January 08, 2025
Thom Carroll/for PhillyVoice
Philadelphia's housing market will be among the hottest in the United States in 2025, Zillow said. The average home value for the region, including the suburbs, was $362,744 in 2024.
The Philadelphia housing market is projected to be the fifth-most competitive metropolitan area to shop for homes in 2025, real estate listing site Zillow said. The forecast comes as the U.S. housing market tries to recover from a cooldown last year driven by high mortgage rates, low home supply and reduced affordability.
Zillow determined the hottest markets for the coming year by forecasting home value growth, looking at the recent pace of listings and sales, and projecting changes in labor markets and home construction activity. Philadelphia came in behind Buffalo, New York; Indianapolis, Indiana; Providence, Rhode Island; and Hartford, Connecticut.
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The Philly metro area jumped six spots from No. 11 in Zillow's rankings last year. The average home value for the region, including the suburbs, stood at $362,744 in 2024 — an increase of 4.6% over the previous year. Zillow forecasts that home values in the Philly market will grow another 2.6% in 2025.
Across much of the United States, housing markets have been stabilizing in recent years after the COVID-19 pandemic spurred a frenzy of sales and rising prices. Historically low mortgage rates, steep competition among buyers and limited home inventory all accelerated price growth. The National Association of Realtors projects the median price of an existing home in the United States will be $410,700 in 2025, about 50% higher than what it was in early 2020.
"When COVID hit, the market in Philadelphia got busier than anyone could ever have expected, but it was for certain products," said realtor Reid Rosenthal, who has been an agent in the Philly region for more than 20 years. "It was for properties that had some outdoor space, roof decks, backyards. That market took off."
In 2022, mortgage rates began rising as the Federal Reserve took measures to curb inflation. The higher monthly payments combined with the jump in housing prices put ownership out of reach for a growing share of Americans.
"This past year was probably the most challenging year in real estate since the (2008) financial crisis," Rosenthal said. "Everything seems to be bottoming now. In my opinion, it's a good time to purchase in Philadelphia because everything has leveled out."
Zillow noted that Philadelphia's relative affordability compared with other large cities is a "powerful force" that pushed it higher in this year's rankings.
"Philly is always a better option than New York City, which just gets exponentially more expensive," Rosenthal said. "We see some people coming down from New York who don't necessarily need to live there that see Philly as a great option. It has everything a major city needs — great restaurants, walkability, two rivers, good for biking and running."
Home buyers will likely continue to see the 30-year fixed-rate mortgage remain above 6% in 2025. Entering the new year, that rate stood at about 7% — far above the low point of 2.65% in January 2021.
Home affordability in the United States improved last year for the first time since the pandemic, but a home buyer would need an annual income of $116,782 to be able to spend no more than 30% of earnings on a median-priced home, according to a report this week from real estate brokerage Redfin.
Last year, households earning the median U.S. income of $83,782 would have had to spend 41.8% of their earnings on monthly housing costs to purchase a typical home. By comparison, that figure was under 32% every year between 2012 and 2021. It peaked at 42.2% in 2023.
Although Philadelphia has long been viewed as more affordable than other cities along the Northeast corridor, a report last year from the Pew Charitable Trusts concluded that impression is "somewhat overstated."
Pew's analysis of single-family homes in the city from 2000 to 2021 found that the monthly mortgage payment for an entry-level home — adjusted for inflation — increased by 55% during that period compared with a 10% increase in median income. Among all city properties not purchased by investors, who typically target cheaper properties that need renovations, the median sale price rose 168% from $99,000 to $265,000 during that 21-year stretch. The rate of home ownership in the city declined from 59% in 2000 to 53% in 2021, with investors accounting for 32% of all homes purchased in Philly during that period.
Rosenthal said affordable home construction in the city is not as robust as it once was. Certain categories of homes — especially condominiums and townhomes — could be begin to look more appealing to buyers.
"The condo market has gone down in value and it's taking longer to sell," he said. "It has become attractive because prices have just come down, and it's kind of balancing out the high interest rates. There's a low-inventory market for townhomes, but those prices have come down."
Rosenthal said he's not surprised to see Philly forecast as one of the nation's hottest markets this year.
"I think more people want to come back to the city after the years of escaping cities due to COVID," he said. "In December, we saw a pickup at a time when that usually doesn't happen. If that continues in the new year, we expect it to be a very strong market in Center City."
