Metrostudy’s first-quarter survey of the Philadelphia region shows that the new-home construction market remains relatively flat for 1Q14 after a dramatic slow-down in the fourth-quarter when the “Polar Vortex” wreaked havoc across the Northeast. Some of the after effects of the winter are still seen in the numbers that have been generated for the first-quarter.  The Philadelphia region recorded 2,087 observed closings for 1Q14, a 13% decrease from 4Q13. 1Q14 starts also took a dip to 2,175, down 4% from 4Q13. The Philadelphia MSA accounted for over 56 percent of the closings for the region this quarter as well as accounting for over 58% of the starts for the region. When you only look at the MSA we actually saw starts increase 15% and closings decrease by less than a percentage point.

“The median closing price for a new-home in the Philadelphia region is $335,800, an 11% increase from 1Q13,” says Quita Syhapanya, regional director of Metrostudy’s Philadelphia Market. “This represents the largest swing year over year in median pricing for the 1st Quarter going back to 2005. The second largest median price increase year over year for the first-quarter was in 2006 which saw a 9% increase in achieved pricing.”

Total housing inventory - model homes, under construction units and finished vacant homes - for the Philadelphia region has increased by 103 units, a 1% increase from 4Q13. The number of homes under construction increased to 4,283 units compared to the 4,024 units under construction in the first-quarter. Finished vacant inventory decreased by 175 units to 2,727 for the first-quarter, a 6% decrease in finished vacant homes.

In 1Q14, there are 25,395 Vacant Developed Lots (VDL) in the Philadelphia Region. That represents a 1.6% decrease in developed lots in the region from the 25,807 lots available in 4Q13. When looking back at the baseline survey for Metrostudy in 2Q13 to 1Q14 there was a decrease of 8.20% in VDL when there were 27,662 available.  A majority of the VDL resides in the state of Delaware where Sussex County and Kent County have the most finished lots. Sussex County currently has 6,988 VDL and Kent County has 2,947 VDL available.

“Prime lot supply remains scarce across the Philadelphia Region,” says Syhapanya. “Based off of our data the entire Philadelphia region has 26 months of supply. [Metrostudy considers the supply of finished lots to be in equilibrium when the months of supply are between 24 to 30 months and the lots have a minimum of a drivable street in front of them.] As absorption levels begin to pick up further along with economic recovery, the overall supply levels will eventually get even tighter unless lots in the future pipeline get developed to satisfy demand. The region is extremely limited in available finished lots. If we dive deeper and look at the 11 county Philadelphia MSA only there is only 8,162 available lots. That means there is only 16 months of supply. In prime locations across the MSA that number is in the low single digit range. The Philadelphia MSA is extremely under supplied.”

Inventory levels of homes on the market in locations that interest potential buyer within job centers are tight. New home construction within these same locations has commenced and will get a lot more active as we enter the 2nd quarter. The supply of housing inventory as well as VDL’s is very limited.

Even though the weather has warmed up, extremely messy ground conditions are making it difficult to get construction work started. Now that the conditions have stabilized it should help drive activity in the coming months. We expect to see all housing indicators improve in the spring and summer months ahead.

“Demand is there, but there are a variety of challenges that need to be overcome to get access to this demand for the housing industry to continue to strengthen. At the forefront of the challenges are the shifting demographics and the slow growth of new household formation. It is obvious that this region is a supply constrained region where speculative building isn’t prevalent,” notes Syhapanya. “Housing inventory for the region is at 8 months of supply and VDL is at 26 months of supply, which is in Metrostudy’s equilibrium range, but when you look at it market to market where jobs are at you can almost cut your months of supply in half with some markets even tighter and will only get tighter with the limited amount of inventory available. The 1st quarter of 2014 still has some after effects from the winter and expectations are that 2Q14 will show vast improvements with the pent up demand waiting out the cold weather.”

For information contact: Quita Syhapanya at 215.893.9890 Ext. 231


About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

Learn more about markets featured in this article: Philadelphia, PA.