Even before she and her husband started seriously house-hunting for their first home, Nicole Benson Paul had heard the stories of Philadelphia's cutthroat real estate market.

There were reports of crazy bidding wars, as buyers sparred and scrapped for limited homes. Home prices seemed to be rising each month in most neighborhoods. At the start of this year, as the newlywed couple started to browse, listings that interested them flew off the market before they could even schedule a tour.

Nicole Benson Paul and her husband, Zach, decided they wanted to buy a home after getting married last year. But rather than diving into the crazy market, they held off until they could find the right deal for them. In the spring, they settled on a home in Graduate Hospital, paying below the asking price.
NICOLE BENSON PAUL
Nicole Benson Paul and her husband, Zach, decided they wanted to buy a home after getting married last year. But rather than diving into the crazy market, they held off until they could find the right deal for them. In the spring, they settled on a home in Graduate Hospital, paying below the asking price.

In the red-hot housing market that Philadelphia has been experiencing, it would have been no surprise — understandable, even — for Paul and her husband, Zach, to succumb to the trend that has captured thousands of city residents in the last few years: diving head-first into the market, voraciously bidding for properties, and overpaying or waiving contingencies to obtain a home when necessary.

Instead, the Pauls are part of what Philadelphia real estate agent Ashley Lauren Farnschlader calls the new "wait-and-see" buyers — a new category of house-hunters who are tired of searching, exhausted from bidding, and hesitant to go all-in on a house. Whether they are skeptical about where the market and economy are heading, recovering from buyer fatigue, or simply waiting to find the right home at the right price, many Philadelphia buyers are no longer clamoring for homes the same way they did in 2016 and 2017, local agents say.

"Buyers are buying smarter," said Dylan Ostrow, an agent for Berkshire Hathaway HomeServices Fox & Roach in Center City, who helped the Pauls buy their first home in June. "I've told so many different clients … 'We can wait for the right property. Something will come along priced correctly.' "

For Paul, 29, and her 30-year-old husband, the patient approach paid off. In April, months after they had started shopping, the pair made their first serious bid — on a 1,400-square-foot rowhouse in Philadelphia's popular Graduate Hospital neighborhood. The house had listed in the spring for $519,900 after sitting for months at $539,900. The couple swooped in and bid tens of thousands below the asking price. After negotiations, the Pauls nabbed the home for slightly more than $500,000, and settled in June.

In Philadelphia’s Graduate Hospital neighborhood in Southwest Center City, the homes on St. Albans Place rise up above their flower garden in July. Since the Great Recession, homes in the neighborhood have been highly sought after.
CHARLES FOX / STAFF
In Philadelphia’s Graduate Hospital neighborhood in Southwest Center City, the homes on St. Albans Place rise up above their flower garden in July. Since the Great Recession, homes in the neighborhood have been highly sought after.

Ordinarily, in the last few years, the Pauls' experience would have been considered an uncommon steal in a highly sought-after neighborhood — a blip in an always ascending market. But the 2018 spring selling season was not the same real estate market that sellers, developers, and agents have enjoyed for the last few years, new data show, raising questions about where the Philadelphia real estate market could be headed.

According to an analysis of the single-family housing market in the second quarter of 2018 — meaning April, May, and June — Philadelphia economist Kevin Gillen found that the increase in home values citywide significantly slowed for the first time in more than four years. Compared with the year before, home values in the 2018 spring season — typically the hottest market of the year — appreciated 0 percent, Gillen found, analyzing data provided by Houwzer and the city's Recorder of Deeds.

In other words: The typical Philadelphia home is worth no more today than it was one year ago

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(Gillen's analysis tracks the value of the city's entire housing stock, and not just the prices of homes that sold in the spring. Unlike median prices, this analysis is often not skewed by seasonality or the physical characteristics of homes that sell.)

For a market that has experienced seemingly unstoppable jumps in home values since Philadelphia's housing recovery began in 2012 — home values are now 19 percent higher than the city's previous peak during the housing bubble in 2007 — the sudden plateau in values is a surprising and puzzling shift, especially as supply remains low and demand remains high. Notably, the number of homes on the market in the second quarter fell to an all-time low, with just 3,460 homes listed at the end of June — a phenomenon that should push prices up. At the same time, Gillen's data show, the number of sales climbed to 6,460 in the three-month period, the highest in a decade.

The unusual mismatch between buyer demand and home values has left economists and real estate agents with one big question: Is Philadelphia experiencing a momentary cooling, or could this be the start of a downturn?

Among observers, the guesses are split. But one thing is true, all of them say: Buyers can stretch to buy homes for only so long.

"The best-case scenario is that we are cooling off so that prices don't get too out of whack with incomes," said Daren Blomquist, senior vice president of Attom Data Solutions, a real estate data company, which released a report last month that found that home prices decelerated in 66 percent of markets nationwide, including Philadelphia, in the second quarter of 2018, compared with the quarter before. "That's the silver lining. … It can tilt the balance back toward first-time home buyers who are wanting to come in" to the market.

As for whether the national or local real estate market could be headed for a downturn, "that's the million-dollar question," Blomquist said.

In Philadelphia’s Graduate Hospital neighborhood, signs of new demographics in the neighborhood abound. A mural of former presidential candidate Bernie Sanders was painted during the 2016 campaign at 22nd and Catharine Streets.
CHARLES FOX / STAFF
In Philadelphia’s Graduate Hospital neighborhood, signs of new demographics in the neighborhood abound. A mural of former presidential candidate Bernie Sanders was painted during the 2016 campaign at 22nd and Catharine Streets.

Across the nation, signs abound that the housing market is reaching its peak. The Federal Reserve already has raised interest rates this year and has signaled that two more increases are on the way — a move that would ultimately make homes more expensive. The number of applications for mortgages has dropped. Home prices for the last few years have accelerated much faster than wages, forcing borrowers to take on more debt or retreat from the market. In Philadelphia, specifically, the extra costs that homeowners will face with their upcoming tax bills — the result of this year's property reassessments — will likely make buyers even more hesitant to dive in and overpay, some say.

Yet, according to Lawrence Yun, chief economist at the National Association of Realtors, the slowdown in Philadelphia and other cities is only "temporary" and has been driven perhaps by rising interest rates or more first-time buyers seeking — and finding — lower prices. Other observers simply see it as sellers dropping their prices to attract today's more cautious buyer.

"Last spring we were selling anything… and now my sellers are, like, 'What's going on?' " said Mike McCann, a Center City real estate agent for Berkshire Hathaway HomeServices Fox & Roach. "We're at the top of the bell curve, and we're seeing softness. Sellers are talking about it. Agents who are entrenched in the market are seeing it."

"You just have to be more cautious now in your pricing," McCann said.

To be sure, Philadelphia's market has more to it than just a citywide average — and not all neighborhoods have seen prices reach a plateau. According to an Inquirer and Daily News analysis of all Philadelphia zip codes, the median price of homes that sold in the second quarter still increased in 28 of 44 Philadelphia zip codes, compared with the year before. (Gillen's data exclude condo sales, and the Inquirer and Daily News excludes zip codes with fewer than 10 sales.) Among the markets that made the largest gains in price: The city's 19118 zip code, encompassing Chestnut Hill, which jumped 68 percent to $774,250. The 19106 zip code, representing Old City and Society Hill, increased second-most, at 49 percent, rising to a median home price of $1.29 million.

Staff Graphic

Citywide, the median price of a Philadelphia home was $153,250 in the second quarter.

Perhaps the most telling indicator of Philadelphia's growth is the surge in sales volume in many of Philadelphia's historically overlooked neighborhoods. The number of sales in Philadelphia's 19132 zip code — representing Strawberry Mansion, Swampoodle, and parts of North Philadelphia — skyrocketed 110 percent in the spring, compared with the year before. Over five years, the number of sales in that zip code has jumped 351 percent.

In the last year, Strawberry Mansion has seen the greatest increase in sales activity in Philadelphia, a sign that more investors and speculators are pouring into that market. At a house at 29th Street and Glenwood Avenue, a contractor worked in July.
CHARLES FOX / STAFF
In the last year, Strawberry Mansion has seen the greatest increase in sales activity in Philadelphia, a sign that more investors and speculators are pouring into that market. At a house at 29th Street and Glenwood Avenue, a contractor worked in July.

For real estate agent Tim Brogan, of Coldwell Banker Preferred, the surge in sales in places such as Strawberry Mansion, West Philadelphia, and neighborhoods north of Kensington is no surprise and marks that slow expansion of investment citywide. As more local and New York City-based real estate investors have descended on the city in search of cheap properties and large paydays — Philadelphia is one of the most profitable markets for flipping homes — many have looked at long untouched neighborhoods, where land is cheaper and opportunity plentiful.

"I answer the phone as often as I can, and often it's investors trying to get info on these neighborhoods," Brogan said, speaking of the city's Fairhill and Ludlow neighborhoods, where the number of sales jumped 45 percent and 29 percent, respectively, in the last year. "It's really investors that are pushing these markets."

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Still, even with some of these neighborhoods heating up, Gillen, a senior research fellow at Drexel University, sees the overall Philadelphia market nearing its top.

"I certainly don't expect the type of rapid and prolonged deflation that we saw during the last downturn," Gillen said. "Absent a larger recession or financial market crash, I would expect house prices to moderate" — and then, modestly drop.

As more investors have rushed into the 19132 zip code, signs for investors offering to buy homes for cash have proliferated.
CHARLES FOX / STAFF
As more investors have rushed into the 19132 zip code, signs for investors offering to buy homes for cash have proliferated.