First-time homebuyers in Philly area need to make more money to buy a starter home

Home prices and mortgage rates continue to make affording a home a real challenge.

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The Kingsessing neighborhood in Southwest Philadelphia. (Rebuild Philadelphia)

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New data show starter homes in the Philadelphia area have become less affordable over the past year.

According to real estate broker Redfin, first-time home buyers in the metro area need to earn at least $44,326 to buy a typical house. The threshold, based on market value estimates from February, is 15% higher than 2023 but nearly $30,000 less than the metro’s median household income.

The median sale price for a starter home in the metro area — a property priced in the bottom third — is now $135,000, according to the report. The metro covers Philadelphia and Delaware County.

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Redfin economist Chen Zhao said overvalued home prices and high mortgage rates continue to squeeze first-time home buyers because the combination has also created an inventory crisis.

“So many homeowners locked in very low mortgage rates during the pandemic, and they’re very reluctant to give those up,” said Redfin economist Chen Zhao. “That means there’s very little supply and when there’s little supply … that means prices are going up.”

The average rate for a 30-year fixed mortgage is about 7% — about double what many homeowners secured during the pandemic.

Affording a typical starter home in the Philly suburbs has also become more challenging over the last year.

First-time home buyers in the Montgomery County metro now need to earn at least $99,260 to be in a position to buy, the report found. That’s a 16% increase over 2023 and about $25,000 less than the metro’s median household income.

The median sale price for a starter home in the metro is now $315,000. The area includes Mongtomery, Bucks and Chester Counties.

Nationwide, a first-time homebuyer must make at least $75,849 to afford a typical U.S. starter home. In February 2020, Americans needed to earn roughly half as much to buy a starter home.

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Chen expects things to improve slightly in the coming months as price growth slows and more inventory comes online.

“For a lot of folks, it’s getting hard to keep putting off life changes,” said Chen.

“Because of that, we are seeing more new inventory coming on this part of the year and that will hopefully represent a slow thawing of this inventory crunch that we’ve been seeing and that should help ease price pressures a little bit,” she said.

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