Home costs stay beyond reach of many

Even with the downturn in the real estate market, houses in the Boston area will continue to be unaffordable for many working families and first-time homebuyers, according to a new report from Harvard University's Joint Center for Housing Studies.

The median price of a single-family home in Greater Boston has dropped 3 percent in the current slowdown, to $402,200 in 2006. At that price, a house costs 5.4 times the median household income of $74,773 for the region. The standard for affordability is 3 to 3 1/2 times median household income, according to the Harvard center.

"It is becoming increasingly clear that the market will not return to a day where everyone who worked could afford a place to live," said Nicolas Retsinas, director of the center, which is releasing its annual report on the state of the nation's housing market today.

House prices would have to fall a dizzying 35 to 44 percent -- to the $224,000-to-$262,000 range -- before being affordable to a broad swath of the population, as they were in the mid-1990s in the aftermath of the previous housing-market correction.

That downturn had a much greater effect on improving housing affordability than the current one. For example, at the peak of the recent real estate boom, in 2005, the median home price in the area was 5.6 times median household income, and has since fallen only to 5.4 times median income. In the late 1980s, house prices peaked at 4.5 times household income, and then plunged to 3.2 times income in 1994.

In the late 1990s, house prices "raced way ahead of incomes," Retsinas said. While the recent price drop "will allow us some time to take a breath," he added, "it won't make the race even again."

Retsinas said demand will come partly from Boston's rapidly growing immigrant population , which competes for the limited supply of homes and puts upward pressure on prices. The area's foreign-born population makes up 17 percent of all homebuyers, more than the nation as a whole.

Even buyers with six-figure incomes have trouble finding housing in the soft market. Acia Adams-Heath and Raymond Heath together earn $110,000 a year but have not been able to identify an appropriate three-bedroom home in Dorchester to purchase so that they and their two children can be near their extended family.

They saved $3,000 for a down payment and calculate they can afford no more than $250,000. In that price range, the houses they have seen either were in terrible condition, with mildew for example, or were unsuitable. One had a third bedroom in the basement where there was also a wet bar-- "not really conducive" to raising a teenager, she said.

"Maybe if I keep searching. My dream house hasn't come on the market," she said.

Adams-Heath is president of the all-volunteer board of directors for Massachusetts Affordable Housing Alliance, a nonprofit agency that directs people with moderate incomes to banks and provides mortgages with below-market interest rates. She works at Massachusetts Institute of Technology as a fiscal officer in a microsystems technology laboratory, and her husband is a career counselor.

Mass. Affordable Housing Alliance's executive director, Thomas Callahan, said the Heaths' situation is common. "When you read about the softening of the real estate market, it's important to note it's only relative to how super-high it's been in recent years," he said.

David Wluka, former president of the Massachusetts Association of Realtors, said high housing prices are the biggest reason recent college graduates and young professionals leave Boston and relocate to the Southeast, Sun Belt, and other locations where homes costs less.

Wluka is a member of a disparate collection of real estate agents, homebuilders, housing activists, and public officials who expect to propose legislation later this year that would either require or encourage municipalities to promote construction of "starter homes," which are in short supply in Boston's suburbs. The houses would be modest , on lots of 1,700 square feet or less, priced so families earning between about $80,000 and $130,000 could afford them, he said.

"This is a market-driven solution," Wluka said. "We're trying to keep people here."

Retsinas predicted the US and Massachusetts housing markets will begin to rebound late this year or in 2008. While annual price appreciation will not return to the heady gains experienced during the housing boom earlier in the decade, the long-term outlook is for higher housing prices in the Boston area, he said.

Kimberly Blanton can be reached at blanton@globe.com.