Senator Eliot Shapleigh - El Paso, Texas

The ability to buy a house in Texas got a little harder this year, according to a Texas A&M University survey that concluded housing affordability peaked in all major urban markets in 2004.

Buying a house still is easier in Texas than in most of the country, but interest rates and investor speculation had enough of an effect that the measure of affordability fell for the first time this decade.

"The trend of increasing affordability may have peaked in 2004," said research economist James P. Gaines of the university's Real Estate Center. "Many of the individual metropolitan areas have a lower affordability index in first quarter 2005 than in first quarter 2004 after showing a steady increase since 1999."

The index defines affordability with a ratio formula that compares the median house price in a metropolitan statistical area to the median family income for that area.

Texas families overall had an index ratio of 1.79, meaning that at the state median income of $52,900 they earned 79 percent more than needed to buy a house at the state median of $129,100.

The state index compared with 1.34 for the nation.

"The higher index measures tend to confirm the intuitive belief that Texas housing is particularly affordable relative to many other areas of the country," Gaines said.

The index showed ratios fell from 2.6 in 2004 to 1.8 this year for San Antonio. The indexes dropped in Fort Worth from 3.87 to 2.69; in Houston from 3.02 to 1.98; Dallas, 2.6 to 1.94, and Austin, 2.59 to 1.91.

Appreciation locally may be causing a downward shift in affordability, said Joseph Almeter, a San Antonio investor and real estate agent, but the market is years away from becoming overpriced. Still, Almeter notes that about 10 percent of his clients are out-of-state buyers looking to invest and he suspects it is having some minimal effect on pushing up prices.

"Californians are coming in and they are purchasing at list price," Almeter said. "They're not negotiating. I've had three cash buyers recently. One list price was $129,000; they bid $130,000 just to make sure nobody walked away with it."

Joe Mays, a mortgage broker and president of American Property Financial, said it appeared to him that affordability was in decline because of a modest increase in interest rates and an acceleration in property appreciation that is due to a growing trend in people buying second homes as investments.

"We have a lot of people buying that way," Mays said. "They look at it as a tangible asset. If you're in California or Florida — anyplace where land prices are getting out of sight — you look at a house in Amarillo and think, 'Even if this is a mistake, I'm not buying something that's overvalued.'"

Mays cautioned the index only is an indicator of what's affordable, but it has many faults. He compared it to the Body Mass Index used in calculating obesity.

"It's a benchmark that you can look at and feel good about," Mays said. "You shouldn't just buy a house because the index says you can."

Indeed, some critics of the study said the index appears to exaggerate the level of affordability and that qualifying for a loan would be harder than it claims.

Armando Barbosa, president at Vision Mortgage Co., said some of the index's claims wouldn't hold up in the real market. The study gave San Antonio a 1.8, meaning a family at the city's median income made 80 percent more than needed to qualify for a loan of $95,280. That is 80 percent of the sales price with a conventional 30-year mortgage.

That would mean a family earning $28,041 would make just enough to qualify.

"That is not enough to qualify," Barbosa said. "I would come up with an income figure of more than $40,000 when you calculate taxes and insurance."

The university changed the methodology for the index this year, Gaines said, in an attempt to make it more consistent with those produced by other institutions.

The report eliminated property tax and insurance costs in its calculation. He also changed the way the interest rate is determined to include closing costs.Finally, the database for median income was switched from the Bureau of Labor Statistics to the U.S. Department of Housing and Urban Development.

"The new data significantly raise the level of the affordability index from previously reported estimates," Gaines said, attributing the higher index ratios to "the greater HUD median family income estimates."

The study acknowledges that loans are harder to get for first-time home buyers and a separate table was produced to reflect that. For instance, it states that a San Antonio first-time home buyer would need to put 10 percent down to borrow $73,080 on an $81,200 house at 6.7 percent. The family income required for the loan would be $22,659.

That is not realistic, Barbosa said. "It's just a fallacy to think they're going to put 10 percent down."

For investors, however, the down payment isn't the trouble. They're looking for markets that don't face any imminent housing bubble, Almeter said.

"We have yet to put the wand in the soap dish for that bubble," Almeter said.