That first home costs too much for more of us

Typical starter price now $172,231 in Md.

$32,825 pay can't swing the deal

Realtors group shows the affordability gap

November 22, 2003|By Trif Alatzas | Trif Alatzas,SUN STAFF

Double-digit increases in housing prices are putting a first home out of reach for more and more Marylanders, according to data released yesterday by a state real estate lobbying group.

The Maryland Association of Realtors unveiled an affordability index showing that even with the current low interest rates, the average first-time homebuyer in Maryland earned just 67.8 percent of the income needed to buy a typical starter home costing $172,231.

First-time buyers last month had a median household income of $32,825 annually, well shy of the $48,408 a year needed to afford the monthly housing costs as well as a 5 percent downpayment, the group said.

In 2001, first-time homebuyers on average earned 80.1 percent of the income needed to buy a first home, according to the association.

Realtors worry that if the trend continues, it will dampen a sizzling housing market that has helped keep the economy afloat during the past three years.

The Realtors group plans to update the index monthly as it works to raise awareness of an issue that many housing experts fear is becoming an acute problem.

"If the first-time buyer can't buy, who is the next guy in line who wants to buy something larger going to sell to?" asked Gilbert D. Marsiglia, president of the state Realtors' association. "It creates a ripple effect."

First-time buyers make up one of the most important markets for the real estate industry, which has enjoyed three record years of housing sales.

Because long-term mortgage interest rates have remained at four-decade lows, roughly 6 million more people could afford to buy homes nationally, according to Lawrence Yun, senior economist for the National Association of Realtors.

But interest rates are expected to rise, with the Mortgage Bankers Association forecasting that the 30-year mortgage rates will average 6.2 percent in 2004 from an average 5.8 percent this year.

As rates rise, buyers won't be able to afford as much as they have in the past.

There are growing concerns in Maryland and the nation that housing prices are outstripping growth in family income.

In each of the past seven months, Baltimore area home prices have jumped by double digits over the same month last year.

In October, the average sales price in Baltimore and the five surrounding counties jumped to $210,439 - 11.79 percent above a year earlier, according to data collected by Metropolitan Regional Information Systems Inc.

"This has been a great time for homeowners," said Anirban Basu, chief executive officer of Optimal Solutions Group in Baltimore.

"But it has been a particularly bad time for people who do not own homes because they have not benefited from the increase in equity. And they're finding the dream of owning a home that much more remote."

About 200,000 families throughout the state spend 30 percent or more of their gross income on housing, according to the Maryland Department of Housing and Community Development. Most financial experts suggest paying no more than 28 percent.

The affordability gap is especially acute in high-cost areas such as Howard and Montgomery counties, where many of the police officers, teachers and firefighters who serve those communities don't earn enough to live there.

That is forcing many workers to move farther away where they can better afford a starter home, experts said.

State housing officials, who earlier this year expanded a first-time buyers program offering low-interest loans to income-eligible families, currently are studying ways to help more people afford homes.

A 21-member committee appointed by Gov. Robert L. Ehrlich Jr. and the General Assembly is to make recommendations for improving affordability by the end of 2004.

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