The Philadelphia Real Estate Market: Investor Overview for 2020

The real estate market in Philadelphia appears to be almost too good to be true, at least as far as real estate investors are concerned. Kiplinger Personal Finance ranks the city as one of the most affordable places in the U.S. to buy a house, even while the percentage of renters keeps growing.

Philadelphia – also known as “Philly” and “The City of Brotherly Love” - is the largest city in Pennsylvania, is the urban center of the 8th largest metropolitan area in the U.S., and is the economic and cultural core of the Delaware Valley. The city was founded in 1682 by William Penn, making Philadelphia one of the oldest municipalities in the country.

The economy of Philadelphia is one of the most diverse in the country, with key business sectors including financial services, biotechnology and health care, information technology, trade and transportation, oil refining, and food processing.

Keep reading to learn why the real estate market in Philadelphia just might be the perfect match for rental property investors in 2020.

 

Population Growth

Although population growth in Pennsylvania has begun to slow after two decades of growth, the Philadelphia-Harrisburg corridor continues to grow. Since 2010, the southeastern part of the state where Philadelphia is located has grown overall by 1.8%. 

Key Population Stats:

  • Philadelphia is the largest city in Pennsylvania with a population of nearly 1.6 million people and over six million residents in the greater metropolitan area.
  • Population of Philadelphia has grown for 12 years in a row, increasing by 0.21% last year alone.
  • Unemployment in Philadelphia is 4.7% while the number of employees grew by over 6%.
  • Median age in the Philadelphia metropolitan area is 34.5 years, with 65% of the population between the ages of 18 and 64.

 

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Job Market

The economy in Philadelphia expanded last year, thanks to a growing job market, rising educational attainment, and a strong increase in residential building activity as developers struggled to meet the demand for housing in metropolitan Philadelphia.

Key Employment Stats:

  • GDP of the Philadelphia-Camden-Wilmington MSA is over $444 billion, according to the Federal Reserve Bank of St. Louis, and has grown by more than 30% over the last ten years.
  • Job growth rate in Philadelphia was 0.21% last year.
  • Median household income in Metro Philadelphia is $46,100 while per capita income is $28,400.
  • Forbes ranks Philadelphia #88 as the best place for business and careers.
  • With over 3.4 million workers, Philadelphia has the 7th largest labor force in the U.S.
  • Key industry sectors in Philadelphia include financial and professional services, energy, information technology, life sciences, and logistics.
  • Largest employers in the Philadelphia region include the University of Pennsylvania and Health System, Thomas Jefferson University and Jefferson Health, ACCU Staffing, and Comcast Corporation.
  • Philadelphia is also home to the Philadelphia Stock Exchange, Comcast, Cigna, Colonial Penn, food services firm Aramark, GlaxoSmithKline, Pep Boys, and The Vanguard Group.
  • Greater Philadelphia has nearly 100 colleges and universities, including the University of Pennsylvania (Wharton), Princeton University, University of Pennsylvania, and three of the top 30 liberal arts colleges in the U.S.
  • Nearly 86% of the residents in Philadelphia are high school graduates or higher, while nearly 31% hold a Bachelor’s degree or postgraduate degree.
  • Philadelphia is a key location located midway between New York City and Washington, D.C.
  • About 40% of the U.S. population is located within a one-day drive of Philly, and 60% of the population of the U.S. and Canada is within a two-hour flight.
  • The Philadelphia metropolitan region is home to six international airports, UPS’s second-busiest shipping hub, the Port of Philadelphia, three major Interstate Highways, and the New Jersey and Pennsylvania Turnpikes.

 

Real Estate Market

Philadelphia is one of just 14 large real estate markets to reach the recovery benchmark published by Realtor.com. The recovery index takes into account key market criteria such as housing demand growth, listing and new supply growth, and the pace of existing home sales in Philadelphia.

Local news station NBC 10 Philadelphia also notes that the Philadelphia-area housing market is regaining momentum. Even though closing volumes remained low, median sales prices have increased by 2% year-over-year, reaching a 10-year high for the month of May.

Key Market Stats:

  • Median listing price of a house in Philadelphia is $234,900, according to the most recent report from Zillow.
  • Square foot listing price of a home in Philadelphia is $180 vs. $151 per square foot in the Philadelphia-Camden-Wilmington Metro area.
  • Homes values in Philadelphia have increased by 5.4% last year and by nearly 43% since December 2012, based on the Zillow Home Value Index.
  • Average days on market is 102.
  • Median selling price of a home in Philadelphia is $188,300, according to Zillow.
  • 13.3% of the homes in Philadelphia have a negative equity vs. 8.2% U.S. average.
  • 3.0% of the homes in Philadelphia have a delinquent mortgage vs. 1.1% nationally.
  • East Kensington, West Kensington, and Hartranft are three neighborhoods in Philadelphia with the highest median Zillow Home Value Index.
  • Neighborhoods in Philadelphia with the lowest Zillow Home Value Index include Glenwood, Upper Kensington, and Fairhill.

 

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Attractive Renters’ Market

Although activity in the Philadelphia real estate market may have temporarily slowed, Forbes cites the metro area as one of the markets most likely to quickly return to good growth. In fact, Philly’s return to the new normal already appears to be taking place. 

As USA Today reports, prices of the most affordable homes in the Philadelphia metro area have increased by 13.6%. That pricing surge ranks Philadelphia #2 for year-over-year home price increases in the 50 most populous U.S. metropolitan areas. As home prices continue to rise, the number of households renting increases as well, and the renter population in Philadelphia has been growing for quite some time.

Key Market Stats:

  • Median rent in Philadelphia is $1,490 per month vs. $1,550 in the Philadelphia-Camden-Wilmington Metro area. 
  • Average rents in Philadelphia increased by 4% last year, according to RENTCafé.
  • 45% of the households in Philadelphia rent rather than own.
  • 34% of the rental units in Philadelphia have monthly rents of between $1,001 and $1,500.
  • Neighborhoods in Philadelphia with the highest rents include Sounders Park, University City, and West Powelton where rents average $2,549 per month.
  • Cheapest neighborhoods for renters in Philadelphia include Frankford, Frankford Valley, and Northwood where rents average $776 per month.
  • Most popular neighborhoods in Philadelphia for renters are City Center West, Rittenhouse Square, Washington Square West, and Logan Square.

 

Historic Price Changes & Housing Affordability

Two key housing market statistics that real estate investors can analyze to help determine the present and future demand for rental property are the trend in home prices and the affordability of buying a house versus renting.

The Freddie Mac House Price Index (FMHPI) measures the change in housing prices for real estate markets in the U.S. The report assigns December 2000 with a benchmark of 100 and then compares the monthly change in housing prices in every city and major metro area in the nation.

The most recent FMHPI from Freddie Mac for the Philadelphia housing market shows:

  • House Price Index for the Philadelphia metro area is 194.76 through May 2020
  • One year ago, the HPI for Philadelphia was 184.74
  • Year-over-year home prices in the Philadelphia metro area have increased by 5.4%

Housing affordability is another statistic real estate investors review to determine the potential demand for rental property. 

As a rule of thumb, markets where it is more expensive to buy a house usually see a higher percentage of renters. However, even though houses are affordable in Philadelphia, there is still a high percentage of renter households, most likely due in part to the low resident median age of 34.5 years and the high percentage of single people (66% single vs. 34% married).

The most recent housing affordability report from Kiplinger’s Personal Finance surveyed home prices in the 100 largest metro areas in the country. The survey uses an affordability scale of 1 to 10, with 1 being the more affordable market to buy a home in and 10 being the least affordable.

The affordability index report for Philadelphia shows:

  • Since the last real estate cycle market peak in May 2006, home prices in Philadelphia have increased by 5.5%.
  • Since the last real estate cycle market bottom in March 2012, home prices in Philadelphia have increased by 37.5%.
  • Philadelphia has an affordability index of 1 out of 10, meaning that Philadelphia is one of the most affordable markets to buy a home.

 

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Quality of Life

Philadelpia consistently ranks as one of the best places to visit in the U.S., and judging from the population, job growth, and unrivaled amenities in the metro area, it appears that once people come to Philly they decide to stay.

Key Quality of Life Stats:

  • Cost of living in Philadelphia is 3% below the national average, according to Forbes.
  • Niche.com ranks Philadelphia as the 32nd best place for young professionals in America, giving the city high scores for family living, diversity, and nightlife.
  • 44% of the residents in Philadelphia are between the ages of 20 and 49, making the market perfect for millennials.
  • Philadelphia has more affordable housing, and a lower cost of doing business than neighboring high-priced cities such as Boston, New York, and Washington, D.C.
  • Philadelphia is the first and only world heritage city in the U.S., and played a key role during the American Revolution and served as the meeting place for the signing of the Declaration of Independence.
  • Philly is home to 30 public gardens, including Bartram’s Garden, the oldest still-living botanical garden in North America.
  • The Circuit Trails runs for 300 miles with interconnected hiking trails in nine counties in southeastern Pennsylvania and southern New Jersey.
  • Philadelphia is one of the few U.S. cities to have all four major league sports teams.
  • Climate in Philadelphia is humid subtropical, with hot and muggy summers and moderately cold winters.
  • U.S. News & World Report ranks the Philadelphia metro area as the 8th best place to live in Pennsylvania, the 27th best place to retire in the U.S.

 

Get Out the Map

Where to begin your search? Roofstock created a heat map of Philadelphia based on our Neighborhood Rating, a dynamic algorithm that enables you to make informed investment decisions by measuring school district quality, home values, employment rates, income levels, and other vital investment criteria.

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DARK GREEN: 4-5 star neighborhood
LIGHT GREEN: 3.5-4 star neighborhood
YELLOW: 2.5-3 star neighborhood
ORANGE: 2 star neighborhood
RED: 1 star neighborhood

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Jeff Rohde

Author

Jeff Rohde

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.

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