Region holds line on prices of previously owned homes

After seven consecutive quarters of decline, the market for previously owned homes in the eight-county Philadelphia region remains woefully short of sales but is holding the line on prices.

June brought an 11.1 percent decline in sales over the same month in 2008 and a 3.3 percent drop in median prices, according to Prudential Fox & Roach's HomExpert Market Report.

That translates to 4,777 sales in June 2009 compared with 5,372 a year ago. The median price was $230,000, compared with $237,750 in June 2008 (half the houses sold for more, half for less).

Nationally, it was a different story: June sales rose 3.6 percent over May, though they were down 0.02 percent from June 2008. And the median price fell 15.4 percent year over year, because 31 percent of all U.S. sales were foreclosures or short sales at deeply discounted prices, said Lawrence Yun, chief economist of the National Association of Realtors.

That doesn't bother TD Bank chief economist Joel L. Naroff.

"Yes, many of those purchases were for foreclosed homes, but a sale is a sale," he said, suggesting that the third consecutive monthly increase in volume nationwide shows that "housing may no longer be the weakest link."

Naroff's opinion is not shared universally, however.

"The market for existing homes may be turning around, but it is too soon to make this call," said economist Patrick Newport of IHS Global Insight.

His reasons for skepticism: rising unemployment, tight credit, and mortgage rates that are higher now than they were in the second quarter.

Yesterday, Freddie Mac reported that fixed 30-year rates rose slightly in the last week, to 5.20 percent.

At the same time, prices of Treasury bonds, considered a safe harbor for investors in times of economic duress, fell yesterday, boosting yields.

Higher yields on long-term bonds can boost mortgage rates. Bond prices are dropping because of lower demand, as investors return to a seemingly healthier stock market.

"Our view is that [home] sales will sag until the labor market turns around," Newport said. "This will not happen until next year."

In the Philadelphia region, foreclosure sales make up too small a portion of the total existing-home inventory to have the impact on prices that's being felt elsewhere - such as the 50 percent fall-off in Southern California and Florida.

Even short sales - transactions in which the lender agrees to take less than the amount owed - account for only about 3,000 of the 43,000 existing houses for sale in the region, said Art Herling, vice president of Long & Foster Real Estate.

Looking back at the second quarter in the city's single-family home market (excluding condos), Wharton research fellow Kevin Gillen found a mixed bag.

"Prices rose 6.8 percent in the second quarter from the first after declining for the previous seven," said Gillen, vice president of Econsult. Year over year, the drop was just 5.34 percent.

The price gain can't be attributed to sales of only a few high-priced houses in Center City or Chestnut Hill, Gillen said.

Until the second quarter, he said, seven consecutive quarterly declines had reduced city single-family-home prices by a cumulative 18 percent. The second quarter's 6.8 percent price increase reduced the cumulative decline by that amount, to about 11 percent

"We're still looking pretty good," Gillen said. "We're just not a bubble market - our prices just doubled [during the real estate boom], while small cities quadrupled or more. We added just 11,000 new units in 10 years, while smaller cities built 20,000 to 40,000."

Who's buying these days?

Not first-timers, Gillen said, not even with the lure of an $8,000 tax break, because credit remains tight.

In Center City, "it's people already here trading up," said Realtor/developer Allan Domb. "You sell for $500,000 and buy for $1 million.

"What was $600,000 is now $500,000, and what was $1.2 million is now $1 million," Domb said.

A lot of lower-priced properties - even as low as $19,000 - are being purchased by "flippers and speculators looking for rental property" in marginal neighborhoods, said Mayfair broker Christopher J. Artur.

"During the boom, a lot of out-of-town speculators came in with cash and boosted prices beyond what first-time buyers and local investors could afford," Artur said. "These people took a hit, and now local investors are back in the market."

The bottom line for the region's market is this, Gillen said: "Our bad fundamentals worked out again for us."