, and it was accepted — and she didn’t have to fight anyone else to buy it.
Published as “Philly’s Real Estate Rush” in the August 2021 issue of Philadelphia magazine.