If you followed new-home buyers to the most affordable markets in the last quarter of 2004, you'd find them in Buffalo-Niagara Falls, New York, -- the nation's least cost prohibitive large metro area -- and in the smaller markets of Lima, Ohio, and Saginaw-Bay City-Midland, Michigan.

The findings come from the National Association of Home Builders and Wells Fargo, who teamed up to produce the Housing Opportunity Index (HOI) for October, November, and December 2004.

"A dip in mortgage rates during last year's final quarter made it easier for many families to become homeowners," said NAHB President Dave Wilson, a custom home builder from Ketchum, Idaho. "That's true in Buffalo and across the country."

The average interest rate on home mortgages fell to 5.77 percent in the fourth quarter, from 5.83 percent in the third quarter. As a result, 52 percent of homes sold nationwide in the final months of 2004 were affordable to families earning the median U.S. household income of $57,500. That was an increase from 50.4 percent of homes sold that were affordable to those families in the third quarter, but still lags behind the 61.2 percent of homes affordable at the beginning of 2004.

"Make no mistake -- we still have major work to address the housing affordability crunch in America," Wilson noted. "Out of the 160 metro areas in our survey, housing affordability fell in 73 locations between the third and fourth quarters of 2004. The fact remains that buying a home is becoming increasingly difficult for America's working families."

In Buffalo, nearly 90 percent of homes sold in 2004's final quarter were affordable to families earning the area median income of $53,600. The median price of homes sold in the market during that period was $79,000.

Ohio, which had nine of the 25 most affordable markets, is the country's most affordable state. Illinois and Michigan tied as the second-most affordable states, with four metros in each appearing on the top-25 list.

And the existing housing market seems to display a rippling effect as home sales are strong in the affordable areas, like those in Michigan.

Existing home sales were up through January and February, compared to the same period last year, condo sales were also up dramatically," said Bay City, Mich., Realtor John Pisarkiewicz. With interest rates staying around all-time lows, and lots of houses on the market, it is a great time to buy that first home or upgrade."

In the most expensive markets, California takes the cake with Los Angeles-Long Beach, which tied with Salinas for the bottom-most spot on the "25 Least Affordable Metro Areas" list. With 19 entries on that list, California was once again the nation's least affordable state housing market overall. No other state had more than two entries in the least-affordable column.

In Los Angeles-Long Beach, where the median home price was $415,000 in the fourth quarter, just 5.2 percent of homes sold were affordable to median-income families earning $53,500 per year.

California homebuilders say regulations and development restrictions are the root of skyrocketing home prices in the state.

The California Building Industry Association says it's been 15 years since housing production in the state met annual demand. During that period, annual production averaged only 130,000 units while, according to the state's Department of Finance, California needed 230,000 new homes.

"The fees alone in some California communities are higher than average homes in other states," Doyle said. "This condition cannot survive if California wants to compete for the jobs and the new businesses that will help the state's economy prosper and grow."

The ever-increasing home prices -- and strong demand -- are seen in the existing-homes market, too.

"Real estate prices are up again," said Los Angeles Realtor Bernie Leibovitch. "The Southland Regional Association of Realtors reported San Fernando Valley median home prices rose to a record $521,000 in January, up by $96,000 from last year.

"People are out looking at houses in the middle of rain storms. We have multiple offers on properties that may have been sitting a few weeks ago. Homes are often selling for more than the listed price. It's unbelievable, but the seller's market of last spring may have returned."

Published: March 7, 2005

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