Is the Philadelphia-area housing market undervalued?

Soaring home prices in Greater Philadelphia are still within the median buying power of local residents. Lisa Ciccotelli of Berkshire Hathaway adds, “It’s true that higher rates and inflation affect buyer affordability and demand. We have already seen the slow-down of accelerating home values in the city, and we are learning home values are expected to have lower than average change over the next 12 months in both the city and suburbs.”

According to data from First American Financial Corp., which found the housing markets in at least half of the nation’s major metro areas are overvalued compared to local buying power.

Home prices have soared nationally over the past decade — especially during the pandemic — and that’s driving a significant affordability crisis in many regions.

High interest rates and a sustained lack of inventory aren’t helping matters.

In Greater Philadelphia, however, the typical home price still falls below the median buying power in the region. According to the First American Financial Corp. data, the median home value in the region sits at $309,000, while the typical buyer can spend $445,600.

The $135,700 gap is the second largest negative difference between buying power and median sale price of the 50 metros included in the dataset. The largest is Detroit, where the typical home buying power is $388,300 and the median sales price sits at $216,100.

The 30.6% difference in Philadelphia is also one of the largest of the 50 metro areas included in the dataset. Only Oklahoma City (31%), Milwaukee (33%), Louisville (34%), Pittsburgh (39%), Cleveland (41%) and Detroit (44%) have larger gaps on a percentage basis.

The most overvalued housing markets

As of March, homes in several California communities were among the nation’s most overvalued compared to local buying power.

In Los Angeles, buying power was a mere $413,108 compared to the median existing home price of $923,750 — meaning homes were valued at 124% above buying power.

San Jose (98%) wasn’t far behind. Even with tech layoffs and migration trends, housing affordability in Silicon Valley and the San Francisco Bay Area remains a significant challenge.

Buying power in San Jose was $722,849, while home prices were almost double, at $1.43 million.

San Diego’s median price was 80% higher than what its residents could afford, while San Francisco’s was 76%.

Sky-high home prices in California, among other factors, have prompted many to leave the state.

Midwest may have room to grow

Conversely, buying power data suggests several cities across the Rust Belt have significant opportunity for property to appreciate.

Some also rank among the strongest markets for first-time homebuyers.

As noted above, in Detroit, median home prices were $216,126. That’s 44% below the local buying power of $388,258. After a period of challenges, the Motor City more recently has become a poster child for revitalization amid a frenzy of new development.

Meanwhile, homes in Cleveland were selling near $182,500, while residents could typically afford $310,572 — meaning homes were 41% less than local buying power. In Pittsburgh, the median home price of $188,100 was 39% below the buying power of $310,802.

Economists say housing prices continue to pinch many buyers — and interest rates aren’t helping matters.

Researchers at Redfin Corp. noted earlier this year that homeowners are staying in their homes twice as long as they did back in 2006, when the median homeowner spent 6.5 years in one place.

That figure reached 13.4 years in 2020 but has since dipped to 11.9 years as of 2023.

“Americans who already own homes benefit from rising values and can consider themselves lucky they broke into the housing market while they could still afford it,” said Elijah de la Campa, senior economist at Redfin, in a statement. “On the other hand, price appreciation makes the prospect of buying a new home daunting or even impossible for many people who want to move.


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