WASHINGTON – Prices are up and home sales brisk, but that bright picture has a dark side. As housing costs rise, many first-time buyers are finding it difficult to afford a home. The Federal Home Loan Bank of San Francisco, for example, notes that booming areas such as Phoenix, Las Vegas and San Francisco pose special problems. In Arizona, fewer than one in three Arizonans can afford a $131,000 home, the state's median home. The Arizona Housing Commission indicates fewer than one in 16 new single-family homes sold for less than $95,000. At the same time, one in five homes sold for more than $200,000. "In our district, which covers California, Nevada and Arizona, we have some of the fastest-growing metropolitan areas in the country," says Lawrence Parks, FHLBSF senior vice president. "Housing prices are also increasing rapidly in fringe communities outside the major metropolises, he said. Higher values are the rule even in New York City, where the real estate market in neighborhoods like Tribeca, north of the World Trade Center site, plunged after last year's terrorist attacks. This year prices have jumped 10 to 20%. But mortgages rates are their lowest levels in more than 30 years. Doesn't that help? "Low interest rates certainly make housing more affordable," Parks answers. "The escalation in prices helps with people's appreciation. You can sell your current home, take that money and afford to buy a bigger house. "That's fine if you already own a home. Lower interest rates can also help you get into home ownership, but if the price is going up, it's almost as though one is chasing behind the other. So there's still a need for specialized programs with interest rate writedowns and down payment assistance." Parks says in addition to saving up for a down payment, closing costs such as points and fees pose challenges. It's also easy for first-time buyers who have relied on a landlord for repairs and on parents for donations of used furniture in what many young people call "early marriage" style to forget expenses such as maintenance and furnishings. "That's one reason later on you see higher delinquency and foreclosure rates. People underestimate the cost of maintaining a home," Parks says. Most people realize home ownership can be a vital part of their financial picture. A study by the Joint Center for Housing Studies at Harvard University suggests just how important it actually is. Figures released by the center this month show half of all U.S. homeowners hold at least 50%of their net wealth in home equity. That compares with fewer than half who own stocks. With the sharp rise in home prices, homeowners outperformed the stock market when it came to return on investment. The center also found that in 2001 consumers spent $99 billion on home additions and alterations, up 10% from the previous peak in 1996 and up more than 62% since 1991. The National Association of Homebuilders has found that in the first 12 months after purchasing a new home, the typical owner spends $8,900 on furnishings and improvements. Buyers of existing homes invest nearly $7,800. . Parks suggests credit unions – in fact, all lenders – have a role to play in helping first-time home buyers. That role goes beyond simply providing a first mortgage. Credit unions are often where people go for money to rehabilitate an older home, or for a bridge loan. Parks applauds credit unions' efforts to provide counseling that advises first-time buyers on steps they can take to clean up their credit, what they can expect when they actually become homeowners, and how to assess various mortgage products. Even in a low-interest environment, comparing mortgages can be important. A recent article from the news agency Reuters cited the experience of a portfolio manager who realized market rates were well below the interest rates he was being offered for a home in suburban Philadelphia. He shopped around and was able to find a mortgage a full half-percent below what he was initially quoted. That translated into a saving of $180 a month on payments. Parks believes credit unions can also step in when members find themselves struggling to make their mortgage payments. The credit union can introduce a member to various safety nets that may be available. "It's important that credit unions build relationships with other lenders," Parks says. "They may not want to take on the whole risk of a mortgage. They may want to share it with other credit unions. They can pool loans, with each credit union having a piece of the risk." On a positive note, the Harvard center study indicates the share of home purchase loans going to lower-income households and those in lower-income communities has increased steadily during the past decade. Underlying that surge has been the development of new mortgage products such as government-backed loans and loans from subprime and manufactured housing specialists. "Conventional prime lending – that is, mortgages with the lowest rates and most favorable terms – accounted for just 37 percent of the growth in lower-income lending, compared with 81 percent of loans to higher-income borrowers in higher-income neighborhoods," the study found. -

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