Writer: Joey Garrand
3 min read August 2022 — Rising interest rates and an inflationary environment have put further strain on homebuyers, particularly first-time homebuyers. Invest: spoke with Antonio Atacan, CEO of Venture Philly Group, and Joan Docktor, president of Berkshire Hathaway HomeServices Fox & Roach, Realtors, to determine where the residential real estate market stands today and what’s to be expected moving forward. According to Docktor, “The market will continue to cool this year and next, however we expect it to be similar to 2019, which was a very good year.”
What are the neighborhoods you’re seeing the most growth in?
Antonio Atacan, CEO, Venture Philly Group
We’re seeing a lot of growth in Fishtown, Northern Liberties and especially Kensington with the boom of commercial properties there. Frankly, when restaurants come into a neighborhood that’s when things start happening commercially. You can then rely on housing to follow, which is especially true in Northern Liberties where huge residential projects are going up. Other neighborhoods like Point Breeze and Brewerytown remain strong as well because of that commercial component and their relative affordability.
Joan Docktor, President, Berkshire Hathaway HomeServices Fox & Roach, Realtors
Since the pandemic, single-family homes have continued to become desirable. People are attracted to more outdoor space. What’s interesting about the city is that in the second quarter the city was up 5% in residential sales. Prices were also up 3%. If you look to the suburbs, sales have been flat and the prices are up 5%. That is very similar directionally. The city initially lagged the suburbs and now is catching up during the second quarter of this year.
As for the city, there’s a lot of development occurring. There’s a lot of apartments that are in various stages of approval or currently being built. Young people might not have the down payment for a home. We need more housing, so it is good that those apartments are getting built. It’s not a small number of apartments either. There are at least 300 to 800 apartments that will most likely be built. The apartments that are getting built are one to two bedroom apartments, and not many family apartments with three bedrooms that are very much in need. Hopefully we will see some of that product be built.
How is the current economic climate influencing how people are buying homes?
Atacan
Affordability might be the biggest factor right now because first-time homebuyers are driving about 50% of the market. The way things are with demand and increasing interest rates, they simply can’t afford it. Given that factor, we are in for a correction sooner than later in that segment. But it’s another story with high-end and luxury markets. They aren’t as affected because there is less reliance on mortgages in those transactions. The wealth is already in place and purchases can be made with cash. This has created a patchy market and is more reason for our team to articulate the right opportunities and empower people to get a feel for that pulse and better understand their options.
Docktor
It’s harder for young people and first-time buyers to afford a home because of higher interest rates and inflation. It puts brakes on some people and they just can’t buy so they move into rentals; however, rents are also high. If you look at the median income needed to buy a home in the U.S. at a 2% interest rate, it is $61,000. Nowadays, at the higher interest rate it is $84,000. That is a big difference. However there are mortgage programs out there that can help these buyers. There are adjustable rates and some low down payment programs. Our mortgage company has them and I know there are government programs as well. We can help those buyers in many different ways.
How will recent interest rate increases impact the residential real estate market?
Atacan
The market is seeing more absorption with these interest rate hikes. I’ve been in the business long enough that there was a time when 7% or 8% rates were totally normal, so it’s a bit of a coma that the economy is coming out of in that regard. But the Fed must do that slowly so that it doesn’t bite the market too much. It’s a dangerous game if you pump the brakes too fast. I look at it this way: even a 1% increase equals 10% borrowing power. This will have the most significant impact on first-time homebuyers. But the demand is still there and if I’ve learned anything it’s that we’ll know the market is in bad shape when a great house at a great price isn’t selling. We’re fortunately not there yet.
What is your outlook for the local market?
Docktor
The market in 2022 has been good. All of the country slowed down a bit due to the slowing of the frenzied market during the pandemic, rising home prices, higher interest rates and inflation. Despite this, we have continued to sell a great number of homes. The market will continue to cool this year and next, however we expect it to be similar to 2019, which was a very good year. The thing about real estate is that people’s lives continue to change and people need homes. I have an optimistic forecast for 2022 and 2023. We expect to continue to have a low supply and high demand in which case our market will thrive. Philadelphia is the place for it to happen; we’re a booming city.
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