Home values in Greater Philadelphia have experienced one of largest aggregate increases in the nation

High mortgage rates and a lack of inventory have pushed housing prices to new records in Greater Philadelphia. Over the past year, the region has experienced one of the largest increases in aggregate home value in the nation, a new report from Zillow found.

The total value of the Philadelphia-area housing market is currently $883.1 billion, a 6.8% increase compared with its $826.9 billion value last June at what Zillow determined was the national peak of home values. The $56.2 billion value increase is the third largest jump among the top 20 most valuable housing metros in the U.S. It also greatly outpaces the 2.2% increase in home value the national housing market has seen since June 2022.

The only two metros with larger percent increases than Greater Philadelphia were Miami-Fort Lauderdale (8.6% growth) and Chicago (6.9%).

Pennsylvania as a whole also experienced considerable growth. With a total value of nearly $1.57 trillion, it is among the top 10 most valuable states for the housing market. The Keystone State experienced 6% growth in value since June 2022, adding $89.1 billion.

Neighboring New Jersey surpassed that, with its value rising 13.1% since last June, or $213.5 billion, making it by far the largest percent increase of the top 10 most valuable states. The Garden State, according to Zillow, has a total housing market value of nearly $1.85 trillion.

Orphe Divounguy, a senior economist for Zillow, said there are multiple factors causing local housing values to jump, but chief among them are new construction and affordability.

Mortgage rate increases have seen supply plummet while also driving up demand — especially for more affordable areas like Greater Philadelphia. At the same time, new construction builders have seen an opportunity to add supply to a depleted market. Areas that have both of those are seeing home values surge. The most expensive markets, meanwhile, “took a plunge in terms of demand,” Divounguy said.

“About a year ago when mortgage rates began to increase and affordability fell to an all-time low, the most unaffordable saw a big decline in demand,” Divounguy said.

That was the case in California. It remains the most valuable housing market in the nation at nearly $10.2 trillion, but since last June it has lost $344.4 billion in value.

Philadelphia, however, is on the flip side of that.

“The fact that prices and costs increased so much meant that the most affordable homes in the most affordable markets actually were doing much better,” Divounguy said. “Demand shifted to what was most affordable and markets like Philadelphia were relatively more affordable. So home values continued to increase in places like Philadelphia.”

The region has long been seen as a more affordable option to major surrounding metros like Washington, D.C., New York or Boston. Even as prices have cooled elsewhere, the Philadelphia metro saw median home prices jump 5.7% to a record high in August.

If new construction continues to come on the market, Divounguy said home values in the region may continue to rise.

“It has created a ton of opportunity for builders to step in and fill the gaps,” Divounguy said. “When you look at the total value of residential real estate, it’s a combination of individual home values, but also [the value of] newly built homes. If you have a market like Philadelphia, where individual home values have continued to increase and at the same time you have about a 1.6% increase in the housing stock — an increase in new construction — then the total value of real estate increases.”