Home prices ease a tad

Affordability index shows tiny gain in favor of first-time buyers

March 07, 2007|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN REPORTER

First-time homebuyers take heart: It's not quite so awfully, terribly hard to get your foot in the door right now.

The Maryland Association of Realtors' housing affordability index improved slightly to 45.7 in January, the group said yesterday, which means that the typical first-time buyer still had less than half the income needed to afford a typical starter home in the state.

A reading of 100 would mean a first-time buyer had exactly enough income to buy, assuming a 5 percent down payment and a monthly mortgage payment that consumed no more than a quarter of pretax household income.

In December, the affordability index stood at 45.3.

The improved picture reflects weaker home prices and low interest rates, not a significant change in incomes, the association said.

"The only reason it's easier is because it's a buyer's market," said Tom Roskelly, a Realtor with ReMax Leading Edge in Gambrills, who works with a lot of military families looking to purchase near Fort Meade.

The five-year housing boom, which ended in the fall of 2005, pushed prices far beyond the comfortable reach of many first-time buyers.

In fact, economists blame the ever-higher home prices for the housing slump.

As a result, more have opted for nontraditional loans and pushed the limits of their debt-to-income ratios to get a home.

But from a strictly numbers perspective, the slump hasn't helped buyers much.

Though the affordability index improved during half of last year, it's still slightly worse than in January 2006.

The association estimates that the typical starter home in Maryland cost about $258,300 in January this year, calculated by assuming that a first-time buyer will aim for a home that's 15 percent less than the median sales price. (The median is the midpoint - half the homes cost less, and half cost more.)

A bit short

Even a household earning $70,000 a year would fall a bit short of what's needed to buy such a home without spending more than a quarter of pretax income on the mortgage payments, the association said.

January's starter home price is about 5 percent less than it was in June, when it peaked for the year at just over $272,600. But it's 4.5 percent more than the price in January 2006.

A Sun analysis of home sales in the Baltimore metropolitan area found that many less expensive communities and neighborhoods - particularly in the city - saw strong average price gains last year. It's the pricey suburbs that seem to be feeling the pinch.

But the clear good news for buyers is less competition.

The number of homes on the market has risen significantly since the boom's end, which means fewer bidding wars or investors with hard-to-beat cash offers.

Sellers have had to offer closing-cost help to stand out, lowering the effective price for buyers.

Closing money

Roskelly said his buyers are typically getting at least $7,500 in closing-cost assistance. "The last four first-time homebuyers I have had, they've gone into their homes for less than $1,000," he said.

That doesn't mean the monthly payment is much easier to swallow, however. "For first-time homebuyers, it's still very expensive," Roskelly said.

His buyers moving from the cheaper South are shocked at what homes are going for. Consider Howard County, where the average sales price was nearly $440,000 in January.

But Ilene Kessler, president of the Maryland Association of Realtors, said new buyers will have better luck if they're flexible.

In one neighborhood in the Baltimore County community of Halethorpe, she said, she and her partner sold three rowhouses recently for $110,000 to $150,000.


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