Read The Philadelphia Appreciating Neighborhoods 2020 Third Quarter Video Transcript
I’m Joe White, welcome to the Grow Real Estate Investing Podcast.
Typically these videos are designed as real estate investing - how to guides.
My idea being to provide a free, ever expanding and ever evolving real estate investing course.
A resource that a new real estate investor or an experienced real estate investor can use to invest in property successfully.
And typically, where you do your property investing doesn’t matter.
These techniques are fairly universal.
They aren’t unique, or new strategies created by me. Everything I teach are basically the strategies that have been around for some time. In some cases thousands of years.
But I do also own a Philadelphia Property Management Company, called Grow Property Management, and today I am going to focus just on the Philadelphia market; and just on a specific snapshot in time.
The 3rd financial quarter of 2020
If you own a home, or want to own a home in Philadelphia, this podcast is for you.
It doesn’t matter if the property is for your family live space or if you want to buy a property as a real estate investor.
It doesn’t matter if it's home ownership or property investing, you will want to buy in an appreciating Philadelphia neighborhood.
Even when buying your family home; you are not only buying a property.
You are buying a wealth generator.
And some Philadelphia neighborhoods are appreciating and creating far more wealth than other Philadelphia neighborhoods.
So we are going to look at this year’s, 2020 third quarter numbers, comparing it to last year's 2019 third quarter numbers.
We are going to use these numbers to begin creating a picture of what Philadelphia neighborhoods are appreciating.
We are trying to identify the Philadelphia neighborhoods that are likely going to continue appreciating.
We are doing that so you can buy in these neighborhoods and greatly accelerate your real estate investing with the benefit of locational equity increases.
We are also trying to identify the Philadelphia neighborhoods that are slowing in appreciation so you can time the sale of a property to get the most you can get.
And we are also trying to identify the Philadelphia neighborhoods that are poised to depreciate or the Philadelphia neighborhoods that will appreciate too slowly so you can decide if you should sell, and reposition that equity into a better appreciating neighborhood.
But before I get in trouble, I am not a licensed financial adviser, an accountant, nor an attorney. I am just a Philadelphia investor and someone that owns a Philadelphia property management company. This information is just my opinion. I use this Philadelphia neighborhood appreciation watch to advise myself as I invest and also I share my opinion with the rental property owners that we manage.
And I hope you find it helpful as well. Please try to draw your own conclusions. Your opinion might be far better than mine.
If you do have a thought; please take the time to share it here. This is a real estate investing community. We all advance together. The best videos I have are the ones where a dialog gets created. The comments being more valuable than my actual video. So speak up!
Okay, moving forward.
Determining appreciating neighborhoods isn’t straight forward nor is it precise. How I am doing it here is by comparing last year’s median home prices compared to this year’s median home prices within each postal code.
Median meaning the middle number and not the average number. As you may already know.
I am also interested in how much that median home price is, how many days on the market a property sits before it sells, and how many homes are available compared to last year. In real estate we call that the “inventory”.
Plus my boots on the ground. My company manages many properties here in Philadelphia and in a variety of different neighborhoods. We manage properties in Philadelphia’s most expensive neighborhoods and also the up and coming neighborhoods. And that does give me an advantage; and so do you if you are a Philadelphia resident or a Philadelphia real estate investor. You also have boots on the ground experience. You see neighborhoods first hand. You see the signs a neighborhood is appreciating and you also see the signs when a Philadelphia neighborhood is depreciating.
At any rate, determining if a neighborhood will appreciate in the future isn’t an exact science.
But tracking yearly changes each financial quarter does begin creating a picture of the Philadelphia marketplace.
Okay, here are the Philadelphia neighborhood appreciations of 2020 in the 3rd quarter.
With 49 Philadelphia postal codes we easily have the diversity to run the spectrum in the marketplace and we are seeing that this quarter.
We have neighborhoods with median home prices that appreciated within the year as much as 78.3% and we have neighborhoods that depreciated; with the lowest going all the way down by -21.5%.
Meaning if you bought two properties, each for $100,000.
And you bought them in each of these two extremes in neighborhoods - one of the houses you bought for $100,000 a year ago would now be worth $178,300, and you would now have $78,300 in additional equity. If you sold that property you would get an additional $78,300.
And in the neighborhood that went down your $100,000 purchase would, in theory, now only be worth $78,500.00. If you sold that house today, a year later, you might have lost $21,500.
But as a whole Philadelphia still clearly has a rising market. But what we are seeing is somewhat consistent with what I expected to see given where we are in the national economy. I feel as many do that we have been in a recession for a while now and the market just hasn’t realized it yet.
People are still spending because they are still not afraid. Even someone like myself who intellectually believes we are in a recession, is still spending; because I haven’t emotionally adopted that just yet. My emotional spending behavior hasn’t caught up to my brain and people like me are still driving prices up in many neighborhoods.
But not all.
What I see here in the Philadelphia real estate marketplace is almost what I expected.
The more sophisticated neighborhoods are going down in median home price. Home buying in those neighborhoods is stopping.
Why? Perhaps because these home buyers know more than you and I do.
The theory is they realize we are in a recession or that one is coming and they don’t want to pay too much for a home that is about to be worth much less.
In a downmarket prices and property values go way down.
The numbers are showing affluent, established neighborhoods like Fitler Square, Rittenhouse Square and Washington Square are way down.
Fitler Square median home price sales went down by big 20.8% and its neighbor Logan Circle and Rittenhouse Sq went down by 21.5%.
If, let’s say you are a home flipper, and you bought a home last year in Fitler Square, renovated and sold it, you probably lost 21% profit on the locational depreciation.
You might have made a profit from forcing the property itself to appreciate through your strategic improvements; but you still lost that 21%. There are many ways to profit in real estate investing.
Given those numbers, my guess is you just broke above even.
And this is consistent with what we see nationally.
Very affluent, wealthier neighborhoods like Georgetown are always the 1st to slow down. When these areas slow in growth, that is one of the metrics used to identify a recession has begun.
I’m calling these sophisticated neighborhoods and sophisticated buyers.
I understand that suggests those of us not in these areas are of a lesser financial sophistication and I apologize if it offends anyone.
But I live in the Philadelphia Pennsport neighborhood and I classify myself as a fairly educated buyer; but I know myself and I’m not always a sophisticated buyer.
I know real estate investing very well; but my buying behavior otherwise tends to be more emotional than it could be.
So I apologize for my choice of terms and lumping you into my “food is love”, “I buy gadgets when I feel mentality sad” dysfunctions”.
What is nice about Philadelphia is that we have so many postal codes and neighborhoods that we can get even more information when looking at the neighborhoods; that I feel has plenty of money; but maybe not as sophisticated as say Fitler Square.
Old City in the 19106 postal code and the neighborhoods in the 19147 postal code for example.
Old City is a surprise to me seeing this quarter’s numbers. They also went into negative numbers. What surprised me is that I expected it's numbers to be appreciation less than many other Philadelphia neighborhoods; but I still expected it to go up.
I expected it to go up because there is plenty of money going into Old City. It is an affluent Philadelphia neighborhood. But not as sophisticated of a buyer as the older, more established neighborhoods.
It has a decent median home price of $410,500 and it's important to note that there are plenty of very small 1-2 bedroom loft condos in there. Old City has an extremely high price per sq foot.
So that median home price number is a lot more impressive than it sounds.
But Old City doesn’t tend to make its decisions the way a Fitler Square or a George Town does. It's a very hip neighborhood that comes with a lifestyle. Restaurants, nightlife, parks….But Old City is showing some real estate buying intelligence in their numbers this quarter coming in at a negative 5.6% reduction. If you bought in Old City a year ago, we might see your property worth 5.6% less.
Now the 19147 postal code metrics weren't as much of a surprise to me.
19147 has some of Philadelphia’s most expensive neighborhoods. To note is the Society Hill neighborhood, who liken to be similar to George Town. Or Philadelphia’s affluent Fitler Square, Rittenhouse Square neighborhoods.
But the numbers are skewed because 19147 has a multitude of different neighborhoods, each with a diversity. Not a huge diversity; but 19147 goes from Philadelphia’s wealthiest neighborhood down to respectable; but still just upper class neighborhoods. Neighborhoods like Hawthorne, Bella Vista, Queen Village, The Italian Market and parts of Pennsport, my neighborhood, are also comprising the 19147 numbers.
So the 19147 metrics are lower than where I expected, coming in at being up only 7.3%. Also showing a property buying intelligence.
If you invested in these neighborhoods it's all fine. These are extremely stable neighborhoods. Philadelphia in general is far, far more stable with our real estate markets compared to the rest of the nation. And these numbers are very short sighted. A year doesn’t make a real estate investor. Especially a buy and hold rental property investor.
But if your strategy is to sell your home, buy a new home or re-use equity from one property to the next, to the next - and I hope it is.
Then these next Philadelphia neighborhoods are the ones paid their owners extremely well in additional equity and they might continue paying extremely well.
And the smart assumption is that the recession will knock the living equity out from these, and all neighborhoods during the coming downturn; but then these will be the likely neighborhoods that will rebound the best when the downturn becomes its upward journey to an up economic market.
A quick FYI - In 2008, when we had a much more heavily impacted downturn, Philadelphia still fared well. In fact, the Chestnut Hill neighborhood continued to appreciate through the entire downturn. Desirability, being a neighborhood people really want to live in, being recession resistant.
But here’s the Philadelphia neighborhoods that are appreciating the most.
It appears that equity is currently West Philadelphia born and raised this year. Postal codes 19131 and 19139 have exploded. With Wynnefield / West Park at the top with a 78.3% equity increase and the West Philadelphia / West Market area coming in slightly lower at 75.5%.
North Philadelphia East the 19133 postal code bordered by Kensington, Fishtown and Port Richmond came in with a power number of 70% itself. Which does makes sense. Touching extremely desirable & lifestyle powerhouse neighborhoods like Fishtown creates an overflow as these people ever expand into Kensington and Port Richmond. Port Richmond comes in 2nd on our list at a 75.5% increase on the median home price. My wife, Lauri and I bought a house here last year that we are just now able to renovate. We inherited a tenant that finally moved out and hopefully just in time for us to get the renovation done and make this property new so we can refinance before the official downturn.
Okay, what I see overall here is that the neighborhoods that rely just on long established, well footed wealth are going down. Should you buy a home in one of these affluent neighborhoods? Maybe. It looks like you might get a 20% discount. More information from the next quarter might advise you better either way.
The other dynamic I think that I see is the power of livability. Market aside, do people want to live there?
One thing I always ask myself before I invest in a neighborhood that appears really set to appreciate is “does it deserve it?” Why? Because I want to know if it can sustain its growth. My wife and I want to hold a property as long as we can. We want to hold it indefinitely ideally.
We don’t want to buy in a neighborhood that aggressively appreciates over five years, then we have to sell before the neighborhood begins depreciating. Selling property is very expensive. Holding a property you avoid paying capital tax on the sale.
For example Point Breeze is a Philadelphia neighborhood that has had aggressive ups and downs. Every ten or twelve years it quickly appreciated or slowly headed way down.
In my opinion why does Point Breeze deserve home buyers? It has wider than expected streets, by Philadelphia standards and also the homes tend to be a few feet wider. Both of those alone, make this nice feeling neighborhood.
What do I hold against Point Breeze? It's a long hard journey having to drive through blocks and blocks just to get there. There is no easy in, easy out to this neighborhood. No quick on / off ramps.
And once you are there, you might be spending time with some frustration hunting for parking.
Am I right about Point Breeze? I honestly don’t know. I do know it’s had a history of affluence and history of tougher times.
And it had these ups and downs a lot historically.
But getting back on track this quarter’s numbers are showing West Philadelphia neighborhoods topping the lists. Why? Because personally I think these Philadelphia neighborhoods make sense. People want to live there. There are larger homes that are reasonably priced. West Philadelphia has strong community meeting in parks and local coffeeshops, the houses have yards, and the streets have parking and old growth trees.
Would I invest in West Philadelphia? I would. I haven’t. If I had I would be enjoying a 78.3% equity increase this year. And I think people will always want to live there. Because it makes sense.
Okay, I’m going to wrap this up; but 1st some quick numbers I think are of interest:
19130 The Art Museum / Fairmount neighborhoods surprised me; but seeing the Old City, 19106 numbers it makes sense that Fairmount is just up by 6.1%
19121 Brewerytown really surprised me with a dramatically low number of minus 2.0%. To be honest I would have had Brewerytown up by 25%; but it's actually down at minus 2%. This is extremely interesting and something to look into further. I’m sure I’m going to be focused on this for next quarter’s podcast. It's interesting in this discussion; but also to me personally was we own rental property here.
19118 the Chestnut Hill area is down - 4.9%. Also interesting as I wonder if we are seeing Chestnut Hill transition from a desirable neighborhood to live in to one that also has an established, savvier home buyer?
I’m Joe White
This is the Grow Real Estate Investing Podcast.