January 17, 2005 11:14 AM
Finding an Affordable Home Gets Harder
Excerpt: Home prices have become so high in nearly 30 metropolitan areas nationwide that someone earning the median income can't afford a median-price home, based on traditional lending standards, according to a study by forecasting and consulting firm Economy.com that ranked 325 metropolitan areas by their affordability.
Even with mortgage rates near historic lows, many buyers are having a tougher time finding a home that's within their budget.
Home prices have become so high in nearly 30 metropolitan areas nationwide that someone earning the median income can't afford a median-price home, based on traditional lending standards, according to a study by forecasting and consulting firm Economy.com that ranked 325 metropolitan areas by their affordability.
Affordability -- a measure of the ability of the average household to buy a home at current mortgage rates -- has long been an issue for low-income buyers. But in some markets, such as Salinas, Calif., New York City and Honolulu, prices have increased so rapidly that buyers with healthier incomes are feeling the squeeze as well. And the number of such markets could climb if mortgage rates rise this year, as many economists expect.
If interest rates rise, some buyers who stretched their purchasing power with adjustable-rate loans and interest-only mortgages could face financial problems. The number of interest-only loans has risen in some of the least-affordable areas.
In many parts of the country, affordability isn't much of a problem. The National Association of Realtors' Affordability Index stood at 131.7 in November, a slight decrease from the previous month. (When the index is at 100, it means that the median-income family has the exact amount needed to purchase the median-price existing home, with 20% down and a 30-year fixed-rate mortgage.)
For now, the pain is greatest for entry-level buyers. As home prices rise, many find they lack enough cash for a down payment. Some turn to relatives for help. Many others are opting for 100% financing. In Jersey City, N.J., roughly three-quarters of first-time buyers put down 5% or less of the purchase price, says Laura Skolar, manager of Century 21 Plaza Realty Corp.
"If we get someone coming in with 10% or 20% down, we feel like we've hit pay dirt," she says.
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