Big breaks for home buyers - includes related article on mortgage opportunities for minorities

Black Enterprise, Feb, 1992 by Shawn Kennedy, Lisa Braxton

MONEY MANAGEMENT

Low interest rates and moderate prices are creating more opportunities for homeownership.

There are few industries more badly bruised than the real estate market. The combined pressures of a construction glut, layoffs in both blue- and white-collar industries, and a tightening in bank regulations have taken their toll. Dim job prospects and slow income growth continue to make consumers skittish about spending. Despite favorable mortgage rates, consumer anxiety over a slow recovering economy is stifling home sales. And housing starts for single-family homes have dropped 6.8%.

However, there is a silver lining to the cloud that hangs over the national landscape. Smaller cities are expected to improve more quickly than the larger cities, particularly those in the Northeast and far West, says Chief Economist John Tucillo of the National Association of Realtors (NAR), Washington, D.C. "Home values will stay ahead of inflation in most regions. We expect the inflation rate to be about 3.5% (compared to 5% in 1990), and home prices should appreciate between 5% and 5.5%."

This spread of between 1.5% and 2% will be good for sellers who have been hurt by the economic downturn. At the same rate, buyers will continue to benefit from lower interest rates. "Falling inflation will be the tonic that keeps interest rates declining and consumer purchasing power rising," says Tucillo. "As rates slip further, growth in all sectors of housing-single- and multi-family construction and existing and new-home sales--will rise." The forecast for this year is that mortgages rates for 30-year fixed loans will average 8.5%.

Moreover, homes are more affordable now than in the past 14 years. In fact, NAR's affordability index, which measures the typical wage earner's buying power, shows that the median family income of $36,361 is 116.1% (as of Sept. 1, 1991) of what's needed to buy a single-family home at the median price of $101,800.

But not everyone who can afford to buy a home will necessarily qualify for a mortgage. Tougher credit standards and slow loan processing in the mortgage-lending environment are unpleasant for home buyers. For black and Hispanic loan applicants, getting a mortgage is even slimmer, because of race discrimination. A study released by the Federal Reserve Board, The 1990 Home Mortgage Disclosure Act, shows that minorities are likely to be turned down for loans regardless of income (see In The News, this issue).

There are a number of affordable-housing programs cropping up, created by local and national government agencies as well as private organizations. Industry observers predict that good financing options in addition to low interest rates will make 1992 a bright spot for home buyers and homeowners, who can profit from refinancing deals.

Home: Where The Heart And Purse Strings Are

Soaring prices kept many middle-income families off the housing turf during much of the 1980s when values in such places as New York, Boston, San Francisco and Los Angeles, and their suburbs, appreciated at a rate of 20% a year. But buying a home this year will be easier for most people. The drop in mortgage interest rates and home prices nationwide have put all buyers on the inside track of the residential market. Buying a home is still easiest in the South and Midwest, says NAR's John Tucillo. In the Midwest, the median price of a single-family home is $76,703, and the median household income of $37,491 is 156.6% of what is needed to purchase it. In the South, the median income of $32,703 is 113.7% of what is needed to buy a $92,000 median-price home.

On the other hand, the average home buyer in the Northeast and West is between 7% to 17% short of the income needed to buy a home. The Northeast's median household income of $40,049 only comes to 93% of the income needed to buy a home at the median price of $136,900. And in the West, the regional median income of $37,788 is 83% of the cost of a median-price home of $144,000.

For the time being, buyers have the upper hand. "Sellers realize that they cannot get the same prices for their homes that their neighbors got a few years ago," says George McLaurine, of McLaurine & Associates Realtors in Nashville. "So sales will pick up this year. Buyers are ready, and sellers are becoming more willing to make a deal."

Taking advantage of lower interest rates and an anxious seller, Adrienne Hardy was able to buy a home a year ago that she probably could not have afforded a year earlier. Hardy, who works for the Department of Social Services for the State of California, had spent two years in search of her dream house at an ideal price. "I had put my top price at $100,000 when I started looking," says Hardy, "because that's all I could afford."

Hardy says she viewed every type of residence in the market. "I saw homes, condominiums, apartments and even mobile homes. Everything I wanted was too expensive and what I could afford, I did not want to buy."

However, last spring, she found what she wanted--a two-bedroom, two-bathroom home in Riverside, Calif. Originally, the owner was asking $112,000. Anxious to sell, he agreed to take $108,000, instead. [Tabular Data Omitted]