Whose side are they on?

Government efforts to stem foreclosures mean fewer chances for people priced out of the market

Email|Print|Single Page| Text size + By Binyamin Appelbaum
Globe Staff / January 13, 2008

Some people are cheering for a plunge in local housing prices: Those who watched the market rocket skyward and waited patiently for the return trip, resisting the temptation to spend more than they could afford.

Linda Werbner and Mark Muzeroll sat out the boom in a small Lynn condominium. Now they're eyeing the housing market "longingly but cautiously," Linda said, hoping for "a slew of homes to be had for a song."

They'd like to buy a small Colonial where Mark, a piano teacher, can play a partita at 2 a.m.

In Boston and other hyper-expensive markets, the surge in foreclosures and the resulting drop in prices isn't bad for everyone. Government efforts to limit foreclosures have the effect of favoring people who want to stay in their homes over the people who want to move in next.

Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, said he's torn by concern for homeowners, but "our hope for home buyers is that the market softens somewhat.

"When a market has been as hot as it's been for the last while, your hope is for prices to come down," he said.

Prices in the Boston area more than doubled between 1995 and 2005, even adjusting for inflation. Lax lending standards played a big part. Sellers raised prices, and buyers easily borrowed the wanted money.

By 2005, the area's median housing price was $492,000. Under federal standards, such a home was affordable to families making at least $135,000 a year. The area's median family income: $82,600.

Many families chose to stretch, agreeing to monthly mortgage payments that consumed a larger share of income than the recommended 28 percent - often a much larger share. Many of them are now are facing foreclosure.

Werbner and Muzeroll chose not to stretch. Werbner is a social worker. Muzeroll teaches piano. In 2003, the couple paid $155,000 for a 750-square-foot condo, with comfortable monthly payments. They watched the housing boom lift Lynn. Abandoned industrial buildings became desirable residential lofts. Prices went up, up, and away. New residents came flooding in. Then they watched the market start to collapse. Desirable residential lofts became difficult to sell. Prices started plunging. Residents started leaving.

They began dreaming about buying a sin gle-family home this spring.

The opportunity is emotionally complicated for Werbner. If prices keep falling, their chances will improve. But prices are going down because other people are losing homes to foreclosure.

The mortgage companies resell those homes at discounts of 20 percent and more, driving down the prices of other similar properties.

"I feel guilty when I'm going through one of these websites and it says bank-owned property," Werbner said. "I know that there's a really sad story attached to that. It's like finding a wedding ring on the sidewalk."

It is not clear how many people benefit from the falling prices.

A Boston home purchased for a dollar in 1997, when the boom began, was worth $2.42 at the peak in 2005. As of October, it was worth $2.26. Forecasting firm Global Insight predicts it will still be worth about $2 when the market hits bottom in 2009. That will remain beyond the reach of many renters, or people hoping for a larger home.

Furthermore, falling housing prices have broader economic consequences. Homeowners spend less, so companies make less, so workers earn less. For those workers, less expensive homes aren't necessarily more affordable. The entire economy is moving downward. As a result, the renters aren't getting closer to homeownership.

And there's the issue of location. Falling prices don't change homes, but they do change neighborhoods. Some houses sit empty, while others are rented. People leave and communities dissolve. A home that sold for $300,000 may now be on the market for $200,000, but it could be worth even less if the neighborhood around it is collapsing.

Still, Callahan said attendance has been increasing at Massachusetts Affordable Housing Alliance classes for first-time buyers.

"I do think there's some renewed interest from people who may have been discouraged in the past," he said.

It's also not clear that the government can prevent prices from falling, even if it wanted to. A number of modest efforts are underway to help people keep their homes.

Lending companies will forgo scheduled increases in monthly payments on some loans. In other cases, they will reduce the payment. But there is no plan in place to forestall the majority of impending foreclosures.

Even if there was, prices would keep declining. Tightened lending standards have thinned the ranks of potential buyers, or limited how much they can spend. The number of homes already on the market is enough to satisfy almost a year of demand at the current level. A normal backlog is about six months.

Officials are talking about ways to reduce supply and increase demand: Cut interest rates to make loans cheaper; return money to taxpayers to stimulate spending; give money to borrowers who can't afford loans; and reduce monthly payments for more borrowers to help them keep their homes.

George Marshall, a Boston renter who wants to buy a home in the suburbs, doesn't favor any of those strategies. He has money saved for a down payment, but he's waiting for prices to drop a little more.

Marshall said he wants people to understand "how frustrating it is for people who are looking to buy a home to see their governor using their tax dollars against them."

Leave the market alone, Marshall said, so he can buy a home.

Binyamin Appelbaum can be reached at

(Globe Staff Illustration by Anthony Schultz)

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