Image: Kostas Kalaitzidis
Pat Shannahan for msnbc.com
“I’m very glad I waited,” Kostas Kalaitzidis said about his recent decision to buy his Arizona home. “People like me are the ones buying in now.”
By
msnbc.com contributor
updated 5/8/2009 11:59:28 AM ET 2009-05-08T15:59:28

Kostas Kalaitzidis wanted to buy a home when he moved to Phoenix in 2008, but between his modest salary and the expensive market, he couldn’t swing it.

What a difference a year makes.

Kalaitzidis recently made an offer on a home priced at $82,000, far less than the $220,000 it might have fetched last year.

“I’m very glad I waited,” Kalaitzidis said. “People like me are the ones buying in now.”

First-time buyers like Kalaitzidis are dominating the real estate market right now. They snapped up 53 percent of all properties sold during March 2009, up from the usual 40 percent or less, according to data from the National Association of Realtors.

While America’s declining home values have wrought havoc on home sellers, owners and lenders, first-time buyers can celebrate the housing market bust, and may even help fix it. The Realtors' group expects first-timers to account for the majority of home sales through the remainder of 2009.

Kalaitzidis was fortunate enough to get a new job recently and now earns about $60,000 as a local government public information officer, up from his previous income of $40,000. But salary was a small factor in his decision to purchase, he said. The bigger factor was the nosedive in prices. If his transaction closes as planned, this month he’ll become the owner of a 2,200-square-foot, contemporary home with four bedrooms and two-and-a-half bathrooms.

In addition to price drops in most markets, federal tax credits for first-time homebuyers are motivating many to get off the sidelines, Realtors spokesman Walt Molony said. He estimates  that tax credits could motivate as many as 300,000 fence-sitters to buy this year. The Internal Revenue Service extended $7,500 tax credits to first-time buyers last year and has raised that to $8,000 or 10 percent of the purchase price for 2009.

First-time buyers are picking up the carnage in many hard-hit markets.

“The metro areas with the highest levels of foreclosure activity in the first quarter of 2009 paint a picture of concentrated problems in a relatively small number of hard-hit areas,” said James Saccaccio, chief executive officer of RealtyTrac, a distressed property research firm in Irvine, Calif. “Sales activity appears to be increasing in some of these markets as home prices have fallen to levels that are attractive to first-time homebuyers and investors.”

Buyers like Kalaitzidis are taking advantage of foreclosures, short sales and bank-owned homes listed in some of the hardest-hit areas of the country along with traditional listings. Kalaitzidis is buying a bank-owned home, meaning the prior owner lost it to foreclosure.  He said he’s not afraid of the fact that other homes in the community are in foreclosure because prices have dropped sufficiently to where he thinks only primary owners — not speculators and investors — will want to buy there. That, he said, reassures him that his neighborhood will remain viable.

Albert Ko, a 24-year old entrepreneur who runs a discount shopping Web site, is currently shopping for a home in Orange County, Calif. He moved there in 2007, at a time when homes cost about $800,000 — far more than he could afford. He recently got pre-approved for a $400,000 mortgage and is happy to see that prices have dropped to that level both in parts of Irvine and cities further inland. Because of his youth, he’s looking for a primary home that can double as an investment — a place he can live in now but rent out later.

“I’m looking now,” Ko said. “Two years ago, this would have been out of the question.”

While existing homeowners shudder to watch home values tumble around them, for new buyers the repriced real estate market promises something they haven’t seen in a long time: affordability.

Affordability is measured not just by sticker price but by how much of their monthly income homeowners must dedicate to their mortgage and related housing costs, said John Burns, president of John Burns Real Estate Consulting in Irvine, Calif.

The market peaked at different times in different markets, but according to Burns’ research, buying a median-priced home in cities like Oakland, Calif., or Miami would have consumed more than 75 percent of the median income at the market peak. Now a typical home would consume 28 percent of average income in Oakland and 34 percent in Miami.

Burns’ consulting group estimates that, nationally, the median-priced home now costs 25 percent of a household’s median pre-tax income, down from a peak of 44 percent during the summer of 2006. This means that, assuming a 20 percent down payment and fixed-rate mortgage at current rates, a household with $60,000 in pre-tax income would pay $15,000 per year for a mortgage versus $26,400 — a substantial difference.

In Phoenix, housing peaked in June 2006 when the median home cost 46 percent of median pre-tax income, according to Burns’ research. Nowadays, that home costs 19 percent.

Kalaitzidis’ chosen home will help him fit the pattern. He said he’ll spend less than a quarter of his post-tax income on housing, a conservative figure he can handle.

“There is a good chance that prices will go down further,” said Burns. “But this is probably the best opportunity to buy in years. We’ve got the best affordability since 1972.”

Jane Hodges is a freelance writer in Seattle.

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