| Homes rising out of reach (St. Paul Pioneer Press) |
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Sales slide as many first-time buyers are priced out of metro market
BY GITA SITARAMIAH July 28, 2006 Alyssa Ford and her husband, Chris Shields, finished college, launched their careers and did what many couples do: Set their sights on buying their first house. A town home in St. Paul's Frogtown caught their eye. Incentives promised to knock the price below $200,000. Then they ran the numbers — and hit the brakes. Their monthly payment would have been nearly 2½ times the $700 rent they pay for their Grand Avenue studio apartment. "That really scared us off," Ford said.
Toss in college-loan and credit-card payments, and it all added up to "no sale," for a couple with a combined annual income of $58,000. After years of home prices rising faster than incomes, a growing number of prospective buyers are reaching the same conclusion. That means fewer buyers at a time when a record number of houses are on the market. Real estate experts say it's a key reason why sales have slowed. "There's no question in a state like Minnesota, and the Twin Cities in particular, that there's a strain on affordability for low- and moderate-income first-time homebuyers," said Mike Haley, assistant commissioner of the Minnesota Housing Finance Agency. The Minneapolis Area Association of Realtors says high home prices are a key reason for a 10 percent decline in home sales in the Twin Cities during the first half of this year. The association notes that the median home price has increased more than 160 percent since 1992 to about $230,000. Median household incomes have grown 51 percent during that time — to $77,500 at the end of 2005. Historically low interest rates have helped buyers afford the rising price tags over the past several years, but for many this no longer offsets the gap. What's more, interest rates are on the way up, adding to the cost of owning a home. "I've been telling all my first-time buyers, this is it," said Todd Shipman, president of the Minneapolis Realtors association. "You should buy this year if you're planning to buy in the next few years." Nationwide, first-time buyers play a major role in home buying. They represent 40 percent or more of all buyers for the past decade, according to the National Association of Realtors. The proportion of first-time buyers is even higher in the Midwest — at 45 percent. Most first-time buyers nationwide purchase homes priced under $175,000. Despite a record inventory of homes on the market, fewer sport price tags in that range. "The prices have plateaued on home sales, but you don't have the huge number of lower-priced homes that were around five years ago," said Chip Halbach, executive director of the Minnesota Housing Partnership, a St. Paul-based nonprofit that promotes affordable housing. Less than 65 percent of Twin Cities households can afford a home at the current median price, down from 79 percent 15 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. Rising home prices have been drawing more buyers to the Minnesota Housing Finance Agency for assistance. Three years ago, the agency provided $160 million in first-time buyer home loans, which come with a lower interest rate, said Haley, at the Housing Finance Agency. This year, the agency expects to provide up to $400 million of these loans. "If you take a look at study after study after study across the country, you'll find the availability of affordable housing and the providing of affordable housing opportunities as a strong impact on underlying economic health and quality of life across the state," Haley said. Home ownership long has been considered a primary way for people to build wealth as well as stability. "Homeownership is so important for families because it allows them to put down roots in a community, to have stability for their kids in school so they're not transient," said Sue Haigh, president of Twin Cities Habitat for Humanity. After posting steady increases over the past several years, the nation's homeownership rate — the percentage of households that are owner-occupied — dipped to 68.5 percent during the first three months of this year, compared with 69.1 percent for the same period in 2005. Having given up on the Frogtown town home, Ford and Shields still plan to buy a home someday. However, they won't look again until they make more money. They considered less expensive houses, but all either required too much maintenance or were too far from bus lines. Meanwhile, they've been making the best of things by attacking the clutter in their 600-square-foot apartment. Even after tossing out everything from a television to a collection of Van Halen CDs, it's a tight fit. "We have some of our friends who come over for dinner parties who have to go outside to breathe because it gets so claustrophobic," Ford said. Gita Sitaramiah can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or 651-228-5472. What's affordable?
The maximum home price for selected incomes:
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