Home Prices Across PA Tumble, Study Finds

Home Prices Across PA Tumble

In 15 of 16 PA Metro Areas, Home Prices Are Down From One Year Ago

HARRISBURG, PA—As policy makers in Washington, D.C, scrambled yet again over the weekend to contain our national financial crisis—this time through a government takeover of mortgage giants Fannie Mae and Freddie Mac—there are new signs that the financial crisis is hurting Pennsylvania families: Home prices in the commonwealth and in 15 of its 16 metropolitan areas are falling, according to a new report from the Keystone Research Center (KRC) in Harrisburg.

Inflation-adjusted home prices in Pennsylvania fell by almost 7 percent between the second quarter of 2007 and the second quarter of this year, KRC found. Home prices have now fallen for three straight quarters, and are now lower than their levels in the second quarter of 2005.

Nationally, over the same period, the decline in home prices was 9.5 percent.

Mark Price, PhD, KRC labor economist and author of the new report, said the comparison with national figures should not trigger a "sigh of relief," but rather serve as a cautionary note.

"We warned back in January that the Pennsylvania housing market appeared to be following national trends," he said. "The findings of this report bear that out. Pennsylvania has not dodged this bullet."

The new report, In the Eye of the Storm: An Update on Pennsylvania Housing Prices, continues the Pennsylvania housing market analysis that KRC initiated in its January release, A Building Storm: The Housing Market and The Pennsylvania Economy. Dr. Price authored both research papers.

According to the new analysis, Pennsylvania home prices in the second quarter dropped the most, 8.8 percent, in the Lebanon metropolitan area. Of regions wholly within Pennsylvania, Allentown-Bethlehem-Easton had the second sharpest decline, 6.9 percent.

Decreases also occurred in the South Central and Southeast portions of the state, regions that some observers believed had escaped the housing market crisis: Housing prices dropped 4.6 percent in York-Hanover, 4.4 percent in metropolitan Philadelphia; and 3.5 percent in Lancaster. All figures are adjusted for inflation, and measure the change in home prices from the second quarter of 2007 to the second quarter of 2008, the most recent quarter for which data are available.

Prices also fell in Altoona, Erie, Harrisburg-Carlisle, Pittsburgh, Reading, Scranton/Wilkes-Barre, State College, and Williamsport. Williamsport has now seen declines in two consecutive quarters. For Scranton/Wilkes-Barre and State College, the declines were the first since 2000.

Johnstown was the only metropolitan area in the state that experienced price increases in the last three quarters.

Local figures and comparisons, as well as additional data on the Pennsylvania housing market, are available at http://www.keystoneresearch.org/housingmarket

Price said falling home prices, similar to rising unemployment, can have devastating consequences on families. "The homes that middle-class families own are the primary source of their wealth," he noted. "When those homes go down in value, it cuts the heart out of Pennsylvania's middle class."

Price cited a study by nationally recognized economists Dean Baker and David Rosnick, both of the Center for Economic and Policy Research (CEPR) in Washington, D.C. Baker, one of very few economists to warn of the inflating housing bubble before it broke, and Rosnick estimated the impact of an additional 10 percent decline in real housing prices they believe likely to occur between March and the end of this year.

According to Baker and Rosnick, expected declines in housing values will reduce the wealth of the typical family in every age group, with the youngest families suffering the largest declines. Median wealth for families in the 18 to 34 age bracket, for example, is projected to fall by 68 percent—plunging many young families deep into debt just as they begin their effort to grab a piece of the American Dream.

Younger homeowners typically have less home equity and have paid off only a small portion of the principal on their mortgage, leading to larger losses in wealth as home prices fall, Price explained.

But even older families, with more equity and more of their principal paid off, will suffer, he said. The Baker-Rosnick numbers project that typical families in the 45 to 54 age group will see just over a third of their wealth evaporate.

KRC has called for national policy makers to stop looking at the housing crisis through rose-colored glasses and to end their piecemeal approach of lurching from one economic emergency to the next. "In the last year, the Federal Reserve has responded well, but the Bush Administration and some members of Congress have not," Price said. "As KRC has been saying since the beginning of the year, we need to get beyond 'too little, too late' policies, starting with a second fiscal stimulus package."

Price said such a package must be larger in scale than the first, and that it must include investment in infrastructure and in the green economy, as well as income for struggling families.

"These measures will get the economy going," Price said. "More tax cuts for the affluent and for businesses will not."

In its recently released State of Working Pennsylvania 2008, KRC outlined an overall economic agenda—"A New Deal for a New Economy"—designed with twin goals of pulling the economy out of the current slowdown and laying the foundation for long-term prosperity that is broadly shared. To get its message across in a form relevant to the national electoral debate, KRC economists also authored a "sample" economic stump speech that they are encouraging the presidential candidates to steal from while campaigning in Pennsylvania. The nonprofit, nonpartisan research center also designed a 10-point scorecard, to be used by voters to rate what each candidate actually says about the economy.

"In a lot of recent discussion about the housing market and the financial crisis," Price concluded, "policy makers have barely looked as far as the end of their nose—the financial crisis du jour.

"If they look just six inches further, they will see the long-term challenges of stagnant incomes for all but a few, a loss of U.S. competitiveness, and global climate change. In a presidential election year, we need economic proposals that respond to the immediate crisis and to these long-term challenges—in which candidates provide real leadership on the economic issues staring us in the face. That's what voters should be looking for."

The new housing report, The State of Working Pennsylvania 2008, presidential speech, and quiz are all available online at www.keystoneresearch.org.