Gimme Shelter

By John Greenwald

Almost from the day they were married eleven years ago, Chuck Dribin and his wife Alice Eysenbach began salting away savings toward a home in suburban Chicago. "But something always seemed to happen," recalls Dribin, 38, a high school speech teacher. "Every time we saved $5,000, interest rates jumped and we needed $10,000." Even with a solidly middle-class income (now $40,000 between them), Dribin and Eysenbach, 39, a part-time teacher and actor, wondered whether they would ever be able to unlock the door to home ownership.

They finally managed to do so by lowering their expectations, accepting family help and taking out a riskier form of mortgage. With a $15,000 contribution from their parents, the couple scraped together about $25,000 for the down payment on a $117,500 three-bedroom home that they bought last September in Skokie. "The house has no garage and no driveway," says Dribin. "The bathroom's miniature, and the whole place is smaller than our apartment." To finance the deal, the family took out a 7.75% adjustable-rate mortgage that can jump as much as 2 percentage points a year if interest rates move up rapidly. "It's a little chancy," Eysenbach concedes, "but as the kids get older, I'll be able to work and earn more. As it is, this was the only way we could hope to buy a house."

The Illinois couple is among the legion of determined Americans who are struggling against all odds to buy their first home. But now, as the spring house-hunting season approaches, some help may be on the way. Everyone from builders to bankers to President Bush, who has called the home-buying crunch "among the most important and challenging issues in America today," seems eager to help first-timers catch up with the runaway cost of housing. When Jack Kemp was sworn in this month as Secretary of Housing and Urban Development, the former Congressman promised grandly, if vaguely, to "help recapture the American dream for first-time home buyers."

That dream has been steadily receding for many Americans, primarily young people. Since 1979, periods of high interest rates and fast-rising prices in many parts of the U.S. have caused the rate of home ownership in the 25-29 age group to drop from 44% to 36%. For those in their 30s, the rate fell from 61% to 53%. The increase in home prices has far outpaced the ability of young people to save the necessary down payment. A prime reason is the price of rents, which have risen even faster than home prices in many cities. Now interest rates are rising as a barrier once again. The average 30-year mortgage rate climbed to 10.56% last week, vs. 9.84% a year ago, as the Federal Reserve tightened up credit in response to renewed signs of inflation.

While longtime homeowners are sitting on an ever growing nest egg, which they can tap for their next house or other purchases, first-time buyers have few assets and too little salary to catch up. In a particularly gloomy report, the National Association of Realtors found last fall that the average potential first-time buyer had only 77% of the income needed to qualify for the mortgage on a starter home. Current homeowners, by contrast, had 112% of the income required for a mortgage on a median-priced home. Said Ira Gribin, president of the Realtors association: "The first-time home buyer is virtually priced out of the market in many parts of the U.S."

Yet the fundamental desire of Americans to own their own property, by luck or by pluck, has inspired some creative ways to reclaim the dream. In fact, the rapid increase in prices has prompted many potential buyers to hasten their search, since waiting would put them farther behind. In their zeal to raise down payments, young buyers are raiding their retirement accounts -- and duly paying the penalties -- or ceding part of the equity in their homes to outside investors. Others are turning for help to state-financed programs and innovative private and nonprofit housing developers.

Some of the most ingenious schemes have sprung up in California, where prices are generally highest. To buy a $244,000, three-bedroom house last year in suburban Orange County, Elise and Rick Petree, engineers with a combined annual salary of $70,000, used an increasingly popular technique known as equity sharing. A private investor put up $22,950 for their down payment, and a local firm called CoEquity, which pioneered such deals in the area, provided $12,200. The Petrees invested $10,000 and now make $2,220 in monthly payments, including $1,872 to the mortgage lender, $229 to the investor and the rest to CoEquity. The investor, typically a wealthy individual, can claim 50% of the profits when the home is sold. "It's not a cheap way of going," concedes Rick Petree, 25. "But it's a way of getting into a house."

In California's frenzied seller's market, some builders of relatively affordable housing are holding lotteries or using waiting lists to determine who can buy. In one such competition, Ron Rogers, 31, and his wife Lucinda narrowly missed out on a $249,900, four-bedroom house in Orange County last summer because other prospective buyers beat him to the sign-up sheet. Rogers, an information officer for the Immigration and Naturalization Service, now has a crack at one of 19 new homes available this week. But the price of the model he wanted has jumped to $315,900, so he is aiming for a three-bedroom, $289,900 unit.

State governments have taken the lead in giving first-timers some help with financing. Earlier this month, Michigan Governor James Blanchard proposed the first state plan to help future home buyers save money for down payments. The program, which Blanchard hopes to begin this summer, will allow state residents to buy bonds that not only pay tax-free interest but are also guaranteed to keep up with housing costs. For example, a family that wanted to buy a type of house now costing $75,000 but likely to climb in price to $105,000 in five years would invest $8,820 in the bond program over that period of time. The interest would boost the family's investment in five years to $10,500, enough for a down payment on the $105,000 home. If the price of the house were to climb higher, the state would nonetheless provide the family with the down-payment amount that it needed.

In Milwaukee, Doreen and Robert Hamann bought their modest two-bedroom stone house 15 months ago with the help of a mortgage from the rapidly growing Wisconsin housing and economic development authority. Under its program, the 8.75% fixed-rate loan could be used for homes costing no more than $72,000. "At first I felt a little bitter to realize that we couldn't begin to live as nicely as our parents do," said Doreen, 27, an office clerk. But she and Hamann, a 41-year-old postal worker, now consider themselves lucky. "When you hear about all the young people today who can't afford any kind of home," Doreen Hamann says, "I guess we've got nothing to complain about."

Robyn Gray, 27, an Atlanta accountant, benefited from a different type of aid. The single parent of a two-year-old daughter, she obtained a mortgage through a program that local bankers set up last year after a newspaper charged that the lenders were deliberately redlining -- or boycotting -- Atlanta's black communities. After hunting for a year for an affordable home in a pleasant neighborhood, Gray took out a 9.25% fixed-rate mortgage. Even then she needed help from her parents to make the $2,500 down payment on her $50,000, three-bedroom home. But without the bank program, she says, "I would still be in my parents' home."

In Boston local members of the bricklayers union act as nonprofit housing developers. On low-cost land the bricklayers acquired from the city, they are building modestly priced homes that first-timers buy with mortgages subsidized by the state Home Ownership Opportunity Program. Eleanor Santosuosso, 45, will soon move -- along with her husband, three sons and her mother, 75 -- into a four-bedroom town house that the family won the right to buy for $97,000 in a lottery last year. Says she: "Even my mother says she has always dreamed of owning a home. She figured it was an impossible dream. Now it has come true for all of us."

Congress is taking a cue from such state and local initiatives as it begins to consider new ways of promoting home ownership. After years of battling the Reagan Administration's wrecking-ball approach, which leveled housing funds from 7.5% of the federal budget in the late 1970s to 1.5% last year, many legislators now want the Government to aid first-time buyers actively. One bill, sponsored by Henry Gonzalez, chairman of the House Banking Committee, would create a $6 billion fund to make low-interest mortgage loans to first- timers who earn up to 115% of the median income in their communities.

"In many ways, home ownership represents a sense of how we are doing," says Denise DiPasquale, a research fellow at the Joint Center for Housing Studies at Harvard University. "So if people own, they are making it over a financial and emotional threshold." While the obstacles may be daunting, many proud and resourceful new owners are showing that the threshold can still be crossed.

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With reporting by Lynn Emmerman/Chicago, Melissa Ludtke/Boston and James Willwerth/Los Angeles