PORTLAND, Maine — Despite a widespread sense that real estate has never been more expensive, American families in the vast majority of locations can still buy a house for a smaller share of their income than they could have a generation ago.
A sharp fall in mortgage rates since the early 1980s, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices almost everywhere except New York, Washington, Miami and the California coast. These often-overlooked changes are a major reason most economists do not expect a broad drop in prices in 2006, even though many once-booming markets along the coasts have started weakening.
The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.
Nationwide, a family earning the median income would have to spend 22 percent of its pre-tax pay this year on mortgage payments to buy the median-priced house, according to Moody's Economy.com, a research company. The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. But despite the recent increase that has pushed the overall level to its highest point since 1989, it remains well below the levels of the early 1980s, when it topped 30 percent.
"This is a good deal — a good, fair price," Dale Ruttenberg, a 53-year-old bar manager, said of a tan one-bedroom bungalow, with a remodeled kitchen and hardwood floors, that he is buying for $211,000 after having rented in Portland for most of the last decade. In high-profile places like New York and Los Angeles, home to many people who study and write about real estate, families entering the housing market often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a fourth of the country's population.
Elsewhere, families tend to spend far less on housing. In Dallas, the share of income needed to buy a typical house has fallen to 13 percent this year, from 31 percent in 1980. In Tampa, it has dropped to 21 percent, from 25 percent in 1980. Even in New England, where soaring prices have frustrated many young families, houses have still not reached the heights of the early 1980s, when calculated as a share of income.
"Over 20 years, affordability has definitely improved because interest rates are much lower," said Kenneth T. Rosen of the the University of California, Berkeley. Houses have also grown bigger, he said, so people are getting more for their money.
In Portland, a smaller version of the big-city real estate boom was in full swing until the last few months. House prices have soared since 2000, hundreds of real-estate agents have gotten their licenses and an old factory along the waterfront, once famous for making bright-red hot dogs, is set to be replaced with condominiums.
With many suburban houses now selling for $300,000 and up, young families have a much harder time buying their first homes than they did a few years ago. Still, housing has been less expensive this year — as a share of local incomes — than at any point during the 1980s, according to Moody's Economy.com.
Beyond cost, many families who could not have afforded to buy a house 10 or 20 years ago are able to do so thanks to changes in the ways banks lend money. In the past, a homebuyer often needed to make a down payment equal to 20 percent of a house's value to get a mortgage; today, little or no down payment is common.
The most money that Tim W. Gilbert had ever had in his possession was $15,000, he said. But he and his wife, Marjorie, were able to buy a 1936 Cape Cod house this year for $176,000 in Poland, about 45 minutes north of Portland.
"I paid rent for 18 or 19 years," said Gilbert, 38. "We waited years and years. We wanted to make this happen."
They took out two mortgages rather than making a down payment and used Gilbert's $5,000 or so in pre-tax monthly income as a carpenter to cover $1,600 in mortgage, tax and insurance payments. Marjorie Gilbert, a writer, home schools their 4- and 6-year-old daughters.
If almost anything had been different — if interest rates had been higher or the bank had required a down payment — the Gilberts would still be living in an apartment, he said. Instead, their house sits on three acres of land, and they get tap water from the same source as the Poland Spring Water Co.
"It doesn't mean things are a lot easier," he said, "but finally we are in control. It's been a long time coming."
The Moody's Economy.com calculations took into account the decline in down-payment size in recent years. But even though this means homebuyers are taking out loans equal to a larger share of a house's price than in the past, monthly payments have remained reasonable in much of the country.
The sharp fall in mortgage rates — from above 10 percent through most of the 1980s to less than 6 percent in the last few years — is the main reason. Upfront mortgage fees have also dropped to about a third of a percentage point of a loan's value, from 2.5 percent 20 years ago.
But when the list prices of houses are climbing as they have in recent years, it can be hard to imagine that real estate is more affordable than it once was. In a nationwide New York Times/CBS News poll this month, 75 percent of respondents said they thought most families in their community spent a larger share of their income on housing now than in the 1980s. Only 5 percent said the share was smaller.
One possible reason for the perception is that many families have recently taken on mortgage debt to pay for items other than housing. Some have folded higher interest loans, like credit-card debt, into their mortgages, said Mark Zandi, chief economist at Moody's Economy.com. Others have used home equity loans to pay for new cars, educational expenses or even vacations.
This has caused mortgage payments to rise over the last generation, especially among high-income families, for reasons beside the cost of housing. But the monthly payments needed to buy a house still seem to be dictating people's behavior, if not their perceptions.
In the Times/CBS poll, 90 percent of respondents said they were satisfied with their homes. "People aren't really shopping prices," said Bill Trask, a broker at Coldwell Banker Friends and Neighbors Realty in suburban Portland. "They're shopping payments."
Christopher Muncie recently bought his first home, a 1,000-square-foot condominium with a sunken living room and exposed beams in Portland's West End, for $169,000. A similar apartment in the building sold for $81,000 in 1990, according to real estate records.
That increase starts to look less impressive when viewed in light of family incomes that have grown more than 50 percent in Portland over the same span and interest rates that have fallen nearly in half.
"I walked away thinking I'm getting a bargain," said Muncie, 36, a psychologist. "I was actually pleasantly surprised."
With mortgage rates having inched up in recent months, however, houses are taking longer to sell and asking prices have dropped. Homes that would have sold for $300,000 this summer are now selling for about $285,000, said Rita Yarnold, president of Bay Realty.
The market has also slowed in New York, California and most other places where housing costs have risen far more rapidly than in Maine. In Los Angeles, the median-earning family would have to spend about half its income on the mortgage payments for a median-priced house, up from a third of its income in 1985.
That is expected to bring prices down in such locations as a means to restore the ability of more families to buy a home.
"When you get affordability stretched so much, all the creative financing in the world can't stop some correction of house prices," Rosen, the University of California economist, said. "It happened in Hong Kong, Japan and England."
It looks as if it may not happen, though, in most of the United States.