Many likely to remain priced out of housing market

That's the dilemma this week for the nation's lawmakers and millions of Americans who are priced out of homeownership: any rescue policy to stem foreclosures could artificially prop up home prices and perpetuate the affordability crisis in many major cities coast to coast.

"In spite of the downturn in the housing market...affordability continues to be the No. 1 housing challenge," said Rachel Drew, research analyst at Harvard University's Joint Center for Housing Studies.

In Torrance, the coastal city 16 miles south of Los Angeles where Gylfe lives, the median home price in his Zip code has fallen from a peak of $830,000 two years ago to $636,000. But that's still twice what Gylfe can afford on his salary as a real estate appraiser.

"I've lived here since I was about 10 years old, so I really like it," said Gylfe, 53. "I would stay here in a heartbeat if I could afford something."

Lawmakers, however, appear more focused on the negative economic consequences of falling home prices than the benefits.

Congress is, in a way, facing a real estate Hydra: declining home prices, rising foreclosures, tighter lending standards, higher interest rates, and industry layoffs. Yet while trying protect the economy and honest homeowners who were suckered into bad loans, Congress may cut off one of the serpent's heads, only to see two grow back.

"It's very difficult, from a practical perspective, to implement policy prescriptions that are (metro) focused," said Sam Chandan, chief economist for Reis Inc., a New York-based real estate research firm.

And while most economists agree the imminent threat to the economy and financial system are great, Edward Leamer says, "The folks who sat on the sidelines, they should feel legitimately annoyed that the more speculative folks who bought homes they couldn't afford are going to be bailed out or helped by the federal government."

Leamer, a senior economist at the University of California, added, "And these other folks (who) acted responsibly and didn't get in over their heads and decided they didn't want to buy the home, they're not getting any benefit."