Archive for August, 2008

Buy now or later? By the numbers….

Tuesday, August 19th, 2008

Given all of the media’s coverage of the negatives of the market, we’re seeing that many buyers are on the fence about whether to move forward now or wait a year and purchase then. The main argument for waiting tends to be something akin to: Prices will fall and I’ll get more for my money. Though there are good arguments on both sides, Kevin Gillen’s data seems to suggest that, at least here in Philadelphia, we shouldn’t expect much of an adjustment downward in price.

At the same time, we all know that interest rates have risen (about 1% in the last quarter) and most economic forecasts assume that they will continue to rise. So what is a buyer to do?

We’ve put together some simple numbers looking at what we believe could be reality – a 5% drop in home prices coupled with a 1% increase in interest rates. Most indicators show that 5% is probably a bit extreme, but erring on the side of caution seems prudent. So what does this all mean?

Loan Amount Today Payment at 6.5% – Current Rate Loan Amount if prices decreased 5% Payment at Lower Price with 7.5% Rate Difference in monthly payment
$250,000 $1,580 $237,500 $1,660 + $80
$350,000 $2,212 $332,500 $2,324 + $112
$450,000 $2,844 $427,500 $2,989 + $145

It turns out, from a financial standpoint, most buyer will save themselves money by hedging their bets against increasing interest rates rather than hoping that the market will dip. After all, most people who were hoping for a dip were not so happy to find out that Center City prices are up 1% year over year….

A Look at the Philadelphia Inventory and Price Ranges

Thursday, August 7th, 2008

As real estate agents, we look at a number of metrics when evaluating the performance of a market. One of the key factors is ‘inventory accumulation.’ This is simply the number of units on the market divided by the average number of sales per month. In other words, this number represents the number of months it will take to sell all of the homes on the market assuming that no other homes are listed.

Right now, Philadelphia has an inventory accumulation of 9. What is interesting about this is if you look at the breakdown by price range:

From $200,000 to $300,000 the accumulation is 9.
From $300,000 to $400,000 the accumulation is 10.
From $400,000 to $500,000 the accumulation is 11.

Notice a pattern? Now here is where it gets interesting:

From $500,000 to $600,000 the accumulation is 18!

I wish I could say that it improves after that, but it keeps climing to an inventory accumulation of 56 when you get to $2,000,000.

So what does this mean? Simply put, the city-wide numbers that are being reported are heavily skewed because of the luxury properties that just are not selling. However, for the “average” Philadelphia buyer and seller under $500,000, the market is strong and moving along. For a more detailed look at the market on a nieghborhood level, see our exclusive market report.

Forbes Names Philadelphia a Best Buy

Friday, August 1st, 2008

In a recent article by Forbes, Philadelphia was named the 4th best city in which to buy real estate. Their decision included factors such as increasing values, shrinking vacancy rates, and the relative cost of owning versus renting. Simply put, “Philly is a great place to buy a new home.” It’s relieving to see the media finally recognizing that though the nation may be still recovering from the housing slump, there are a number of cities where purchasing still makes financial sense.

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