Soaring prices sideline many hopeful home buyers
By JENNETTE BARNES, Standard-Times staff writer
Five years ago, Steven Magalhaes could have bought a "palace" in New Bedford for $250,000, he says, but not now.
Some homes in the region have appreciated 100 percent over the past 10 years, and the housing market shows no signs of reversing the trend.
In the suburbs and the cities, for buyers and renters alike, prices continue to rise.
Mr. Magalhaes and his brother have been looking for a two- or three-family house for 18 months.
Their plan is to live in it for while, then move out and reap the rental income.
But their budget is less than a quarter of a million dollars, and for that price, he said, the houses are too small or need too much work.
"Five years ago, for $250,000 you could've bought a palace. Now that's really the bottom of the barrel in this area," he said.
At 29, Mr. Magalhaes is engaged to be married and owns Whaling City Graphics, a screen printing and embroidery shop. He's ready to buy a house.
But the market is especially tight for lower-priced homes. Real estate agents say their inventory of homes in the $100,000-$200,000 range is low.
"The first-time home buyer market is still the hottest part of the market," said Thomas Alferes, owner of Alferes Realty in New Bedford. "Part of it is rents have been going up, so people say, 'I don't want to pay the landlord's mortgage anymore.'"
According to the Office of Housing and Community Development in New Bedford, the median home price was just over $80,000 in 1996; today, it's nearly $180,000.
Statewide, prices for single-family homes were up 6.8 percent in the recently concluded third quarter of 2003 compared to last year's third quarter, according to the Massachusetts Association of Realtors. Of seven regions, prices in the southeastern part of the state rose 16.2 percent, higher than all but Cape Cod, which rose 17 percent.
For condominiums, price increases in the southeast dramatically outpaced every other region over the same period, up 45.4 percent compared to the next highest, Cape Cod, at 24 percent.
SUBURBan STARTERS
In SouthCoast, Wareham has long been a destination for buyers seeking lower-priced homes in a suburban setting.
"We have guys calling our offices who have reasonably good jobs, and I can't show them many homes they can afford," Wareham real estate broker Jim DuBois said. "You know what we've been telling people? Go west until you qualify."
Wareham's slab ranches with no basements that routinely sold for $100,000 four years ago are fetching 50 percent more, pricing many buyers out of the market.
"It's become much more difficult, even in areas traditionally seen as affordable," said Christopher Norris of the Citizens' Housing and Planning Association, a statewide umbrella group for nonprofit affordable housing organizations.
Part of the problem for low- and middle-income buyers, Mr. Norris said, is the false promise of low interest rates.
"The prices have tended to outstrip the ability of the low interest rates to offset them," he said.
Even with the lowest interest rates in 40 years, a high price means a big mortgage.
"Although the interest rate is less, the amount of debt they are acquiring is much, much more," said Peter Barney, chairman of the New Bedford Board of Assessors.
He sometimes sees mortgages for 90 percent to 100 percent of the purchase price.
"It takes a long time to build equity when you have that kind of mortgage," he said.
Patrick Sullivan, New Bedford's director of Housing and Community Development, said foreclosures are on the rise, due in part to "predatory lending" by unscrupulous mortgage companies to buyers who can't afford to make the payments.
Mr. Sullivan said wages have not kept pace with the price of housing, for renters as well as buyers.
"I guess it's the best of times and the worst of times," he said. "Rates are low and that provides opportunities for people, but there is a greater disparity between income and housing prices."
Data from the U.S. Census and the Massachusetts Association of Realtors back him up.
In 1993, a Massachusetts family with the median household income of $37,431 would have paid 461 percent of their annual income for the average single-family home, priced at $172,686.
Four years later, the average single-family home price was $200,147, pushing expenses up to 465 percent of median household income, which was $43,015.
By 1999, median income was $50,502, but it still couldn't keep up with housing prices. The cost of buying a house was up to 481 percent of household income, with an average selling price of $242,777.
HIGH-END HOMES
Higher-income buyers are no strangers to the mammoth mortgage.
New subdivisions are exploding in suburban and semi-rural towns, with prices starting at $350,000 and pushing well beyond.
> "Freetown used to be Hicksville," said Mr. DuBois, the Wareham broker. "When I was a kid, it used to be farmer territory."
But the demand for housing is high, and developers are looking for land. Once-rural parts of Freetown, Lakeville, Rochester and other towns on the outskirts of the SouthCoast are becoming the place to find pricey subdivisions.
With the right amenities, older homes in those towns bring an equally good price.
Part of the draw is the chance to live within commuting distance of Boston at a lower price than in the Boston metropolitan area.
"The Lakeville T station made the market in Rochester and Lakeville take off," Mr. DuBois said.
Mr. Alferes said the market has slowed a bit for homes over $400,000. Most homeowners who were enticed by low interest rates to renovate, refinance or trade up to a bigger home have already done so, he said.
"The highest appreciation rate in the last 12 months has been in the lower priced homes," he said.
APARTMENTS
Rental prices may be rising more slowly, depending on the location and the owner's management style.
In Fairhaven, McCormack Manor owner Dorothy McCormack said a two-bedroom apartment in the complex went for $200 in 1976. Nearly 30 years later, new tenants get the same apartment for $625, and some long-term tenants are still paying $550.
"When you have good tenants, you don't raise the rent more than 2 or 3 percent a year. Sometimes you don't raise it at all," she said. "We rent to a lot of grad students at UMass who are wonderful tenants, and we don't want to go crazy with the rents."
Still, competition for apartments is fierce.
Mr. Sullivan of the New Bedford housing office said renters displaced from higher-priced markets like Boston have mined this area for bargains, sharpening demand and pushing prices up.
"The rental market in New Bedford is terrible," he said. "To be able to afford $850 for a two-bedroom apartment is very expensive."
Three years ago, just 6 percent of New Bedford renters paid more than $750 a month.
The National Low Income Housing Coalition has pegged Massachusetts has the least affordable state in which to rent an apartment in 2003.
Working 40 hours a week, a person would have to make $22.40 per hour to afford a two-bedroom apartment in the state, according to the NLIHC. In New Bedford, the rate is $15.83 per hour.
At minimum wage, that means a New Bedford resident would have to work 94 hours a week to afford a two-bedroom apartment.
Rental prices for those calculations are based on the fair market rent established by the U.S. Department of Housing and Urban Development.
FIRST-TIME BUYERS
High rental prices drive some renters to buy when they're not ready.
"Many people coming to us are not in any shape financially to buy a home," Mr. Sullivan said. "They're being set up for a very difficult situation."
The New Bedford Office of Housing and Community Development offers counseling for would-be buyers, and serves as a point of entry for programs like the Massachusetts Housing Partnership's Soft Second Loan program.
Suburban and rural buyers are eligible too, and can access the program through many local banks and housing offices. For buyers who meet the income guidelines, the program provides assistance with down payment and closing costs, along with a course in home ownership.
"It's tough out there," said Mr. Magalhaes, a prospective first-time buyer. "Even though the rates are low, you have to borrow more. I don't think houses can go up any more. I think of lot of people are moving down from Boston, and they don't mind that kind of money."
Mr. Alferes predicted the real estate market would remain strong, downplaying fears of inflated prices poised for a crash.
"The average first-time home buyer is younger and younger every year, and they're buying up the inventory," he said.
When the real estate market dropped in the early 1990s, home owners who got into financial trouble and were forced to sell their homes sometimes got less than their outstanding mortgage.
"People ask me, 'Is this like 1990 all over again?' I don't think so," Mr. Alferes said. "I don't see the inventory picking up, and I don't see the supply increasing that much because most baby boomers have bought their last home."
Prices in SouthCoast remain lower than elsewhere in the state, however. The Massachusetts Association of Realtors recorded the average single-family home price at $286,390 in the southeast region for the third quarter of 2003.
In the same period, the average price in Greater Boston was $547,982, followed by Cape Cod, the northeast, the South Shore, and the central region. Only the western region was less expensive than the SouthCoast, with an average price of just $206,380.
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