For Ron and Cynthia Ellis, owning a new home means brown bag lunches, no new clothes, no expensive hobbies like sports car racing and no more after-work drinks with friends.
Ron Ellis, 30, a $40,000-a-year anchorman with the Sheridan Broadcasting Network, and Cynthia Ellis, 30, a free-lance writer, recently purchased a $94,000 house near Sixth and Buchanan streets NE.
In doing so, they have joined the ranks of the housing poor. This is a growing class among first-time home buyers here pinched by high prices and runaway interest rates.
"I have patches on my knees again," Ron Ellis says. "You're a slave to owning a home. But, conversely, look at the money I was paying in rent -- $500 a month. And I had no tax deductions, so I might as well sacrifice for the [tax] benefits of buying."
High interest rates mean that most first-time home buyers can afford homes costing up to 1 3/4 times their income rather than double their income, the previous rule of thumb followed by lenders. As a result of the price situation in today's housing market, tomorrow's city will be whiter, richer and older, predict experts like city planning director James O. Gibson.
Another result of the high price of single-family homes has been the popularization of condominium apartments, which are generally about $25,000 cheaper than houses. The former efficiency or one-bedroom apartment is today's starter home. Other middle-income buyers, particularly those with children, simply are leaving the city for less expensive homes in the suburbs.
Like an increasing number of first-time buyers, the Ellises were able to afford their home with the help of VA financing, which requires no down payment and carries a 13 1/2 percent interest rate on the mortgage. But it's still tight.
"No greater than 10 percent of those people who would like to buy can qualify for their first home purchase," said R. Lamond Jones, the vice president in charge of mortgages at Perpetual American Savings and Loan, because of the double whammy of high prices coupled with high conventional interest rates of 15 to nearly 16 percent.
The city's costly housing market is reflected in sales figures compiled by Shannon and Luchs, the area's largest real estate company. In 1979, 32 percent of the firm's District home buyers had incomes exceeding $50,000, more than four times the rate for Maryland and six times the rate for Virginia buyers.
It is not surprising that, for the same year in the District, 38 percent of Shannon and Luchs sales were for homes selling for more than $100,000 compared with 16 percent in Maryland and 22 percent in Virginia, said William Ellis, vice president in charge of residential sales.
"It's a tough market," said Don Ramsey, 36, who with his wife, Maxine, was looking in the city for a four-bedroom, two-bath detached home with a fireplace and a patio.
While they could afford such a house in the suburbs, they want to remain in the District. But they can't afford to live in the city and pay the rest of their bills, including college and private-school tuition for their two children. So they have decided to settle for a house with three bedrooms, no yard, smaller rooms and less privacy, said Maxine Ramsey.
On the fringes of Capitol Hill, $110,000 buys a 12- to 15-foot-wide house with two bedrooms, no basement and no bay windows, said broker Dale Denton, adding that "$110,000 doesn't get you much anymore."
Instead of going to a savings and loan or a bank for mortgage financing, home seekers are turning to alternative sources of financing: to the federal government for FHA or VA loans, whose interest rates were recently raised from 13 1/2 percent to 14 percent; to sellers who are willing to take back the first or second trust; or to parents and relatives who can lend them enough down payment money to lower the monthly mortgage payments to an affordable range.
The government-backed loans are also attractive because FHA requires only a minimal down payment. But there's a catch -- these types of loans are very expensive for the seller, who is required by the government agency to pay several thousand dollars in "points" to sell his home, a sacrifice some sellers are unwilling to make. A point is 1 percent of a mortgage loan.
Some new housing developments also are offering lower interest rates, but the small print reveals in many cases that such rates hold for only about three years, when the rates must be renegotiated, generally upward.
Eugene Person, 55, of F Street NW, found that out recently when he was looking at new homes with his 35-year-old daughter. She and her teen-agers now live in a cramped two-bedroom apartment and would like a home of their own. She earns $19,000 a year working for the city government.
"I know I have to help her," says Person, "or she can't afford to buy."
The high housing prices augur changes for Washington, many of which the city is already feeling.It means, for one thing, a population dominated by middle-aged working couples who are richer, whiter and primarily childless, who need fewer government-financed services, according to city planning director Gibson. And sharper battles can be expected over rent control, apartment conversions to condominiums and more densely built housing, he predicts.
Gibson says the city's expensive housing has resulted in the "suburbanization" of middle-income black people, who are leaving the District for affordable houses and better schools in Hyattsville or Virginia's Loudoun County, the institutionalization of two-income families, fewer children, older home buyers, an increase in the frequency of unrelated people living together to afford rents and the cutting up of larger homes into apartments or condominiums.
The high cost of District housing led Mayor Marion Barry to ask the City Council to allow him to waive the requirement that all city government employes live in the city.
The six-year-old rent control battle is continuing. As low- and middle-income renters are further squeezed out of the market for a house because of higher prices, they will fight harder to hold on to affordable apartments and demand more restrictions on conversions to condominiums, Gibson said.
And there is another conflict likely to develop. Increasingly, developers are asking the city government to approve more densely built housing projects, such as row houses or piggy-back houses in neighborhoods characterized by detached homes. More housing per square foot of land lowers their costs and therefore, presumably, their prices.
But there could be some benefits for the city, also. Richer people mean more taxes. If poor people move out, it means less city money paid for welfare, food stamps and health services. CAPTION: Picture, High interest rates are making first-time buyers such as Ron Ellis, who recently purchased this $94,000 house in Northeast, scrimp to pay for their homes. By Douglas Chevalier -- The Washington Post