In the Eye of the Storm: An Update on Pennsylvania Housing Prices

Authors: 
Mark Price
Publication Date: 
September 9, 2008

In January 2008 the Keystone Research Center released A Building Storm:The Housing Market and the Pennsylvania Economy, the first detailed study of the housing market in Pennsylvania and its major economic regions. Data available at that time showed that the growth in housing prices in Pennsylvania had slowed but not yet begun to fall. We warned in our first housing report, however, that the Pennsylvania housing market appeared to be following national trends and that nationally, home prices were already falling.

Brand new data, released August 26, 2008 by the Office of Federal Housing Enterprise Oversight, or OFHEO, show that:

• Adjusting for inflation, housing prices in Pennsylvania have now fallen for three straight quarters.

• In the second quarter of 2008, the most recent quarter for which data are available, home prices in Pennsylvania have fallen 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%). Since the primary source of wealth for most Pennsylvania families is their home, the fall in home prices is eroding the net worth of many families.

Dean Baker and David Rosnick of the Center for Economic and Policy Research (CEPR) recently estimated the impact of a 10% further decline in real housing prices from their March 2008 levels—a decline that they believe likely to occur by 2009—on the wealth of the typical U.S. family.2 Baker and Rosnick find:

• From 2004 to 2009, the median wealth of families in the 18 to 34 age group is projected to fall by 68%.

• Median wealth for families in the 35 to 44 age group is projected to fall over the same period by 57%.

• Median wealth for families in the 45 to 54 age group is projected to decline by 35%, leaving even this group, hit less hard than the others, with only $800 more in wealth than they held in 1989.

• From 2004 to 2009, the median wealth of families in the 55 to 64 age group is projected to decline by 44%.

• Typical families in the 65 to 74 group and in the 75 and above group are projected to experience a decline in median wealth of less than 10%, reflecting the smaller role home equity plays in the total wealth of older families and the fact that older families have frequently paid off their mortgages.

For middle-class families, rising housing prices had remained the last  right spot in the otherwise difficult economic period that began in 2001. While wages and incomes had remained stagnant during that period for about 90% of families, increasing home values had given families security, wealth—and hope. Now, with home prices plummeting, that bright spot has been extinguished.

A Building Storm:The Housing Market and the Pennsylvania Economy, together with other information on the housing crisis in Pennsylvania and the U.S., including an interactive map of Pennsylvania home prices,
is available for download at www.keystoneresearch.org/housingmarket.

For a more comprehensive look at the economic status of Pennsylvania working families, see The State of Working Pennsylvania 2008, online at http://keystoneresearch.org/sites/keystoneresearch.org/files/SWP2008.pdf

For KRC’s view of how to turn around the economic situation of the typical Pennsylvania and U.S. family, and how to produce a prosperity that is broadly shared by families of all income levels, see the concludingsection of The State of Working Pennsylvania 2008 as well as “Building a Moral Economy.” Both are available on the KRC website: www.keystoneresearch.org.