December 2022 Philadelphia Mastermind Group Key Take Aways!
• Mortgage rates are increasing and have risen by 3.5 percentage points. High interest rates have been a pain point for real estate agents. (Kevin Gillen – Lindy Institute at Drexel University)
• Unemployment spiked during the pandemic but is back to the average in just 2 years. (Kevin Gillen – Lindy Institute at Drexel University)
• Material costs remain high and choke points in the supply chain continue to be an issue in construction. (Kevin Gillen – Lindy Institute at Drexel University)
• Home prices are up sharply since Covid. They’re up 85.4% since 2012 and 22.1% since Covid, which is an average annual return of 10%. (Kevin Gillen – Lindy Institute at Drexel University)
• Rate of growth has been decelerating over the past year – from 26.2 % in the suburbs to 5.2% and from 13.7% to 5.9% in the city. (Kevin Gillen – Lindy Institute at Drexel University)
• Philly tends to underperform most other large US cities but there is less cyclical volatility. (Kevin Gillen – Lindy Institute at Drexel University)
• Historically speaking, 19-20% over the long run average suggests a peak. We’re currently at 17% in Philadelphia. (Kevin Gillen – Lindy Institute at Drexel University)
• Zillow publishes a forecast and is projecting the average home price increase in Philly will be 0.7%. Their previous forecasts were 6.2% 3 months ago and 12% 6 months ago. (Kevin Gillen – Lindy Institute at Drexel University)
• Rents have experienced significant growth over Covid but appear to be leveling out. Lots of new supply is coming onto the market. (Kevin Gillen – Lindy Institute at Drexel University)
• Home sales in the city set a record 6 months ago but are down 35% since then (still running above average). (Kevin Gillen – Lindy Institute at Drexel University)
• Million-dollar sales have been performing exceptionally well, which is a positive sign for both the housing market and the longer run economic outlook for the city. Still down sharply from the peak. A lot of people buying in this segment are buying in cash. (Kevin Gillen – Lindy Institute at Drexel University)
• The quantity and quality of public services you get in relation to the tax rates you pay significantly affects home values. (Kevin Gillen – Lindy Institute at Drexel University)
• There are not nearly as many million-dollar sales in Baltimore as there are in Philadelphia and there are significantly more million dollar homes in the DC area. (Kevin Gillen – Lindy Institute at Drexel University)
• Philadelphia inventories remain low, which is also true nationally, but are trending up. Rising inventories tend to be a leading indicator of a softening market. (Kevin Gillen – Lindy Institute at Drexel University)
• Residential building permits hit an unprecedented high in 2021. This is primarily due to the changes to the tax abatement laws. There is a lot of anti-development sentiment, particularly in younger populations.
• There were approximately 2700 new residential units in the works in greater Philadelphia (whole region) vs just over 26,000 permits approved in the city only. (Kevin Gillen – Lindy Institute at Drexel University)
• Philadelphia in the 1920’s and modern-day comparable cities (such as Houston and Phoenix) suggest new home construction is considerably lower than it should be. Should be adding just over 7,000 more units. (Kevin Gillen – Lindy Institute at Drexel University)
• When new homebuilding is high, rents are more affordable. When new homebuilding falls, rentals become less affordable. (Kevin Gillen – Lindy Institute at Drexel University)
• The average price of an existing home is approximately $285K while an average new home is approximately $809K. (Kevin Gillen – Lindy Institute at Drexel University)
• Increasing new housing construction would also increase tax revenue. (Kevin Gillen – Lindy Institute at Drexel University)
• To get more information on home data, https://www.opendataphilly.org/ is a great resource where all the data collected by the city is available. (Kevin Gillen – Lindy Institute at Drexel University)
• One obstacle to new home construction is the city has been depopulating. It also has some of the highest construction costs in the country but without the high rents to support the development. (Kevin Gillen – Lindy Institute at Drexel University)
• Paul Levy of the Center City District tracks data for commercial construction. A lot of commercial construction is down due to uncertainty over hybrid working. (Kevin Gillen – Lindy Institute at Drexel University)
• During Covid, Millennials saved more money, and their credit scores went up, and some became first time home buyers. (Kevin Gillen – Lindy Institute at Drexel University)
• One segment of the commercial market that’s done well is warehouses. Allentown is doing really well and hosts Amazon’s biggest distribution center east of the Mississippi and also Trader Joe’s largest food processing plant. (Kevin Gillen – Lindy Institute at Drexel University)
• New graduates want to go to work, and companies are spending money on spaces in order to attract young employees. (Rick Lackey – REAL Professionals Network)
• The market has been calm. They haven’t purchased anything recently, in part due to the uncertainty of interest rates. (Christian Dalzell – Counter Management)
• It has been a slow fall / early winter, but the number of inquiries has picked up at a time that’s typically slow. (Christian Dalzell – Counter Management)
• 10% of new candidates are looking for hybrid work options but their company is mostly just in person. More candidates in London looking for hybrid / remote, but not sure why. (Kirk Butler – Chatham Financial)
• There has been an uptick in people renting this month for some reason. They also had new leases signed when the lessee subsequently lost their jobs. So they are seeing rent bumps but also seeing signs of a recession creeping in. (Christina Lutz – Counter Management)
• There has been a declining number of permit requests, but expect a further decline due to zoning overlays. (Dennis Carlisle – OCF Realty)
• Process to get a variance is 9-12 months and expected to become longer. The next mayor will appoint new board members and will have a lot of influence over the future of construction in the city. (Dennis Carlisle – OCF Realty)
• Construction prices have killed a lot of deals and the rent structure isn’t there to make expensive build-outs, so it’s been tough for landlords. (Joseph Viturello – PernaFrederick Commercial Real Estate)
• Has a client who is looking to buy land up and down the turnpike in PA and NJ to be used for cold storage in the CBD industry. There are a lot of regulatory issues. (Andrea O’Neal – Berkshire Hathaway Homes Services)
• Some deals have fallen through due to rising interest rates, but overall, they remain busy. (Sara McCormick – Ballard Spahr)
• Their zoning practice has been very busy and always looking for new attorneys in that market. (Sara McCormick – Ballard Spahr)
• As a stormwater engineering firm, they continue to be busy and expect to remain somewhat recession proof. They’re helping universities and private clients who want to get ahead of the regulatory curve. (Carolyn Paone – AKRF)
• There has been an end-of-year proposal rush and they are starting to see the beginning of infrastructure money coming through. (Jim Karmolinski – Kelly Maiello Architects)
• Costs of many materials have come down, but contractors are having a difficult time replacing the employees who have retired. This is helping to keep prices high. (Jim Karmolinski – Kelly Maiello Architects)
• As a land development consulting and engineering firm, they are feeling zoning changes. (Shannon Heyback-Park – Bohler Engineering)
• New landscape requirements are coming out. (Shannon Heyback-Park – Bohler Engineering)
• The Beige Book was released on November 30th and can be found here: https://www.federalreserve.gov/monetarypolicy/publications/beige-book-default.htm (Paul Flora – Federal Reserve Bank of Philadelphia)
• The FOMC meets on Wednesday 12/13 and the press conference and meeting materials can be found here: https://www.federalreserve.gov/monetarypolicy/publications/beige-book-default.htm (Paul Flora – Federal Reserve Bank of Philadelphia)
• Hurricane Ian has created a lot of property losses and is affecting insurance rates. (Matt Musilli – Johnson, Kendall & Johnson)
• There is a lot of development going on in Austin, with lots of New York and California money coming in. Optimistic about a recession to pump the brakes on things. (Matt Musilli – Johnson, Kendall & Johnson)
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