Brett Furman on the Suburban Philadelphia Real Estate Market Escaping National Meltdown

St. Davids, PA, May 05, 2012 --(PR.com)-- While the rest of the National Real Estate market suffers, RE/MAX Classic has experienced an increase in transaction volume in the recent years. Between 2010 and 2011, sales have increased from over $48,000,000 to almost $63,000,000, a healthy 30% increase. As of April 2012, they have sold $17,665,000 worth of real estate. Clearly, this points to positive movement in the local recovery of the real estate market.

The chairman of the Federal Reserve, Ben Bernanke, recently expressed that the U.S. economy needs to grow very quickly to improve unemployment. Employment and job mobility are key contributors to the health of the housing market. Despite the rumors that the housing market is getting better, the number of new foreclosures in February, according to RealtyTrac1, is estimated around 206,900, a decrease of 2% from the month before. However, the number of houses sold is estimated around 74,000, a decrease of 8% from the previous month. Clearly, these foreclosed houses are flooding the market, while the demand for those houses is less than the supply. In addition, the supply of shadow inventory is still very high at 1.5 million units and 8 months supply, according to CoreLogic2. Shadow inventory is simply real estate properties that are either in foreclosure and have not yet been sold or the owner's decision to delay putting his/her property on the market until prices improve.

Short Sale transactions for Suburban Philadelphia are having a 12% increase in 2011 and are likely to increase more in 2012. A short sale is created when selling a property whereby the proceeds fall short to pay off the debt against the property and the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Currently, about 22% of national mortgages are under water. Short sales are a potential threat to the real estate market. As houses are sold not only below the mortgage owed but also below the market value, real estate prices become affected. They also cause banks to become nervous since their cash depletes. Bank of America recently launched the pilot program where struggling owners, rather than defaulting or short selling, are turned into renters as long as they meet the bank’s criterion. The program is apparently highly supported by the Fed. Is it too early to judge that the real estate market is in recovery? Maybe, with 27% of real estate transactions involving distressed situations, according to FNC, Inc., it is so close yet so far for the housing market to bounce back.

There is a mixed feeling about the housing market in the Greater Philadelphia area, which includes Delaware County, Montgomery County, Chester County, Bucks County, and Philadelphia County. One in every 1,239 houses is undergoing foreclosure on average3. Also, as of February 2012, shadow inventory is averaging 1,199 and about 12 months worth of supply. Even though the number of troubled actives might not be as big as the number of actives in Florida, Arizona or California, it is clear that there is a lack of demand which is caused by the slow growth of the economy.

“I have noticed that the Suburban Philadelphia market experienced this fragility late in the game," says Brett Furman, Broker/Owner of RE/MAX Classic in St. Davids. "Suburban Philadelphia may have been the last market in the country to be affected. However, our real estate market is one of the most stable markets in the country. When market values are improving we never get the spikes and when the market softens we don't experience the rapid declines. I do think that the Main Line was able to escape the meltdown. We need to see the job market improve which would help everything. Recently, I have watched my short sale transactions double from 4% to 8% and I believe that there are more short sales coming."

Fransisco Vasquez-Grande, an economist for the Federal Reserve, believes that the Fed would keep the Federal Funds Rate at 0% as long as the economy is in recovery mode. With that said, buyers still have the incentive to purchase properties at the lowest rate of all time. This is a massive incentive for buyers as mortgages have never been this cheap in past decades and may not be in the future decades when the economy should be recovered by then.

Notes:
1 Data collected by RealtyTrac.com
2 Analyses by CoreLogic.com
3 Data collected by RealtyTrac.com