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First-time homebuyers being left out

/ Source: The Associated Press

The go-go days for home prices are over, but Mike Pietrafesa thinks it is still tough for people to buy their first slice of the American dream.

“There are lots and lots of houses for sale that seem as though they are priced ridiculously and they aren’t selling,” said Pietrafesa of Nassau County, N.Y. “I certainly think that the old standard of having 20 percent of your house value as a down payment is really out of the window these days. I definitely think it is harder, in that respect, for first-time buyers.”

Eighty percent of Americans believe it is difficult for most first-time buyers to afford a home, according to an AP-AOL Real Estate poll. Many people — 59 percent — believe the situation is worse now than five years ago.

Pietrafesa, 35, recalls that he had trouble finding a home he could afford. That was eight years ago. The split-level house on the Long Island is a little small, he says, but he is staying put.

Younger adults and minorities view affordability more of a problem now for first-time buyers compared with five years ago than do older people and whites, the poll found.

By region, 68 percent of those in the West and 63 percent of those in the Northeast say it is more difficult for first-time buyers to afford a home than it was five years ago. Fifty-four percent took this view in the South, and 51 percent felt this way in the Midwest.

The Census Bureau reported recently that a third of U.S. homeowners with mortgages spent 30 percent or more of their household income last year on housing costs. These costs, which include mortgage payments, taxes, insurance and utilities, are usually considered excessive if they top 30 percent of household income.

Galloping housing prices during the five-year housing boom is a big factor in this, economists say. Rising mortgage rates and incomes, which for many people had failed to keep up with inflation, are other factors, economists said.

Nationwide, median home values jumped 32 percent from 2000 to 2005, to $167,500, the Census Bureau reported. (The median price is where half sell for more and half for less.)

Even though home prices have cooled this year, some people think they are still too high.

“A lot of home prices are out of this world,” says Patricia Cheatham, 59, who lives between Southern Pines and Lakeview in North Carolina. If something happened to her mobile home, she says she would not be able to afford to buy again. “I’d probably have to find a low-income rental place,” she says.

The poll found that 46 percent of those surveyed thought the housing market in their area is overpriced.

Nearly the same amount — 45 percent — believed their market was priced about right. Only 5 percent though their market was underpriced, with the remaining few having no opinion.

People in the suburbs were more likely to view the housing market as price-inflated than those who live in cities and rural areas, the poll found.

Looking out over the next two years, 49 percent of people surveyed predicted that housing prices in their area will go up, while 18 percent thought they would go down. Thirty-two percent believed prices would stay the same. The rest did not voice an opinion.

Mark Zandi, chief economist at Moody’s, says that the future direction of home prices probably will depend on where you live.

A study by his company predicted that slumping prices will be concentrated in the states of California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as some parts of Nevada and Arizona. In some markets, prices may not bottom out until 2009, the report says.

“But households sitting in Dallas or Charlotte, N.C., may wonder what all this panic talk is in the housing market,” says Zandi. Those are among the markets that he believes will see price gains over the next two years.

People who are interested in buying a home in the future worry most about interest rates going up, the poll showed. Eighty-four percent said that was a concern.

Slightly fewer — 78 percent — say they worry about paying more than the fair market value for their abode. Sixty-five percent fret about being able to afford their mortgage payment, while 62 percent fear that the home might drop in value. Fifty-eight percent worry that they won’t find enough money for a down payment.

The AP-AOL Real Estate poll of 2,001 adults, including 289 recent homebuyers and 401 likely future homebuyers, was conducted by telephone Sept. 19-26 by Ipsos. The poll had a margin of error of plus or minus 2 percentage points for all adults, 6 percentage points for recent homebuyers and 5 percentage points for likely future homebuyers.

House hunters can benefit by showing patience, some analysts said.

“Sellers in most of the country are now showing a willingness to negotiate,” observes Thomas Stevens, president of the National Association of Realtors.

Suresh Sreerameneni, 35, says he sees some homes for sale in his Lake St. Louis, Mo., neighborhood sitting on the market longer than they have in the past and suggested that will shift more bargaining power to would-be buyers and away from sellers.

“If I was in the market now to buy, I would be happy,” he says. “But if I were trying to sell, I would be worried.”