2. Recent Trends in Pennsylvania Housing Prices Analysis of New Data Released February 24 th, 2009 on Pennsylvania Housing Prices by the Federal Housing Finance Agency (FHFA). Mark Price PhD Labor Economist Keystone Research Center price@keystoneresearch.org 717-255-7158 Keystone Research Center For a narrated version of this presentation go to http://www.papolicyblog.com/pablog/2009/02/h ousing_price_c_1.html http://www.papolicyblog.com/pablog/2009/02/h ousing_price_c_1.html The Pennsylvania Policy Blog provides regular concise summaries and charts using the latest data on the economic crisis, with a little more edge than usual from KRC! www.papolicyblog.comwww.papolicyblog.com

3. Keystone Research Center Summary of Findings Inflation-adjusted home prices in Pennsylvania fell in the 4 th quarter of 2008 by 4.3% Although this is an improvement over the 3 rd Quarter, when prices fell by 8%, it reflects a sharp reduction in inflation in the 4 th quarter. Looking at home prices without adjusting for inflation indicates that the Pennsylvania housing market weakened further between the 3 rd and 4 th quarters of 2008. Although home prices continue to fall in Pennsylvania, the price declines experienced so far are smaller than those observed for the US and in neighboring states including Ohio, New Jersey, Delaware and Maryland. Among metropolitan areas in Pennsylvania, the biggest declines in home prices in the most recent quarter occurred in the Newark-Union (NJ-PA, MSAD), Allentown- Bethlehem-Easton (PA-NJ), Reading (PA), and Philadelphia (PA, MSAD). Although the scale of the excesses of the housing bubble was greater in other parts of the country, home prices here in Pennsylvania did rise rapidly at the height of the US housing bubble. And here in Pennsylvania, like elsewhere in the country, those places where prices grew the most during the bubble are now the places experiencing the largest declines in home prices. However it is important to note that the weaknesses in the housing market has dramatically slowed the growth in housing prices in most parts of Pennsylvania.

4. Keystone Research Center Some Notes Before You Proceed Inflation Adjustments In the next few slides, data on the change in home prices are presented. At the top of each slide, a note appears identifying whether the data has been adjusted for inflation or not. Adjusting for inflation is generally the best way to compare values over time. Figure 3 presents Pennsylvania housing price change before and after adjusting for inflation. The last year has been marked by a surge in food and energy prices in the 2 nd and 3 rd quarter and then a sudden worsening of the recession in the 4 th quarter, which sharply reduced the rate of change in consumer prices. When examining inflation-adjusted housing prices, the slowdown in overall inflation between the 3 rd and 4 th quarter obscures the continuing decline in housing prices. Housing prices not adjusting for inflation (nominal) reveal a continuing decline in housing prices in Pennsylvania since the 4 th quarter of 2006.

5. Keystone Research Center Some Notes Before You Proceed Two Home Prices Indexes Data is presented first from the Federal Housing Finance Agency’s (FHFA) purchase-only house price index for Pennsylvania. This is the most accurate measure of housing prices because it reflects prices derived from actual sales. Near the end of the presentation data is presented from the FHFA’s all- transactions house price index which includes housing price data derived from both home purchases and home refinance transactions. Indexes that include refinance transactions are somewhat less accurate since they include the estimation of home values by home appraisers. However, this is the only data set from which it is possible to examine housing price change in Pennsylvania’s metropolitan areas. This means that the decline in housing prices observed in Pennsylvania’s metropolitan areas is understated. To illustrate this effect consider that in Pennsylvania the purchase-only house price index in the most recent quarter shows nominal home prices falling by 3%, but the PA all- transactions index shows prices falling by just 0.8%. The most widely reported house price index is the S&P/Case-Shiller index but this index does not have data for Pennsylvania.

6. NOMINAL HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES ONLY Keystone Research Center

7. NOMINAL HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES ONLY Keystone Research Center

8. NOMINAL AND INFLATION-ADJUSTED HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES ONLY Keystone Research Center

9. NOMINAL HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES ONLY Keystone Research Center

10. NOMINAL HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES AND REFINANCE TRANSACTIONS Keystone Research Center

11. INFLATION ADJUSTED HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES AND REFINANCE TRANSACTIONS Keystone Research Center

12. INFLATION ADJUSTED HOUSING PRICE CHANGE HOME PRICES DERIVED FROM HOME SALES AND REFINANCE TRANSACTIONS Keystone Research Center

13. Summary of Findings Inflation-adjusted home prices in Pennsylvania fell in the 4 th quarter of 2008 by 4.3% Although this is an improvement over the 3 rd Quarter, when prices fell by 8%, it reflects a sharp reduction in inflation in the 4 th quarter. Looking at home prices without adjusting for inflation indicates that the Pennsylvania housing market weakened further between the 3 rd and 4 th quarters of 2008. Although home prices continue to fall in Pennsylvania, the price declines experienced so far are smaller than those observed for the US and in neighboring states including Ohio, New Jersey, Delaware and Maryland. Among metropolitan areas in Pennsylvania, the biggest declines in home prices in the most recent quarter occurred in the Newark-Union (NJ-PA, MSAD), Allentown- Bethlehem-Easton (PA-NJ), Reading (PA), and Philadelphia (PA, MSAD). Although the scale of the excesses of the housing bubble was greater in other parts of the country, home prices here in Pennsylvania did rise rapidly at the height of the US housing bubble. And here in Pennsylvania, like elsewhere in the country, those places where prices grew the most during the bubble are now the places experiencing the largest declines in home prices. However it is important to note that the weaknesses in the housing market has dramatically slowed the growth in housing prices in most parts of Pennsylvania.

14. Keystone Research Center Conclusion The passage of the American Recovery and Reinvestment Act is an encouraging development which will likely help stabilize home prices in Pennsylvania. The Pennsylvania economy shed 59,100 jobs in the 4 th quarter of 2008, and the state will likely experience similarly large losses in the next couple of months. As the economic stimulus is implemented, it will noticeably slow the pace of job loss in the commonwealth. By stabilizing the labor market, the economic stimulus package will prevent home foreclosures which, in Pennsylvania, are often driven by unforeseen job loss. It is also a positive sign that the Obama administration is moving forward with plans to help prevent foreclosures and to beginning to seriously tackle the problems in the financial sector.