PA Housing Market
In the early fall of 2007 the Keystone Research Center warned that the collapsing housing bubble threatened to slow the economy. From the State of Working Pennsylvania 2007:
“As this report goes to press in September 2007, there is mounting evidence that the collapse of the housing bubble has begun to harm other sectors of the economy, particularly through a tightening of credit markets. This tightening constrains the capacity of firms and households to borrow money for investment and consumption, which in turn threatens to further restrict job growth.”
The National Bureau of Economic Research would eventually date the beginning of what is now commonly called the “Great Recession” as December of 2007.
Even in early 2007 there was still substantial debate about whether there was in fact a housing bubble in the United States. Economists like Dean Baker of Center for Economic and Policy Research (CEPR) noted time and time again that housing prices since 1890s had on average increased at about the same rate as inflation, that is up until the period after 1995 when they grew much faster than inflation.
Concern over the possibility that the same forces that created the national housing bubble might have also inflated home prices in Pennsylvania lead the Keystone Research Center to release “A Building Storm: The Housing Market and the Pennsylvania Economy” in January 2008. The briefing paper documented the rise of home prices in the Commonwealth, the extent of subprime mortgages and the early impact of the collapse of the national housing bubble on construction employment in Pennsylvania. The report found:
- Contrary to many perceptions, Pennsylvania, particularly in certain regions, did experience a housing bubble. To be sure, the recent run-up in housing prices began two years later in Pennsylvania than in the nation as a whole, in 2001 rather than 1999. Nonetheless housing prices in Pennsylvania from 2001 to 2006 mirrored the national trend, rising by 54% compared to an overall inflation rate of only 13%.
- Recent developments in the housing market have already contributed to a decline in employment in the Pennsylvania construction industry. Seasonally adjusted employment in the Pennsylvania construction industry declined by 6,000 jobs between March and November of 2007.
- Families in low-income communities rely most heavily on subprime mortgages. In nine counties—eight rural ones (Cameron, Clearfield, Fayette, Forest, Jefferson, Monroe, Venango, and Warren Counties) and Philadelphia—subprime mortgages make up more than 35% of all mortgages.1 In some neighborhoods, subprime mortgages make up 60% to 80%, or more than 80%, of the total.
In September 2008 the Keystone Research Center released “In the Eye of the Storm: An Update on Pennsylvania Housing Prices”. The report found:
- Adjusting for inflation, housing prices in Pennsylvania have now fallen for three straight quarters.
- In the second quarter of 2008, home prices in Pennsylvania fell by 6.9% from the same quarter a year ago. Over the same period, home prices nationally declined by 9.5%.
- A different index, useful because it reports separately on housing prices in metropolitan areas, shows that home prices declined in the second quarter of 2008 in 15 of 16 metropolitan areas in Pennsylvania.
- Home prices fell the most in Lebanon (8.8%); in Newark-Union, which is primarily located in New Jersey but does includes Pike County, Pennsylvania (7.7%); and in Allentown-Bethlehem-Easton (6.9%).
In February 2009 Keystone Research Center labor economist Mark Price provided a further update on housing price trends through the 4th quarter of 2008.
In the the months ahead KRC will continue to track current trends in PA home prices. See the box to right labeled Housing Price Updates for the latest update.