LOS ANGELES &

Doug Gylfe still can't afford to buy a home in Torrance, Calif., despite a 23 percent drop in prices. And Congress isn't helping.




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. — 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."




This week, the House and Senate are patching together a bill for President George Bush's signature that would let the Federal Housing Administration insure up to $300 billion in new loans to help struggling homeowners avoid foreclosure, among other initiatives.




Lawmakers also are considering earmarking $3.9 billion in funding to help buy and rehabilitate foreclosed properties, giving first-time buyers a tax credit up to $8,000, and propping up mortgage giants Fannie Mae and Freddie Mac.




The initiatives could help thousand of homeowners refinance their mortgages and avoid foreclosure, and sop up some of the bank-owned properties that are driving down home prices in some neighborhoods.




But by supporting home prices, the government is also short-circuiting a correction in home values that some say is necessary to bring prices closer in line with incomes for most working-class families.




The median price of an existing home peaked two years ago at $230,100. As of May, it had fallen about 9 percent to $208,600, according to the National Association of Realtors.




The lower prices have helped make many real estate markets more affordable, but experts say they're not deep enough in many major metro areas to narrow the affordability gap for policemen, teachers, nurses, restaurant, retail workers, and many other vital service jobs.




"In many metropolitan markets, certainly in California, you can earn 120 percent of the median (income) and still not be able to find anything affordable or that's in a reasonable commute distance," said Barbara Lipman, research director of the Center for Housing Policy in Washington D.C. "There just isn't a sufficient supply of housing for moderate-income people."




A report published by Homes for Working Families earlier this month forecast home prices could hit bottom in less than a year, ending up around 2004 levels.




But "even after the market bottoms, you're still not going to have quite the affordability that you had before the housing bubble took place," said Andres Carbacho-Burgos, an economist with Moody's Economy.com and co-author of the report.




What makes a home affordable or not can vary quite a bit depending on the cost of financing, the size of down payment and other costs of living.




The traditional benchmark is that housing costs shouldn't exceed 28 percent of a household's gross monthly income.




Moody's Economy.com study based its calculations on this threshold and assumed buyers would have a 30-year, fixed-rate mortgage for 85 percent of the home's value.




Strikingly, in nearly half of the 40 major metro areas studied, households earning 120 percent of the median income fell short of the affordability benchmark. San Francisco, Los Angeles, Miami and Stamford, Conn., were all in the top 10.




Even for families earning well above the median income, affordability in some cities can still be a stretch.




Courtney Lind and her husband have a combined income in the six figures. They've been biding their time to buy in Los Angeles for three years, but they want to buy before their second child is born in December.




The Linds can afford up to a $500,000 home &

above the median price for the county &

but still short of what homes go for in the Los Angeles neighborhood where they rent.




"We would love to stay here, but anything in our neighborhood is $600,000 or above," said Lind, 33.




In their price range, she said, they can get an 80-year-old fixer-upper, with about 1,000 square feet of space, and a very little yard on a busy street.




Unless buyers like the Linds and Gylfe move to cheaper areas &

usually with longer commutes &

there's little they can do but hope that market forces are stronger than Congressional intervention.




Gylfe has set his sights on a suburb of Long Beach where home prices have plunged from the $500,000s to about $325,000 &

just above his budget. He expects prices might slip into his range in a few months if they continue to decline.




"It's a nice area," Gylfe said, but "it's not nearly as nice as where I've always lived here in South Torrance."