Even the silver lining is dulled for home buyers

By , Special to The Christian Science Monitor

Home ownership is a top-priority goal for most American families, yet it's becoming less attainable every day. Nationally, the median price of today's new homes is about $67,000. Mortgage-interest rates on prime residential properties are hovering arond 17 percent. At that rate, fewer than 5 percent of all US households can qualify for a median-priced home.

At least that's the situation when home buyers must obtain a new conventional mortgage loan to finance the purchase. fortunately, there are other workable ways to buy a house. Also, there are signs on the horizon of an improving market for buyers and sellers alike.

At this time, however, the picture is very dismal.

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"The housing industry may be slipping into its deepest recession in modern times," accoridng to Merrill Butler, president of the National Association of Home Builders (NAHB).

"The housing slump now being forecast would precipitate a much deeper national recession than previously anticipated and, in the long run, generate more inflation," he adds.

NAHB recently lowered its forecast of new housing starts this year to 1.1 million, down 50 percent from the more than 2 million units built annually in 1977 and 1978.

Dr. Jack Carlson, executive vice-president of the National Association of Realtors (NAR), is equally pessimistic about prospects in the resale housing market.

"Preliminary figures indicate that housing markets across the nation are in the midst of a steep decline, with sales dropping between 10 and 70 percent," he reports.

"On the basis of our survey, we estimate that resale activity in March was at a seasonally adjusted annual rate of 2.6 to 2.7 million units. All of the ares reporting sales are off, with the average decline in the 25 to 30 percent range.

"The housing industry is bearing a disproportionate share of the burden from the government's futile and anemic efforts to fight inflation. The burden on housing is greater than at any time in the last 30 years."

Both association leaders express concern about the thousands of additional families who have been forced out of the home-buying market because of record-high interest rates and stiffer qualification requirements.

Mr. Butler also points out how the impact of the current crunch ripples far beyond home sellers and buyers.

"It will result in the loss of 1.4 million jobs, almost $25 billion wages, and more than $6.7 billion in government tax revenues," he asserts.

Meanwhile, home prices dropped slightly in March, according to the Federal Home Loan Bank Board (FHLBB). The average selling price for a new home, reports the FHLBB, was $76,100, down from $79,800 a month earlier. the average price of an existing home fell to $68,200 from $69,300 in early February.

A year ago the average price of a new home was $68,100. For an existing home it was $62,200.

Despite the decline, the average price of both a new and resale house is still substantially higher than a year ago.

Despite the March falloff in prices, however, the desire for home ownership is so great in the US, and the consumer so convinced of its strong investment value, that the force for increasing prices goes on.

In San Diego, for example, home prices had been rising at a near-record rate even though sales volume is sputtering along at the slowest level since the bottom in 1976, according to a study by a San Diego title executive.

The median price of homes in California jumped a record 6 percent during the month of January alone, the biggest single-month jump in three years, reports the California Association of Realtors.

Although it may take longer to sell a house as a result of both high prices and mortgage rates, there are some positive factors in sight, even for the depressed home builders.

A new type of mortgage loan, the renegotiable-rate mortgage, will soon be offered by savings and loans throughout the US.

The FHLBB, which oversees the operation of federally chartered savings and loan associations, is strongly behind the renegotiable-rate mortgage. If it receives wide acceptance throughout the US, it could generate a sizable chunk of new funds for home-mortgage loans.

Under this plan, the lender could renegotiate the interest rate on a home loan every three, four, or five years, even though the loan itself is written for a term of 25 or 30 years. At each interval, the interest rate could be adjusted either up or down to a maximum of one-half of 1 percent per year. the overall maximum increase for each loan would be 5 percent.

Most home loans now are written at a specific rate which remains unchanged through the life of the mortgage.

Other government actions also are being studied which could provide a needed boost in the home-building industry.

One legislative program would immediately release low-interest mortgage money. Another proposed action by Congress would allow states and local communities to sell tax-exempt revenue bonds to finance single-family homes.

As for existing homes, there are a variety of ways to finance their purchase without executing a super-expensive new loan these days. Alternative financing techniques are becoming more common and accepted all the time.

Here are some examples: Assuming an existing lower-rate mortgage, the seller carrying back part or all of the cost, contract of sale, and wrap-around mortgages. All of these methods can often avoid the need to completely refinance a resale home.

In addition to creative financing techniques, a number of professional real-estate groups are launching public-information campaigns to combat the emerging crunch.

In Kansas City, Mo., for example, all segments of the real-estate, financial, and title-insurance industries have banded together in a program to counteract the sagging house-buying market with a positive media campaign, using the theme: "Yes, you can buy a home."

That's precisely what today's consumer wants to hear.

The need and desire to buy a house is still one of the strongest motivations around. It fulfills a basic, deep-rooted need.

Further, it's probably the best, most-secure investment in the market today.

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