TIME: Almanac 1993/TIME Almanac 1993.iso/time/022789/02278900.018

Text File | 1992-09-23 | 10KB | 182 lines

                                                                                BUSINESS, Page 50

Gimme Shelter


First-time home buyers battle to beat the odds

By John Greenwald


    Almost from the day they were married eleven years ago,
Chuck Dribin and his wife Alice Eysenbach began salting away
savings toward a home in suburban Chicago. "But something
always seemed to happen," recalls Dribin, 38, a high school
speech teacher. "Every time we saved $5,000, interest rates
jumped and we needed $10,000." Even with a solidly middle-class
income (now $40,000 between them), Dribin and Eysenbach, 39, a
part-time teacher and actor, wondered whether they would ever
be able to unlock the door to home ownership.

    They finally managed to do so by lowering their
expectations, accepting family help and taking out a riskier
form of mortgage. With a $15,000 contribution from their
parents, the couple scraped together about $25,000 for the down
payment on a $117,500 three-bedroom home that they bought last
September in Skokie. "The house has no garage and no driveway,"
says Dribin. "The bathroom's miniature, and the whole place is
smaller than our apartment." To finance the deal, the family
took out a 7.75% adjustable-rate mortgage that can jump as much
as 2 percentage points a year if interest rates move up
rapidly. "It's a little chancy," Eysenbach concedes, "but as the
kids get older, I'll be able to work and earn more. As it is,
this was the only way we could hope to buy a house."

    The Illinois couple is among the legion of determined
Americans who are struggling against all odds to buy their
first home. But now, as the spring house-hunting season
approaches, some help may be on the way. Everyone from builders
to bankers to President Bush, who has called the home-buying
crunch "among the most important and challenging issues in
America today," seems eager to help first-timers catch up with
the runaway cost of housing. When Jack Kemp was sworn in this
month as Secretary of Housing and Urban Development, the former
Congressman promised grandly, if vaguely, to "help recapture the
American dream for first-time home buyers."

    That dream has been steadily receding for many Americans,
primarily young people. Since 1979, periods of high interest
rates and fast-rising prices in many parts of the U.S. have
caused the rate of home ownership in the 25-29 age group to
drop from 44% to 36%. For those in their 30s, the rate fell from
61% to 53%.  The increase in home prices has far outpaced the
ability of young people to save the necessary down payment. A
prime reason is the price of rents, which have risen even
faster than home prices in many cities. Now interest rates are
rising as a barrier once again. The average 30-year mortgage
rate climbed to 10.56% last week, vs. 9.84% a year ago, as the
Federal Reserve tightened up credit in response to renewed
signs of inflation.

    While longtime homeowners are sitting on an ever growing
nest egg, which they can tap for their next house or other
purchases, first-time buyers have few assets and too little
salary to catch up. In a particularly gloomy report, the
National Association of Realtors found last fall that the
average potential first-time buyer had only 77% of the income
needed to qualify for the mortgage on a starter home. Current
homeowners, by contrast, had 112% of the income required for a
mortgage on a median-priced home. Said Ira Gribin, president of
the Realtors association: "The first-time home buyer is
virtually priced out of the market in many parts of the U.S."

    Yet  the fundamental desire of Americans to own their own
property, by luck or by pluck, has inspired some creative ways
to reclaim the dream. In fact, the rapid increase in prices has
prompted many potential buyers to hasten their search, since
waiting would put them farther behind. In their zeal to raise
down payments, young buyers are raiding their retirement
accounts -- and duly paying the penalties -- or ceding part of
the equity in their homes to outside investors. Others are
turning for help to state-financed programs and innovative
private and nonprofit housing developers.

    Some of the most ingenious schemes have sprung up in
California, where prices are generally highest. To buy a
$244,000, three-bedroom house last year in suburban Orange
County, Elise and Rick Petree, engineers with a combined annual
salary of $70,000, used an increasingly popular technique known
as equity sharing. A private investor put up $22,950 for their
down payment, and a local firm called CoEquity, which pioneered
such deals in the area, provided $12,200. The Petrees invested
$10,000 and now make $2,220 in monthly payments, including
$1,872 to the mortgage lender, $229 to the investor and the
rest to CoEquity. The investor, typically a wealthy individual,
can claim 50% of the profits when the home is sold. "It's not
a cheap way of going," concedes Rick Petree, 25. "But it's a
way of getting into a house."

    In California's frenzied seller's market, some builders of
relatively affordable housing are holding lotteries or using
waiting lists to determine who can buy. In one such competition,
Ron Rogers, 31, and his wife Lucinda narrowly missed out on a
$249,900, four-bedroom house in Orange County last summer
because other prospective buyers beat him to the sign-up sheet.
Rogers, an information officer for the Immigration and
Naturalization Service, now has a crack at one of 19 new homes
available this week.  But the price of the model he wanted has
jumped to $315,900, so he is aiming for a three-bedroom,
$289,900 unit.

    State governments have taken the lead in giving first-timers
some help with financing. Earlier this month, Michigan Governor
James Blanchard proposed the first state plan to help future
home buyers save money for down payments. The program, which
Blanchard hopes to begin this summer, will allow state residents
to buy bonds that not only pay tax-free interest but are also
guaranteed to keep up with housing costs. For example, a family
that wanted to buy a type of house now costing $75,000 but
likely to climb in price to $105,000 in five years would invest
$8,820 in the bond program over that period of time. The
interest would boost the family's investment in five years to
$10,500, enough for a down payment on the $105,000 home. If the
price of the house were to climb higher, the state would
nonetheless provide the family with the down-payment amount that
it needed.

    In Milwaukee, Doreen and Robert Hamann bought their modest
two-bedroom stone house 15 months ago with the help of a
mortgage from the rapidly growing Wisconsin housing and
economic development authority. Under its program, the 8.75%
fixed-rate loan could be used for homes costing no more than
$72,000. "At first I felt a little bitter to realize that we
couldn't begin to live as nicely as our parents do," said
Doreen, 27, an office clerk. But she and Hamann, a 41-year-old
postal worker, now consider themselves lucky. "When you hear
about all the young people today who can't afford any kind of
home," Doreen Hamann says, "I guess we've got nothing to
complain about."

    Robyn Gray, 27, an Atlanta accountant, benefited from a
different type of aid. The single parent of a two-year-old
daughter, she obtained a mortgage through a program that local
bankers set up last yea-r after a newspaper charged that the
lenders were deliberately redlining -- or boycotting --
Atlanta's black communities. After hunting for a year for an
affordable home in a pleasant neighborhood, Gray took out a
9.25% fixed-rate mortgage. Even then she needed help from her
parents to make the $2,500 down payment on her $50,000,
three-bedroom home. But without the bank program, she says, "I
would still be in my parents' home."

    In Boston local members of the bricklayers union act as
nonprofit housing developers. On low-cost land the bricklayers
acquired from the city, they are building modestly priced homes
that first-timers buy with mortgages subsidized by the state
Home Ownership Opportunity Program. Eleanor Santosuosso, 45,
will soon move -- along with her husband, three sons and her
mother, 75 -- into a four-bedroom town house that the family
won the right to buy for $97,000 in a lottery last year. Says
she: "Even my mother says she has always dreamed of owning a
home. She figured it was an impossible dream. Now it has come
true for all of us."

    Congress is taking a cue from such state and local
initiatives as it begins to consider new ways of promoting home
ownership. After years of battling the Reagan Administration's
wrecking-ball approach, which leveled housing funds from 7.5% of
the federal budget in the late 1970s to 1.5% last year, many
legislators now want the Government to aid first-time buyers
actively. One bill, sponsored by Henry Gonzalez, chairman of
the House Banking Committee, would create a $6 billion fund to
make low-interest mortgage loans to first-timers who earn up to
115% of the median income in their communities.

    "In many ways, home ownership represents a sense of how we
are doing," says Denise DiPasquale, a research fellow at the
Joint Center for Housing Studies at Harvard University. "So if
people own, they are making it over a financial and emotional
threshold." While the obstacles may be daunting, many proud and
resourceful new owners are showing that the threshold can still
be crossed.