Housing Prices and Income

My son sent me this interesting graph, demonstrating the historical relationship between housing prices and income...



It is thought that the fundamental relationship between income and housing prices broke down in the recent housing boom. The graph shows this. During the period between 1985 and 2000 (when mortgage rates were generally stable), this ratio averaged 3.4. In this cycle, the ratio peaked at the end of 2005 at 4.8, before falling housing prices began to bring it down. The current ratio is 3.8.

According to the information that went along with this chart (from National Association of Realtors, Bureau of Census, Moody’s Economy)If this long-term average ratio of 3.4 is applied to today’s national median income, it results in a “correct” national median housing price of $174,000. The National Association of Realtors reports a median home price today of $195,000, implying further declines of nearly 11%. This assumes that nominal incomes remain flat in the near term, which is similar to income performance in the last two recessions.

Big AND Beautiful...Butcher & Singer Opens

Yesterday marked the opening of the city's newest steakhouse and Stephen Starr's latest project. The recently closed Striped Bass at 1500 Walnut Street has reopened as Butcher and Singer and features menut items such as lobster Newberg with caviar and sherry sauce, Delmonico steak, and table-side caesar salad, along with classic cocktails. The space itself is impressive, with marble columns, massive chandeliers, and a great dog mural on the wall.

I was there this week...and it was incredible.

Listing of the Week

Independence Place

241 S. 6th Street

$975,000

1,734 SF

Totally customized 2 bedroom, 2.5 bathroom home located on Washington Square.  The upgraded residence features a high-end Joanne Hudson kitchen with Sub-Zero, Dacor and Miele appliances; a Boen floating floor; brand new HVAC units; Hunter Douglas Luminette shades; floor-to-ceiling windows; custom closets in the master and guest bedrooms; and a tiled balcony with river views.   

Existing Home Sales Down 12% in Phila Region

The Philadelphia Inquirer reported today that existing homes sales are down 12% in the Philadelphia region. I actually think that when prices adjust downward, opportunities for trade up buyers become tremendous. Click on the article to read the story.



Trade up buyers selling a home worth $400,000 two years ago for $300,000 tody can also buy the $800,000 home from two years ago for $600,000 today. So buying a home that is worth more than what you are selling is a good place to be in a market that has seen prices adjust downward. In this market the sellers who will get hurt are those who are downsizing.

As far as sales being off by 12 percent, I actually am amazed that the numbers are not higher based on the media, economy, stock market, layoffs, bank failures, and mortgage company disasters.

Actually, in the last week, we have seen a slight pickup in activity on all price ranges.

Phillies Phever at The Lanesborough

The Lanesborough at 16th and Locust Streets is showing its Phillies spirit 300 ft. high in the air. We have installed a 100 sq. ft. authentic Phillies flag to fly over Center City and overlooking Citizen's Bank Park. If you are walking by, check it out. CBS3's Anne Marie Green came to check out the flag last week, here is her segment...

Listing of the Week

Dorchester 905

$879,000

Size: 1,483 sq. ft.

Condo Fees: $1,112/mo.

Taxes:$478/mo.

This spacious home offers 3 bedrooms and 2 bathrooms with dramatic treetop views of Rittenhouse Square and the Center City skyline from oversized windows and an expansive balcony.

The residence has an upgraded kitchen, parquet floors in living and dining rooms, carpeting in all bedrooms, abundant closets with custom built-ins, and a full-size washer and dryer.

Dorchester residents enjoy an unparalleled location on Rittenhouse Square. The building has a 24 hour doorman, fitness center, seasonal rooftop pool, and on-site garage parking is available.

I am more concerned about the return of my money than the return on my money

Over the past few weeks I have seen a financial and real estate market that is very turbulent. People are concerned about safety of their investments. One of Mark Twain's great quotes comes to mind.... "I am more concerned about the return of my money than the return on my money."

Today, with the stock market acting very choppy and constant concern about which banks will be open tomorrow (even with fdic insurance being raised to $250k) prime real estate continues to be an option for the long term investor. Buyers of real estate in these markets will not take chances on secondary locations. They will, however, take advantage of the opportunity to buy in the best locations because they feel their investments are safe there.

Clearly Rittenhouse Square, Washington Square, and Society Hill are considered in Philadelphia to be the best locations. We continue to see a flight to quality locations from secondary areas...there are people trading up and renters stepping into the market, there continues to be baby boomers who are disgusted with their stock market investments and are investing in great locations and helping their children buy homes.

Case in point: In the last 7 days we sold four homes at Parc Rittenhouse and one at The Warwick with prices ranging from $375,000 to $1.7 million. The inventory of exisiting condo buildings continues to remain very low (somewhere in the 1% range) and the prewar buidlings in great locations that have been converted to condominiums continue to sell. The new construction is still challenged by the market of today.

The bottom line is very simple. In uncertain economic times the smart buyers flock to the best locations where they can touch and feel their investments, where they are in control of their money, and where they call the shots as to when they will buy it, sell it, refinance it, etc. People are no longer comfortable allowing their life savings to be managed by others. Personally I have never done well whenever I have allowed someone else to invest for me and not been in control of my investment. Whenever I have had the ability to control my investment I have seen the returns outperform all other investment options !