To many, house buy is impossible dream
Purchasing a home in Maryland has become so expensive that it is beyond the buying power of the average earner
By Jamie Smith Hopkins
Sun reporter
March 12, 2006

Housing prices have risen so much faster than wages in Maryland that the average home is out of reach of the average worker -- and, in many cases, even two-earner families.

In an analysis, The Sun found that a first-time home buyer would have to spend 71 percent of his or her income to cover the monthly payments, based on statewide averages. A two-worker household with average salaries would spend 35 percent -- still more than the 30 percent maximum traditionally recommended by the financial industry.

The numbers suggest that affordable housing has become a pressing problem for typical middle-class Marylanders -- not just the firefighters and police officers often cited by policymakers. As a result, people unwilling to stretch their finances beyond safe limits are finding themselves stuck as long-term renters.

The problem isn't confined to the most expensive counties, though it's more pronounced there. Even homes in Baltimore City, where prices are among the lowest, are too expensive for average workers in every Maryland county but Montgomery, the highest-wage jurisdiction in the state.

"Every year, it's more and more out of reach," said Pat Hiban, broker for the Pat Hiban Real Estate Group in Ellicott City and a Realtor for nearly 20 years. "It's sad when a civil servant can't afford a house in the area they work in, but it goes beyond that ... to basically a large population that would like to be here -- people that have grown up here, people that have parents here, people that want their kids to go to the same school they went to. My agents would love to have some houses to sell to these people."

The Sun analyzed sales of condominiums, townhomes and detached houses handled through the multiple-listing system last year. That means most new homes, usually even pricier ones, aren't included. It then compared monthly payments on average houses with average wages.

Because the analysis focuses on people who don't own homes and thus don't have any built-up equity to cash in, it assumes a 5 percent down payment. It's rare for first-time buyers in this market to put down more than that now -- many are putting no money down, lenders and Realtors say.

It's not hard to see why. The price of the average home sold in the Baltimore region last year has risen 85 percent since 2000 to nearly $300,000 last year, according to Metropolitan Regional Information Systems Inc. At that price, a traditional 20 percent down payment is almost $60,000.

Over the same period, wages rose 20 percent -- and that's before factoring in inflation.

Rapidly escalating prices during the housing boom have shrunk the pool of more moderately priced units. About six out of every 10 single-family houses in the state sold for less than $250,000 in 2002, according to the Maryland Department of Planning. It was three out of 10 by the first half of last year, the most recent data available.

Homes priced at $180,000 or less make up just 7 percent of the listings in Baltimore County today, the Greater Baltimore Board of Realtors said.

"The U.S. is being divided into the affordable regions and nonaffordable regions," said Lawrence Yun, an economist at the National Association of Realtors. "If someone were to do a similar analysis in, say, the California markets or Florida markets, one would find it's basically impossible to buy a home for those who don't currently have home equity to work with. ... In the middle part of the country, ... anyone with a job can pretty much enter the market."

Prices stay high

Many economists expect price gains here to slow, possibly grinding to a halt. Some say the disconnect between earnings and prices is a sign that home values will decline.

But it hasn't happened. Don McCray, 42, who rents a five-bedroom house in College Park, tried for months to move his family to the southern side of the Baltimore suburbs and finally concluded that it can't be done.

Together, he and his wife make about $85,000 -- he manages a mattress store, she tends a bar -- which puts them comfortably among the average for a dual-income family in wealthy Maryland. Their lender qualified them to buy a home priced up to $250,000, no money down. But McCray can't even find a townhouse for that price, except for ones that would need substantial work -- and therefore more money. Also, they all seem to have homeowner association fees, he said.

"I'm making more money than I've ever made the whole time I've been working, and I can't afford a house," McCray said. "I don't know what's caused it, but it's crazy. ... I missed the boat, basically."

McCray, who has no debt, would be able to afford slightly more if he hadn't declared bankruptcy four years ago: He qualifies for an 8 1/2 percent interest rate, close to average for the past 20 years but higher than the best current rates. Even with perfect credit, though, he couldn't swing a single-family home in Anne Arundel or Howard County.

Kimberly Grant, 43, is in the same situation -- and she has good credit plus home equity. She and her husband, Andrew P. Grant, moved to Ellicott City at the end of last year so he could take a job as a digital communications director in Washington. Renting a townhome while waiting for their New Jersey house to sell, they discovered they had been priced out of the neighborhood.

In a matter of three months last year, the local townhomes' prices rose nearly $30,000, to $350,000, Grant said. She doesn't want to leave because her 8-year-old daughter has settled into the neighborhood school.

"Two bedrooms with a loft is about all we can afford," said Grant, who added that she's beginning to think the trick is to buy a big house with two other families and share the space. She said she wonders about the single parents working in the area: "Where do they go?"

Richard Muller, president of Northstar Mortgage LLC in Ellicott City, said some new buyers are getting a helping hand from their parents, who are borrowing against the equity in their own homes so their children can make substantial down payments. He said he also sees a lot of interest-only mortgages -- and dual-income couples taking on payments that represent as much as 45 percent of their income.

Greg McBride, senior financial analyst at Bankrate.com, recommends against such hefty obligations. The old rule of thumb -- no more than 28 percent of gross pay toward the house payment, including taxes and insurance, and no more than 36 percent toward total debt -- is still a good idea, he said.

The growing gulf between salaries and prices is attracting more attention. A new state task force on "workforce housing" held its first meeting last month to consider how to attack the problem, and it will co-sponsor a conference on the subject Wednesday in Baltimore with the Home Builders Association of Maryland.

"We know there are things that can be done," said John E. Kortecamp, executive vice president of the home builders association, who favors solutions such as higher-density zoning in older neighborhoods. "This past year, total [new-home] permits declined by roughly 10 percent while prices went up 20 percent. That speaks for itself."

The city should be an escape valve -- no matter where they work in the Baltimore-Washington region, the average two-earner couple theoretically can afford Baltimore. But with a huge gulf in prices between decayed neighborhoods and the stable and rising ones, city houses, too, are becoming elusive. Additionally, with crime and school problems, the city still struggles to attract middle-class families with children.

'No middle ground'

Tracie Cook-Thomas, 42, who wants to buy in the city, knows it's not easy to find the so-called average house there. She and her husband, Quentin, parents of two girls, are looking for a $150,000 home in a decent neighborhood -- and looking, and looking.

"There's the very expensive houses, and there's the dirt-cheap houses; there's no middle ground," said Cook-Thomas, a social worker whose family earns a combined income of about $65,000. "It's discouraging."

McCray, the College Park renter, thought of another solution: Buy on the southern edge of the Eastern Shore. In Somerset County and the city of Salisbury, in Wicomico, he has found handfuls of older properties for $40,000 to $70,000 -- large, single-family homes with enough space for his family of seven.

At first he thought he might buy while continuing to rent in College Park, just to improve his credit. But now he's seriously considering a permanent move.

"My brother bought a three-bedroom house in Somerset with 2 1/2 acres for $125,000," McCray said. "So it's almost pointless to stay over here."

Copyright © 2006, The Baltimore Sun