Two Philly-area counties are top U.S. markets for affordable starter homes

Two friends in their mid-20s had a bunch of student loan debt, a strong desire to move out of their parents’ homes, and the dream of becoming homeowners themselves. So this March, they bought a rowhouse in Brewerytown together and rented the third bedroom to another friend.

Last year, two sisters who got their first jobs in Philadelphia and couldn’t afford to buy a home alone pooled their money. After getting outbid on a few properties, they were able to buy a rowhouse in South Philadelphia.

These are the kinds of arrangements that Blakely Minton, a Redfin real estate agent who works in Philadelphia and Delaware County, is seeing more of as people buy their first homes. As prices keep rising and student debt grows, first-time buyers in the Philadelphia area are doing whatever they can to try to afford to purchase, including combining resources with friends or family.

In real estate markets across the region, the more affordable starter homes are in the highest demand.

“I have had buyers drop out of the market to wait to save more money and for it to get less competitive,” Minton said.

But according to a Redfin analysis of the country’s 50 most populated metro areas, the combined market of Philadelphia and Delaware Counties was in the top five most affordable markets for starter homes in July.

The combined median household income in the two counties is $72,840, according to estimates based on projections from Census Bureau data. Buyers in these counties needed to make $46,059 to afford the $140,000 cost of a median-priced starter home in July, according to the analysis that the online real estate brokerage Redfin published last week.

» READ MORE: Philly-area buyers need to make thousands of dollars more than last year to afford a starter home (From 2023)

That necessary income is up almost 12% from the same time last year. But it’s a lot less in Philadelphia and Delaware Counties than nationally. Minton said high housing density in these counties is one reason for that relative affordability.

Nationwide, buyers needed to make $79,252 to afford the record $250,000 price of a typical starter home in July, according to Redfin. That necessary income is a few hundred dollars less than the all-time high last October and means starter homes are just barely affordable for households making the median U.S. household income.

In half of the country’s 50 most populous metros, a household making the local median income cannot afford a starter home.

The Detroit area was the most affordable region for starter homes in July, according to Redfin. The typical Detroit-area household makes more than twice the $24,590 it needed to be able to afford the median-priced starter home, which cost $70,000 in July. Still, the income needed was up almost 20% from the same time last year.

The least affordable metro areas in July, according to Redfin’s analysis, were in California: Los Angeles and Anaheim. In these places, households would have needed to make double the local median income to afford the typical starter home.

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

Redfin defined starter homes as those with sale prices in the 5th to 35th percentile of the market.

The company’s analysis assumed that a buyer with a mortgage made a 3.5% down payment and had an average mortgage interest rate. It used the traditional definition of affordability — spending no more than 30% of income on housing payments, including the mortgage principal, interest, property taxes, and homeowners’ insurance.

“Homeownership may seem like it’s affordable in Philly, and it is more affordable than many other places in the country,” said Nora Lichtash, executive director of the Philadelphia-based nonprofit Women’s Community Revitalization Project, which is a member of the Philadelphia Coalition for Affordable Communities. But that doesn’t mean buying a home in the city is easy, she said.

Philadelphians make less money than residents in the collar counties. And aspiring homebuyers need to be able to qualify for mortgages, which is more difficult at lower incomes.

As an example, Lichtash cited the Women’s Community Revitalization Project’s work building and selling five subsidized houses in Point Breeze a few years ago. She said the organization talked to some 500 families over a roughly eight-month period in order to find five who were eligible to take out $120,000 mortgages.

» READ MORE: Philly’s wealthiest neighborhoods have median incomes that are $100,000 more than the poorest areas

Even if people are making enough money to afford a starter home, many have debt such as student loans that make purchasing a home difficult. Buyers “can’t sink a third of their income into their house anymore,” said Minton, the Redfin agent.

And there might not be any starter homes available to buy. Homeowners who got low interest rates in the last few years are hanging onto their properties, which restricts housing supply. Meanwhile, demand for starter homes is strong, which raises costs.

“The prices are just going gangbusters,” Minton said. “And we don’t have enough for [starter-home buyers] to even look at.”

Homes that need to be renovated are one option, but first-time buyers often don’t have the time or money to put into a fixer-upper, she said.

First-time buyers also are competing for starter homes with baby boomers who are downsizing. Minton said that’s especially true for condos in Philadelphia.