Around U.S., a House Is a Home but Not a Bonanza August 6, 2003 By DAVID LEONHARDT
FORT WAYNE, Ind. - On a tree-filled boulevard known as Doctors' Row, the four- and five-bedroom brick Tudor homes that are the jewels of this city's housing stock were selling for about $150,000 two decades ago. At the time, some homes in the nation's most desirable suburbs, like Brookline, Mass.; Sausalito, Calif.; and Great Neck, N.Y., cost the same. Over the last 20 years, however, the nation's housing market has been cleaved in two, and the break has helped create two very different economies in one country. Homes in the areas that were already the most expensive - California and the Boston-to-Washington corridor - have often doubled or tripled in value, even after adjusting for inflation. The increases have created nest eggs for longtime owners and allowed them to borrow billions of dollars against their equity, financing new kitchens and college educations and keeping the current economic malaise from being far worse than it might have been. But while the boom has become the subject of daily conversations among the middle class and affluent in New York, San Francisco and Los Angeles, people in much of the country have little housing bounty to tap for home improvements, retirement or other needs. From Fort Wayne to Rochester to Salt Lake City, the prices of typical homes across most of the country's vast middle have risen just ahead of inflation - and more slowly than incomes. The cost of homes in the most expensive cities is now about six times that in the least expensive, up from a ratio of three to one two decades ago. Here in Fort Wayne, the homes with elegant porticoes and broad lawns on Doctors' Row sell for about $300,000 today, roughly the same as they did in the early 80's, after being adjusted for inflation. Not a single house in Fort Wayne - a small, manufacturing-heavy city halfway between Chicago and Detroit, with a jobless rate below the nation's - has sold this year for more than $800,000, according to real estate industry data. That is roughly the average price of a two-bedroom apartment in Manhattan. "The real housing boom is fairly concentrated," said Mark M. Zandi, the chief economist of Economy .com, a research firm. "And at the moment, it is clearly keeping the economy afloat in those areas." There is no such cushion throughout much of the nation's interior. Some economists argue that the Federal Reserve's aggressive interest rate cuts might have been more effective at ending the economic slowdown if the gains in house prices - and the potential they create for consumer spending - had been more broadly shared. Last year, Tom and Judy Auer sold the four-bedroom Fort Wayne house where they raised their three children for $107,900, or slightly less than the $34,000 they bought it for in 1974, after adjusting for inflation. Without a bonanza from the sale, the couple now live in a smaller house in Fort Wayne, relying on the pension from Mr. Auer's job as a hardware salesman at Sears, Roebuck and Social Security, which they began drawing early. Marva and Bill Herx, on the other hand, left Fort Wayne in 1998 to move to the Philadelphia suburbs for his job. When they returned last year, they had made enough profit selling their Pennsylvania house - for about 40 percent more than the purchase price - that they were able to move into a house in Fort Wayne noticeably bigger than the one they had left. "The home costs in Fort Wayne have stayed pretty much the same," said Ms. Herx, who is in her 50's. "In Philadelphia, we made a good profit in just four years." The dynamic is reversed for younger adults, who are struggling to afford houses on the coasts while their counterparts elsewhere in the country are taking advantage of low mortgage rates to buy bigger, better homes than in the past. "All my friends in Fort Wayne have houses. I think the biggest thing in the world I own is a cellphone," said Michael Korte, a 28-year-old Fort Wayne native who works for the City Council in New York and rents a two-bedroom apartment along with his sister, brother-in-law and nephew on the Lower East Side. "It blows my mind." For $102,000, Brady Gerding, a high school classmate of Mr. Korte, recently bought 27 acres of land outside of the city where he and his wife will build a house. It will be the second house owned by Mr. Gerding, who, unlike Mr. Korte, did not graduate from college. "You can still live like a king in Fort Wayne for $200,000," said Linda Duesler, who has been selling houses here since 1977. "And you can live pretty well for $100,000." Beyond determining many families' wealth and standard of living, the two-tier housing market has begun to create difficult questions for government officials trying to create policies that apply to the entire nation. For example, when designing pensions, it becomes very difficult to judge the ability of people to retire because their finances might be in much better shape than their income suggests. Some top universities, meanwhile, recently announced that they would no longer consider the entire value of many homes when determining financial-aid awards. University officials had become concerned that the values exaggerated some households' abilities to pay tuition. If the price boom in some cities is a result of a bubble, as some economists warn, many of the people who borrowed against their homes might come to regret it. If mortgage rates were to continue rising and prices on the coasts were to drop, many people could end up with loans they could not repay by selling their houses. So far, however, the housing boom has been an important economic salve for the regional economies of the Northeast and California. In the San Jose, Calif., area, home to the slumping Silicon Valley, households have raised about $10,000 on average since the start of 2002 simply by taking additional equity out of their homes when refinancing a mortgage, according to Economy .com. In Boston and Washington, they have taken out about $4,000. In much of the Midwest, they have taken out less than $2,000. In fact, households in the middle of the country that fall behind on mortgage bills cannot rescue themselves by dipping into their rising home equity and making up for a series of missed payments in one swoop. The states where home foreclosures have spiked most sharply since 2000 - including Indiana, which tops the list - are in the Midwest or Southeast. "The only reason that mortgage delinquencies aren't soaring in the entire country is that house prices are still rising," Mr. Zandi said. The housing gulf stems in part from the relative open space and lack of building regulations away from the coasts that allow builders in Fort Wayne and elsewhere to put up new homes as soon as there is demand for them, and sometimes even before. Prices in Austin, Tex., and Las Vegas, two fast-growing areas, have risen only moderately, for example, as high-ceilinged houses with room-size closets have sprung up over the last decade. The gulf is also a byproduct of trends that have drawn educated, highly skilled people to the coasts. The surge of global trade and the growth of finance, health care and other white-collar industries have led the Northeast's and West Coast's share of the nation's economy to grow to almost 45 percent, from 39 percent in 1980, according to Economy.com. High-earning workers have followed the jobs, and not even an economic downturn that has hit Wall Street and Silicon Valley particularly hard has reversed the trend. "We are seeing a migration pattern of talented, creative people that we may never have seen before," said Richard Florida, a professor of economic development at Carnegie Mellon University in Pittsburgh. "More and more people are demanding what's found in New York and Boston and San Francisco, and there's not enough space to accommodate them." The executives at the Lincoln Financial Group, a money-management and insurance company, moved the company headquarters to Philadelphia after almost a century in Fort Wayne, in part to have an easy time recruiting talented employees, the executives said. But the workers who moved with the company were so vexed by the gap in housing prices that they began having dinner together, along with their spouses, to talk about strategies for buying in the Northeast. In the end, their main strategy consisted of making a lot of sacrifices, they said. "I now have half the house and twice the mortgage," said Priscilla Brown, a vice president at Lincoln. "We just weren't quite prepared for the sticker shock." Over the long term, house values tend to increase at roughly the same rate as incomes in any region, economists say. Because prices have outgained incomes on the coasts the last two decades, many analysts expect the housing gap to narrow eventually - but they were saying the same a decade ago. "It takes generations for people to react to economic realities," said Patrick Lawler, chief economist at Office of Federal Housing Oversight, which oversees Fannie Mae and Freddie Mac, the mortgage companies. "But it's remarkable that prices could have moved so differently over an extended period of time without more correction occurring." It will begin to occur, real estate agents say, only when people decide that a mansion in Fort Wayne is more appealing than a small apartment in New York or San Francisco. http://www.nytimes.com/2003/08/06/business/06HOUS.html?ex=1061181586&ei=1&en =0a66c84ffea88a6c --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://www.nytimes.com/ads/nytcirc/index.html HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact [EMAIL PROTECTED] or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to [EMAIL PROTECTED] Copyright 2003 The New York Times Company
