Boston — ''A house is the biggest investment you will ever make.''
For many people the key word in that often-repeated line has always been ''investment,'' that is, something that grows in value over time. When it came to housing, the rule seemed as certain as the next monthly mortgage payment.
Lately, however, the rules of the housing game have changed. To play in the new game, home buyers have to come up with larger down payments, pay more ''points'' to the bank writing the mortgage, and wander through a maze of variable mortgages and ''creative financing'' packages. People selling their homes, meanwhile, have had to accept the idea that they might have to help finance the sale of their own home and accept a much lower selling price than they might have expected.
This, plus the recession and 16-to-17 percent mortgage rates, have all but stopped what looked like an unstoppable increase in house prices. In a few places, including some cities in the South and West, house prices have continued to climb at a respectable rate. But in many others, prices are up just 2 or 3 percent. Others cities have seen no increase, and some have shown decreases of as much as 15 percent.
In the meantime, pent-up demand for housing continues to build, just waiting for the day when mortgage interest rates come down to a level that provides affordable monthly payments. ''We have a pent-up demand that would spring loose with any lowering of interest rates,'' says David L. Cook, president of the Houston Board of Realtors.
In a Monitor survey of economists, bankers, and real estate sales people from more than two dozen cities around the United States, a mortgage rate of 12 to 14 percent seems to be the level needed to release that pent-up demand.
After more than three years of double-digit mortgage rates, however, economists are becoming pessimistic about seeing rates get that low any time soon.
In many ways, says Ronald J. Talley, senior economist at the Mellon Bank in Pittsburgh, a mortgage is very much like a corporate or government bond. When interest rates go up, the value of bonds, or the price people will pay for them, goes down. ''A house is just another long-term (financial) instrument,'' Mr. Talley notes. ''What we need is some really strong evidence for the financial markets that we have stopped inflation and that big government deficits are being brought under control.''
Without that evidence, Talley and other economists see no constructive drop in mortgage rates for at least a year, perhaps two or more.
However, high interest rates may have been nothing more than the final push on a housing market that would have eventually headed downward anyway. ''What we're seeing is just a correction of the extreme inflation in housing prices in recent years,'' Talley says. ''Home prices are being brought into alignment with the lower prices of other durable goods.''
''There was a great deal of paper equity built up between 1976 and 1980,'' observes Larry Crouser, vice-president of the Pioneer National Title Insurance Company in Portland, Ore. ''But if the house was bought in '79 or '80, that profit cannot be realized. Financially, housing is not as good an investment as it once was. Potential buyers are realizing this as well. Now they buy for the satisfaction, the pride of ownership.''
The drop in home prices has even been felt in Washington, D.C., where rapid turnover and the tremendous demand for housing have made the nation's capital one of the hottest housing markets in the US. After growing 10 to 15 percent a year for several years, home prices increased just 5 percent in the last year, says Joseph Banks, executive vice-president of the Washington Board of Realtors.
While house prices in some area have shown a modest increase, people living in other areas have discovered that, through no fault of their own, the value of their homes may have dropped 2 or 3 percent since last year. On top of this, if sellers have to assist buyers with some form of ''creative financing,'' the real return on their house may actually be a decline of 17 percent, according to an estimate by the National Association of Realtors.
In one type of creative financing deal, the seller might take out a second mortgage on the house being sold and let the buyer pay off this mortgage as well as assume the old, lower mortgage. Last month's Supreme Court decision permitting federally chartered savings and loan institutions to impose ''due-on-sale'' clauses will put a crimp in this type of financing. In California and some other states, however, many assumed mortgages are held by state-chartered S&Ls. In some of these states, including California, S&Ls still cannot invoke the due-on-sale clause.
''Creative financing will continue as long as the interest rates are high,'' says Larry Triplett, vice-president of the Seattle-King County Board of Realtors. But in the Seattle area, sellers involved in these deals may have to take losses as high as 25 percent. If losses from financing are not taken into account, home prices in the Seattle area would be up just 2 to 3 percent, he adds.
In Indianapolis, Richard C. Nye, executive vice-president of the Metropolitan Indianapolis Board of Realtors, notes that ''70 percent of all home sales transactions (this year) have been through seller participation. With sales down 60-to-75 percent, what's left has been through seller participation.'' As a result, he says, ''the seller is making concessions, either by reducing the price or financing the property themselves.
''While real estate agents have to placate home sellers who are disappointed because their houses fetched smaller prices than expected, they are quietly grateful for the emergence of creative financing as one of the few bright spots in their otherwise dismal business.
In May, real estate salesmen in the northern Virginia area near Washington sold 18 percent fewer homes than May of last year, says Joseph Hayden of the Northern Virginia Board of Realtors. April was down 33 percent from the previous year, and March was 37 percent lower.
''Seven out of 10 of the homes being sold are using some kind of seller participation in the financing,'' Mr. Hayden says.
''Creative financing is the only thing that has kept a lot of our sellers in New Mexico going,'' says William A. Neal of the Realtors' Association of New Mexico.
''The housing crunch has created a side benefit,'' adds Mr. Cook in Houston. ''The housing salesman has become a financial counselor. . . . He's not just showing bathrooms anymore, but determining how best to qualify a potential home buyer.''
High interest rates and high monthly mortgage payments have also affected the kinds of houses people buy. Those able to afford the more expensive homes -- from $150,000 or $200,000 and up -- may not have to bother with financing at all or they can afford the high payments. As a result, homes at the top end of the price spectrum are continuing to sell well.
A similar picture is also coming from the other end of the scale. Smaller, less expensive homes -- usually under $40,000 or $50,000 -- are also doing better than the market as a whole. In many cases, these homes are the housing version of the stripped-down compact car. They do the job, but they don't offer a lot of extras. If the homebuyer wants a dishwasher, garbage disposal, garage, or air conditioning, he will have to install them himself.
Thus, it is the houses in the middle range that are left sitting on the market for months on end, too expensive for many average home buyers and not attractive enough to the affluent. Sometimes, that middle range can be quite wide. In Portland, Mr. Crouser says, the houses selling best cost less than $50, 000 or more than $200,000.
The trend to smaller houses, observers agree, shows that despite the rapid growth in condominiums, the American dream of a single-family house is still alive for many people.
''I don't see a trend away from a single-family house,'' says Jean Holman, vice-president for sales at Roy Rainey Realty in Des Moines, Iowa. ''But I see a smaller, more efficient house being sold.'' In the future, he believes, first-time homeowners will be satisfied with houses as small as 900 square feet. Currently, he notes, 1,200 square feet is considered small.
''Basically, people here are still attached to the single-family, traditional home,'' says Woodrow Briggs, president of the Detroit Board of Realtors and president of his own real estate business.
''I think the single-family house is still the goal for most people,'' says Stanley Raber, an economist at the Fort Worth National Bank. ''But with land getting scarce and energy prices going up, the houses will have to be smaller and more efficient.''
''The preference is still for the single-family house,'' Mr. Cook adds. ''It's up to the market to provide a single-family house that is affordable.''
Changes in house prices from 1981 to 1982 Albany, up 3.5% Albuquerque, up 10% Atlanta, up 12% Boston, no change Chicago, no change Cincinnati, down 12.5% Denver, up 12% Des Moines, no change Detroit, down 7.5% Houston, up 4% Indianapolis, up 6.5% Little Rock, no change Los Angeles, no change Louisville, down 15% Memphis, up 2% Minneapolis, up 3% Orlando, up 13% Phoenix, up 5% Portland Ore., down 2% Sacramento, Cal., up 5.5% San Antonio, up 9% San Diego, no change St. Louis, up 6% Seattle, up 2.5% Virginia Beach, up 9.8% Washington, D.C., up 5% Wichita, up 4% (Does not include effects of seller financing, which would reduce the figures further)