Philadelphia’s Dubious Distinction: Housing Inventory

Is a shadow inventory haunting the Philadelphia real estate market? If so, what will happen to home prices in the area when these distressed properties are released onto the market? Let’s take a look.

In much of the country, the number of homes for listed sale has declined over the last year or so — significantly, in some cases.

But housing inventory appears to be rising in Philadelphia. In fact, the City of Brother Love has a dubious distinction among metro areas, when it comes to real estate inventory. According to, it is one of the only metro areas where real estate listings rose over the last year.

Inventory Up in Philadelphia

Each month, publishes a monthly summary of housing markets across the United States. They examine real estate conditions within 146 metro areas. Points of analysis include median list price, total number of listings, and median age of inventory. The data comes from properties that are listed for sale on the website, in particular.

Here’s the kicker for Philly: The number of listings (homes for sale) went down in 144 of the 146 metro areas monitored by The two exceptions? Philadelphia and Shreveport. From July 2011 to July 2012, the number of Philadelphia real estate listings on rose by around 3%. Listings shot up by a whopping 23% in Shreveport, Louisiana, the other city of ‘distinction’ in this report. Unless it is met by a corresponding increase in demand, this kind of trend typically puts downward pressure on home prices.

On the other end of the spectrum, listings fell by 59% in Oakland, CA, and by 42% in San Jose, CA. California cities dominated the rankings for biggest inventory declines. Eight of the top ten cities for inventory reduction were in California. Investors have been snatching up properties left and right in those cities, driving inventory down and prices up.

Home Prices Still Soft

In the Philadelphia real estate market, prices are still soft. According to real-estate data firm Zillow, Philadelphia home prices fell 0.8% from the first to the second quarter of 2012. The company’s economists don’t expect this market to hit bottom until the fourth quarter of 2012 (according to a report they published in July). But that may be overly pessimistic, seeing as how median sales prices have risen when measured year over year.

Philadelphia is a hard market to label at the moment. It’s not in a clear state of recovery, nor is it in free fall. The phrase “bouncing along the bottom” comes to mind.

Earlier this summer, Zillow published a ranking of the top ten buyers’ markets in the United States. These are housing markets “with homes taking longer to sell and buyers logging average discounts of 5 percent off the asking price.” Of the 50 largest metros in the country, Philadelphia was ranked as the #5 buyers’ market. Chicago, Milwaukee, Cleveland and New York City rounded out the top five.

Is a ‘Shadow Inventory’ Haunting Philadelphia?

On August 29, the Federal Reserve published its latest Beige Book, a summary of economic conditions in each of the Fed’s 12 districts. Published eight times a year, this report compiles anecdotal information and comments from economists, market experts and other sources.

Here is a quote from the August report: “In Philadelphia and Kansas City, the possibility of shadow inventory entering the [housing] market remains a concern.”

But what is a shadow inventory, exactly? It depends on who you ask. The Wall Street Journal defines it as “mortgages that are among the most likely to ultimately become bank-owned properties.” Bloomberg offers a similar definition: “homes that are seriously delinquent, in the foreclosure process or owned by banks and not listed for sale.”

Put simply, the shadow inventory is made up of potential foreclosures that may come onto the market in the future. It includes bank-owned homes that haven’t been listed for sale, as well as pre-foreclosure homes that will likely be foreclosed on.

So, is shadow inventory a problem in Philadelphia? The Fed’s Beige Book goes on to state the following:

“As the traditional sales season draws to a close, an anticipated surge of listings from the shadow inventory is not expected until spring 2013, assuming existing home sales remain relatively strong.”

A common fear is that these distressed properties will be released en masse, flooding the market with bargain-priced homes and driving prices down. But history shows this is not always the case. Pent up housing inventory can be released as a trickle, or as a flood. It really depends on the banks who own them.

Real Estate Outlook for 2013

Philadelphia’s housing market is not out of the woods entirely. The future for this market is uncertain, largely because of the inventory issues discussed at length in this article. A 2013 surge of foreclosures would likely drive prices down, unless demand could rise to meet it.

The employment picture isn’t helping either. In July, Philadelphia’s unemployment rate rose to 11.6%, well above the national average of 8.3%. This weakens demand at a time when inventory levels are still high. It’s hard to have sustained price growth under such conditions.

One upside is that mortgage rates are expected to remain below 4% for the rest of this year, and into the first quarter of 2013.

At best, we will probably see very moderate price growth through the end of 2013. At worst, home prices will remain flat, or even dip slightly over the next two or three quarters. Time will tell.