Philly’s Next Real Estate Boom
There’s been a lot of talk about the fitful post-bubble recovery of the Philadelphia real estate market. It seems that for every two steps we move forward (home values are up! Days-on-market is down!), we take one backward. (Where’s all the inventory?)
But now — finally — industry experts are optimistic, as Philly’s rising real estate market is showing signs of genuine, sustained momentum. We didn’t have to search long before we saw it for ourselves: About halfway through writing the story you’re about to read, one of our editors put his Pennsport home on the market — in the dead of winter, mind you — and sold it. In two days. His story is far from the exception. There’s a mountain of evidence that points unambiguously to one thing: Real estate in Philly is heating up, and it’s projected to get even hotter this year. If there ever was a moment to get in, it’s now. So whether you’re buying your first home, moving to your second or scoping out a luxury condo, consider this your playbook for coming out on top.
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For the First-Time Buyer
Ready to take the plunge? You’ll need your cash firmed up and your wish list flexible.
The budget: $150K to $300K
Buyers lured from the clutches of Philly’s rental scene (where the average one-bedroom apartment is currently going for about $1,200 — and even higher in Center City) are finding that now is a really good time to shift to ownership. Not only are interest rates low — we’re talking mid-three to mid-four percent — but lots of starter-home-friendly neighborhoods are experiencing a housing boom, with home values steadily rising (in the third quarter of last year, they were up a whopping 5.2 percent in South Philly and 4.4 percent in Kensington, Port Richmond and Fishtown) and projected to continue to rise this year. So, are you ready to dive in?
Rule 1 • In this market, your money must be locked and loaded.Yes, it’s the least sexy part of the home-buying process, but unless you get your finances in order up front, you’ll never know what you can afford. Plus, Philly’s current market is Hunger Games-level competitive — as demand and sales activity increase, supply is dropping. You need all your up-to-date information at your fingertips so you can move fast when you see something you like. While you can get a mortgage pre-qualification online, you’ll get a more thorough — and tailored-to-you — assessment by chatting with a mortgage adviser over the phone. She’ll evaluate your credit, tax returns, pay stubs and bank statements to come up with a target price that actually makes sense for your financial situation. “Plus, we can see if there’s anything you can do to improve your credit score or debt-to-income ratio,” says Angela Tobin, senior mortgage adviser with Plymouth Meeting-based Philadelphia Mortgage Advisors. “An unpaid traffic ticket from 10 years ago can really come back to haunt you.”
Rule 2 • Don’t overanalyze. House-hunters of the Internet generation tend to spend as much time on Trulia and Redfin as they do scrolling through Instagram. That’s a good thing, realtors say, because it helps them narrow down the neighborhoods they might want to live in and build a wish list. But you can overdo it: “I often have to help first-timers unlearn things they think they learned from all of their hours on Zillow,” says realtor Elizabeth Clark, of Philly’s Space and Company. It’s the catch-22 of having information at your fingertips: Not all that information is accurate. So it’s important to choose an agent you trust (crowdsourcing recommendations isn’t the worst way to find one) who can draw on real experience to understand where Philly’s market has been and where it’s headed.
Rule 3 • Don’t get too attached to the idea of parking. Of all the popular wish-list items for Philly buyers — central air, hardwood floors, stainless appliances, parking — that last item is almost always the first to go in this price bracket. “The majority of housing stock in Philadelphia, particularly in Center City, doesn’t have parking. Period,” says Clark. If you’re really, really set on it, you need to look farther out, in neighborhoods like East Falls, Germantown and Mount Airy, where some houses have driveways and garages, or Kensington or Brewerytown, where street parking tends to be more ample.
If not parking, what amenities are within reach for most first-time Philly buyers? According to Clark: outdoor space, including roof decks, as well as updated kitchens and multiple bathrooms.
Rule 4 • Be wary of the “TLC” project. You have the Property Brothers to thank for your dream of meticulously rehabbing a fixer-upper. But experts across the board say massive renovation projects are usually a bad idea for first-time buyers, especially here in Philly. Why? For one, developers with deep pockets are flourishing in our city, thanks to the affordability of real estate in up-and-coming neighborhoods and the influx of first-time buyers who want move-in-ready homes. They’re who you’ll be competing with for fixers in desirable neighborhoods, like Point Breeze, and they’ll be offering cash and opting out of inspections — two things most first-time buyers can ill afford.
Plus, in Philly, where century-old (or more) houses are common, you may find lots of unpleasant and costly surprises when you begin to open up the walls. Of particular worry is old knob-and-tube wiring, which can pose a fire hazard. Some insurers won’t cover a property that contains knob-and-tube, or will make you update your wiring within a set time frame after closing. According to Debbie Lutz, co-owner of Grays Ferry-based Generation 3 Electric, rewiring a house can cost between five and 15 percent of the home’s value.
“I personally think the best bang for your buck is to find a home with good bones, like a little grandma’s house that needs cosmetic updates that you can get for a good price in a good neighborhood,” says Kristin McFeely, realtor and co-owner of Philly Home Girls, a real estate agency in Old City. These houses offer realistic projects you can tackle — ripping out carpet, painting walls, swapping light fixtures, maybe even retiling the bathroom — that will improve the home’s value without requiring a top-to-bottom, ulcer-inducing gut-job.
Rule 5 • When you find your dream home, you’ll need to pull the trigger fast. “Gone are the days of working with someone for a year before they find something,” says Jeanne Whipple, the other half of the Philly Home Girls leadership team. You may look at only four or five houses total, and agents say some first-timers buy the first house they see. In fact, in a survey of Philadelphia-area realtors conducted last November, 11 percent said they’d worked with at least one buyer in the past year who made an offer on a house without actually seeing it in person.
When you do fall in love with the perfect house, you’ll need to put an offer in fast — another reason, says Tobin, to get your financial ducks in a row before you start looking: “The swiftness with which properties change hands in Philly is astounding. In hot areas, there are usually multiple bids,” she says. In fact, Philly’s average days-on-market — the typical number of days it takes to sell a home — dipped to 61 in the third quarter of last year. That’s the lowest it’s been since 2007, according to Drexel’s Lindy Institute for Urban Innovation. So if you opt to sleep on it, your dream home may be gone — poof! — by morning.
Rule 6 • Make yourself more attractive to the seller. Because you might be jockeying with one or two (or three) other prospective buyers when you submit an offer, it’s important to use all the tools at your disposal. You’ll obviously want to offer a fair and competitive bid with guidance from your agent, but as Clark says, “There are other currencies in the world besides the purchase price.”
Your objective should be to build a good rapport with the seller on the front end, so he or she feels comfortable working with you through the months-long transaction. Ideas: Humanize the deal with a letter detailing why you love the house or neighborhood. (Note: This tactic worked for one Philly Mag staffer, who identified three streets in Fairmount where she wanted to buy, wrote letters to every homeowner on those streets, and found one who eventually sold her his house before it went on the market.) You can ask your agent to sleuth out the seller’s ideal settlement date and write it into the offer. Or you can ask your mortgage broker to reach out to the seller’s agent to make it clear you’re in great financial shape. Says Clark, “It creates another sense of security that you’re on top of your game.”
Rule 7 • Know this: The purchase price isn’t all you’ll be paying. In addition to the closing fees (roughly five to seven percent of the home’s total price), property taxes and mortgage insurance, there’s a realty transfer tax: All buyers in Pennsylvania pay one percent, which goes to the state, and Philadelphia buyers pay an extra one percent, which goes to the city. (Crazy fact: Sellers in Philadelphia also pay a two percent realty transfer tax, which is split between the state and city in the same manner.) Your mortgage adviser should be able to offer you a breakdown of exactly what you’ll be paying and when, so there are no surprises.
Rule 8 • Don’t buy a boat. Or apply for a credit card. Or quit your job. Basically, anything that could hurt your ability to qualify for a loan or alter your income is a big no-no during the home-buying process. Best-case scenario, you’ll have to provide your mortgage adviser with documentation for any new activity or transactions. Worst-case scenario, you’ll be denied your loan.
True story: One broker we know had a client who went out and leased a motorcycle a week before closing to celebrate his new house. But because of the new debt, he no longer qualified for his mortgage, so he lost the loan — and the house.Rule 9 • Remember: Your home is more than an investment. While it’s smart to approach your first house as an investment, you need to remember that you actually have to live there, too. Striking a balance between buying a home in a neighborhood that makes sense for you now and investing in one that will put you ahead financially when it comes time to sell is easier to do if you know a couple of facts.
First: Agents say most Philly first-timers end up staying in their starter homes for three to seven years, so you might want to consider your needs now (space to work from home, a back patio to entertain) and what you’ll need out of your home a few years down the road (whether you’re planning on getting married, having kids or adopting six dogs).
Second: From a dollars-and-cents perspective, in Philly you get the best resale value out of homes with two to three bedrooms and at least a bathroom and a half. Anything smaller will shrink your buyer pool significantly.
Read more at Phillymag.com