Soaring house prices and higher mortgage rates have put homeownership out of reach for more people than at any time in more than a decade.

Housing affordability in October sank to its lowest levels since 1991, according to the National Association of Realtors' Affordability Index, a widely followed measure of the average household's ability to buy a home at current interest rates. In some areas, including New York City, Los Angeles, San Diego, San Francisco and Miami, housing affordability has dropped to levels not seen since the early to mid-1980s, according to mortgage giant Fannie Mae.

Affordability has long been a problem for low-income home buyers. But as home prices have marched steadily higher in recent years, many buyers with healthier incomes also are being squeezed. Declining affordability mainly affects whether first-time home buyers will enter the market, but in some markets people who already own a home are finding it tough to trade up.

There are signs that the growing costs of homeownership are also beginning to take a toll on the housing market. "There's a systematic erosion of affordability," says David Seiders, chief economist of the National Association of Home Builders. That decline is "the main reason … the market is starting to cool." Mortgage applications fell to an 11-month low last week, the Mortgage Bankers Association reported yesterday, 

Despite the drop in affordability, the percentage of households that live in a home they own is at near-record levels. Mortgage rates, though edging higher, are still relatively low by historical standards. And lenders have helped to offset declines in home affordability with creative mortgage products, such as interest-only loans, that allow borrowers to stretch into a more expensive home, while keeping their monthly payments down. But rising short-term interest rates are eroding the effectiveness of many such mortgages.

Housing affordability fell nearly 9% in the third-quarter from the same period a year earlier, according to an analysis prepared for The Wall Street Journal by Moody's Economy.com, a unit of Moody's Corp., which adjusted the NAR Affordability Index for seasonal variations. Affordability dropped by more than 20% in nearly two-dozen markets, including Phoenix and Tucson, Ariz., Spokane, Wash., and Orlando and Lakeland, Fla., according to the study. "You have to go back 25 years to find a decline that is as significant on a percentage basis," says Mark Zandi, chief economist of Moody's Economy.com.

In Tucson, where affordability has fallen 23% over the past year, buyers in all price ranges are feeling the pinch, says Kevin Freadhoff, an agent with Long Realty Co. Mr. Freadhoff says he's currently working with eight couples who would like to buy their first home but have been priced out of the market and a dozen others who already own a home, but are having trouble trading up.

In Seattle, declining affordability is forcing many home buyers to accept longer commutes, says Jane Powers, a broker with Ewing & Clark Inc. It's also fueling price increases in outlying areas such as Bremerton, where affordability has fallen nearly 22% in the past year. And in Bergen County, N.J., where most starter homes are priced above $400,000, "prices have gone up to a point where it's pushing the first-time home buyer out of the market," says Margaret Foudy, manager of the Weichert Realtors office in Tenafly. That creates a "domino effect" as people who already own a home find it tougher to move up, says Ms. Foudy.

In 57 of 379 metro areas nationwide, homes were so expensive in the third quarter that a family earning the median income couldn't afford the median-priced home based on traditional lending standards, according to Moody's Economy.com. Sixteen markets have joined the ranks of unaffordable areas over the past year, according to the analysis.

To be sure, affordability isn't a problem in many parts of the country, including Winston-Salem, N.C., and Pittsburgh. The National Association of Realtors' Affordability Index has declined to 115 from this year's peak of 131 in January, according to Moody's Economy.com. The higher the number the more affordable homes are. Still, the index is above 100, a level that indicates the median-income family has the exact amount needed to buy the median-priced home, assuming a 20% down payment and a traditional mortgage.

"It's not like the yellow flag is out," says David Lereah, chief economist at the National Association of Realtors. But the decline in affordability is "a growing concern." Nationwide, mortgage rates would have to rise above 7% for the NAR's Affordability Index to drop below 100, he says. Rates on 30-year fixed-rate mortgages currently average 6.41% versus 5.83% a year ago, according to HSH Associates in Pompton Plains, N.J.

Meanwhile, the homeownership rate stood at 68.7% in the third quarter on a seasonally adjusted basis. That's down slightly from a record 69.4% in the second quarter of 2004, according to the U.S. Census Bureau.

Another major analysis of affordability, by the National Association of Home Builders and Wells Fargo, shows that just above 43% of all new and existing homes sold in the third-quarter were affordable to families earning the median income. That's the lowest level since the index was first released in 1992 and compares with 50.4% a year ago.

Some factors have helped offset the decline in affordability. Many borrowers have embraced creative mortgage products, such as interest-only loans, mortgages with teaser rates of as low as 1% and "piggyback" loans aimed at buyers who don't have the money for a down payment. In the third quarter, borrowers could boost their purchasing power by 26% by taking out an interest-only mortgage, which allows a home buyer to put off repaying principal for several years, instead of a standard mortgage, according to Moody's Economy.com.

In Tucson, roughly 60% of first-time home buyers make no down payment and instead now use 100% financing to get into the market, up from 30% two years ago, says Renee Booker, president of Long Mortgage, the mortgage arm of Long Realty.

In Spokane, where affordability fell more than 28% over the past year, many first-time home buyers are using piggyback loans and 40-year mortgages, which have smaller monthly payments than traditional 30-year mortgages, to get into the market, says Laraine Hunter, a managing broker with John L. Scott Real Estate. "We're getting creative with helping people get into homes," she says.

But rising short-term interest rates have made many affordability mortgage products more expensive and the flow of new, creative mortgage products has begun to lose steam. On Tuesday, bank regulators proposed controls that would limit the mass marketing of some creative mortgage products.

As affordability declines, many first-time home buyers are being forced to lower their sights. In Phoenix, double-digit price increases are pushing many of these buyers to condominiums, to outlying locations or to blighted areas targeted by developers for renewal, says Bill Jilbert, president of Cendant Corp.'s Coldwell Banker Residential Brokerage in Phoenix.

In Orlando, young couples are being squeezed by rising home prices, says Barry Carnes, broker-owner of Century 21 A.A. Carnes Inc. Christine Cullum, a nurse, and her fiance, a salesman, recently made an unsuccessful bid on a $175,000 home in an Orlando suburb. They've since put in another bid on an older and smaller house in a different neighborhood.

And renting remains a bargain in many parts of the country. Stephan Vrudny, an engineer who lives in San Diego, sold his three-bedroom condo to an investor in June for $405,000, then rented it back for $1,500 a month. Mr. Vrudny figures the arrangement is saving him $430 a month, even after taking into account the lost mortgage-interest deduction. "We'll be homeowners again when it makes sense again as an investment," says Mr. Vrudny, who had purchased the unit for $345,000 last year.