How Rising Rates and Inflation are Impacting Philadelphia’s Residential Market

Venture Philly founder Antonio Atacan has been a real estate agent in Philadelphia since 1995. He founded the first Keller Williams in Philadelphia. He quickly grew KW into the largest brokerage in the city before selling it and launching Venture Philly with his long-time associate Aaron Byles. He was recently interviewed by Invest: Philadelphia to talk about the current state of the market. With years of experience, Antonio has seen many market shifts. These are his thoughts on what we are currently seeing.

How is the current economic climate influencing how people are buying homes?

Affordability might be the biggest factor right now because first-time homebuyers are driving about 50% of the market. The way things are with demand and increasing interest rates, they simply can’t afford it. Given that factor, we are in for a correction sooner than later in that segment. But it’s another story with high-end and luxury markets. They aren’t as affected because there is less reliance on mortgages in those transactions because the wealth is already in place and purchases can be made with cash. This has created a patchy market and is more reason for our team to articulate the right opportunities and empower people to get a feel for that pulse and better understand their options.

What are the neighborhoods you are seeing the most growth in?

We’re seeing a lot of growth in Fishtown, Northern Liberties and Kensington with the boom of commercial properties there. Frankly, when restaurants come into a neighborhood that’s when things start happening commercially. You can then rely on housing to follow, which is especially true in Northern Liberties where huge residential projects are going up. Other neighborhoods like Point Breeze and Brewerytown remain strong as well because of that commercial component and their relative affordability. There is no doubt that crime has been an issue in many neighborhoods, but even so we are seeing an influx of new residents that cannot be denied.

How will recent interest rate increases impact the residential real estate market?

The market is seeing more absorption with these interest rate hikes. But I’ve been in the business long enough that there was a time when 7% or 8% rates were totally normal, so it’s a bit of a coma that the economy is coming out of in that regard. But the Fed must do that slowly so that it doesn’t bite the market too much. It’s a dangerous game if you pump the brakes too fast. I look at it this way, even a 1% increase equals 10% borrowing power. This will have the most significant impact on first time homebuyers. But the demand is still there and if I’ve learned anything it’s that we’ll know the market is in bad shape when a great house at a great price isn’t selling. We’re fortunately not there yet.

What is your outlook for Philadelphia over the next two to three years?

There is quite a bit of tumult in Philly politics right now, but there is a lot to be excited about. People who want to be a part of the solution must get out to vote if they want to see changes. I think that will be vital moving forward because what really sets Philadelphia apart from so many major metro areas is our established industries like healthcare and higher education, along with our rich history. Because of this, the city doesn’t inflate or deflate in value like some of the newer markets in the country, where economic changes can cause immediate and long felt impacts. There is so much value here. While there are a lot of economic concerns, I believe it’s another cycle we’re going through so it’s important to keep an eye out for the opportunities no one else is looking for. Philadelphia was on the right course before the pandemic, we’re getting back on track, and I see the city continuing to grow because of its inherent assets.

What sets Venture Philly apart from competitors in the market?

The foundation of Venture Philly is based on quality, not quantity. We don’t want to hire and grow just for the sake of growth but create a business that is essentially recession-proof. To do that, you must lead with revenue so that if the market changes there isn’t the need to cut costs dramatically. Otherwise, if you’re controlling expenses all the time even while making and spending more, it becomes an inefficient model. Venture Philly has an environment where agents can leverage their own success. This is important because naturally as a market gets better and more attention, more agents come into the business and that cuts a smaller piece of the pie for everyone. We’re teaching our agents to coach clients so they in turn can become the voice of the market. Sure, homebuyers have a lot of information right at their fingertips, but our advisors are there with intel, data and guidance that can’t be found anywhere else. This gives us a vital pulse of how the market is doing. At the end of the day, if you don’t have this type of information it’s probably already too late. When our advisors meet with clients, they can offer education on the important trends so homebuyers can be smart about the process at hand.