Housing `gap is widening'

Affordability index is lowest since 2000 for Md. homebuyers, Realtors say


Housing affordability continues to worsen in the state, even as the market slows and sellers are forced to make concessions, the Maryland Association of Realtors said yesterday.

The group's Housing Affordability Index, which tracks the ability of first-time homebuyers to make a purchase, hit its lowest level - 42.6 -since it was created in 2000. The typical starter home cost about $268,000 in May, the association said yesterday. That's nearly $7,900 more than the previous month.

A typical first-time homebuyer has less than half the income needed to afford that residence, the association said, or 42.6 percent to be exact. Compare that with 2001, when the homebuyer had 80 percent of the income required.

"We've got a problem in Maryland," said association President Al Ingraham, a Realtor who is a senior vice president at First Horizon Home Loans. "This gap is widening."

Price growth for all homes has slowed drastically across the Baltimore region and statewide, but that comes after years of rapid gains that far outpace income growth.

Baltimore-area home prices in May were double what they were in 2001. And Realtors say there's still high demand for starter homes.

"I think this is a wake-up call for everybody," said Mary C. Antoun, chief executive of the association, which recently launched an awareness campaign about affordability issues.

The index is calculated assuming that first-time homebuyers will make a 5 percent down payment and will not spend more than 25 percent of their gross household income on principal, interest payments and mortgage insurance. A typical first-time homebuyer, the association said, has a household income that's 57 percent of the median in Maryland and is looking to purchase a home priced at 85 percent of the median sales price.

That translates to a household making about $35,000 trying to buy a home priced at $268,000. The monthly payments would eat up nearly 60 percent of that household's income before taxes, the association said. Some prospective buyers have simply given up, while others have borrowed more than experts have traditionally recommended, taking advantage of interest-only mortgages and other so-called exotic products to get their foot in the door.

Because the Realtors have not calculated the index for previous decades, Antoun couldn't say whether affordability is worse than it has ever been. Interest rates for 30-year fixed-rate mortgages topped 16 percent on average in 1981 and 1982, according to mortgage finance giant Freddie Mac.

Rates averaged about 6.7 percent last month, which means the cost of borrowing money is much less expensive now, even though the cost of homes has skyrocketed.

But interest rates have been on the rise - more than a percentage point in the past 12 months.

Oliver Henderson, a Realtor with ReMax Advantage Realty in Columbia, thinks first-time buyers should benefit now that the housing boom seems over.

"There's a lot more inventory out here," he said. "With the market changing to a normal market - or a market where you have sellers that are willing to make some sort of concession - that process should get a little easier for qualified buyers."

"Houses are staying on the market longer," Henderson said. "Buyers have some leverage."


Getting a foot in the door

What a first-time homebuyer can afford, based on income. The numbers assume the buyer will make a 5 percent down payment and will not spend more than 25 percent of household income - before taxes - on principal, interest and mortgage insurance.

Income Home price

$20,000 $64,900

$30,000 $97,400

$40,000 $129,800

$50,000 $162,300

$60,000 $194,800

$70,000 $227,200

$80,000 $259,700

Source: Maryland Association of Realtors

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