Philly-area buyers need to make thousands of dollars more than last year to afford a starter home

First-time home buyers not only have fewer starter homes to choose from these days, but they also need to make more money to afford what is available.

In Bucks, Chester, and Montgomery Counties, the typical buyer looking for a starter home needed to make at least $13,600 more per year this spring than they did last spring, according to a new report by the online real estate brokerage Redfin. That’s a 20% jump to an income of $82,161 to afford the median-priced starter home, which cost $310,000.

The region was in the top five areas where income needed rose the most, according to Redfin’s analysis of the country’s 50 most populous metropolitan areas.

In Philadelphia and Delaware County, the typical first-time buyer this spring needed to make at least $34,985 — about $3,700 more than last year — to afford a starter home priced at the median of $132,000.

» READ MORE: The Philly area doesn’t have enough homes available for low- and middle-income buyers

Despite the increase, Philadelphia “is still much more on the affordable end” out of the major metro areas, said Sheharyar Bokhari, senior economist at Redfin. “Especially for the east coast, it’s holding up in terms of opportunity.”

But Philadelphians’ low incomes are what make the city’s housing hard to afford.

Traditionally, many households become homeowners by purchasing starter homes, some of the smallest and most affordable properties. Once someone buys a first home, it’s easier for them to buy another one later on, since they can use proceeds from the sale of the first. Most households build their wealth through the appreciation of their homes.

» READ MORE: How buying a first home has changed since your parents did it

Higher mortgage interest rates, a lack of housing supply, and rising home prices are to blame for home buyers needing to make more money to afford starter homes.

Compare average mortgage rates over the last three years for the popular 30-year fixed-rate loan. The average rate during the last week of June was 2.98% in 2021, 5.70% in 2022, and 6.71% in 2023, according to the government-backed mortgage-buyer Freddie Mac.

Nationally, new listings of these homes this spring were down 23% from the year before. And the total number of listings of starter homes on the market was down 15%. Both figures represent the biggest declines since the start of the pandemic, according to Redfin.

Homeowners are holding onto their homes instead of selling, because they don’t want to give up the low mortgage rates they got in recent years. And investors who can pay cash for starter homes are outbidding first-time buyers who can’t.

» READ MORE: Worker wages are growing faster in the Philadelphia region than any other metro area

Sales of starter homes dropped 17% nationwide from last spring to this spring, according to Redfin.

Because housing supply isn’t meeting demand, prices aren’t coming down. “That makes it super difficult for someone trying to come into the market,” Bokhari said, especially renters trying to save while prices of goods and rents continue to rise.

Redfin’s analysis assumed that home buyers would be able to make down payments of 20%, but most buyers put down much less. And first-time buyers usually put down less than repeat buyers who can use the proceeds of a home sale to pay for another property. So the salaries in Redfin’s report are the minimum of what typical first-time buyers would need.

» READ MORE: First-time homebuyers are losing out in this twisted housing market | Maria Panaritis

Redfin calculated needed incomes based on its definition of starter homes — properties in the 5th through 35th percentile by sale price that are affordable. The analysis defined affordability to mean a buyer would not spend more than 30% of income on housing payments.

Nationally, the typical buyer of a median-priced starter home needed to make $64,403 this spring, according to Redfin’s analysis. That’s up almost 13%, or $7,200. Across the country, the cost of a median-priced starter home was up 2% from last year to a record $243,000.

Fort Lauderdale, Fla.; Miami; and Newark, N.J., are major metro areas where the prices of starter homes increased the most over the last year. The incomes needed to afford these homes have risen almost 28%, almost 25%, and about 21%, respectively. In Newark, buyers need to make $88,800 to afford a $335,000 median-priced home.

San Francisco, Austin, and Phoenix are the only major metro areas where incomes needed for starter homes dropped over the last year. Home prices in these areas skyrocketed in 2020 and 2021 and have since fallen.