Is this a good time to buy a house?

John W. Schoen Senior Producer • Profile • E-mail

The ongoing slide in U.S. housing prices has scared some first-time buyers out of the market and kept them on the sidelines. While there’s always the risk that prices will fall further, young couples and growing families still need a place to live. And, if they do their homework, stick to a budget and shop carefully, this may be a great time to take the plunge.

My wife and I are currently in the market as first-time home buyers with excellent credit. We're not interested in flipping or land speculation, we simply want the little white-picket-fence home we've always wanted. Our worry is if we become homeowners and the housing market worsens even more that somehow we'll go down with it too. If we avoid the pitfalls of variable rate mortgages and make the "right" choices with quality lenders, are we naive to think that we might be resistant to problems if the market worsens?
— Bryan L. New Haven, Conn.

There are never guarantees in real estate, and there are plenty of signs that things may get worse before they get better. But no matter what kind of economic conditions prevail, life goes on. And so should yours.

If it’s time for you and your wife to buy a home – you’ve saved something for a down payment, you’ve found a part of the world you’d like to spend time in, you’re tired of paying rent – by all means this can be a great time to buy a home. In many markets, there are a lot more homes for sale than there are buyers. That means you should be able to negotiate a better price than if there were multiple buyers for each house for sale.

As for your risks as a borrower, if you stick with good lender, read every document carefully, ask questions until you’re convinced you understand the answers, you should be fine. If you think the lender or mortgage broker isn’t giving complete answers, go find another one. Good lenders are always looking for people with good credit. If you don’t feel you’re not able to sort out the documents to your satisfaction, you may want to hire a lawyer. A few hundred dollars in legal fees now could save you thousands in interest payments later if you don’t understand your loan.

The harder part is determining a reasonable price for your new home. Some sellers have still not come to terms with the recent drop in prices and are holding out for an asking price that’s too high. Others are pricing more in line with market demand. After you’ve seen a half dozen houses or so in your price range, ask to see examples of recent actual — not asking — sale prices of comparable houses. (You can also look up recent home sales online on sites like Zillow.com.) The only way to determine what the market is paying is by looking at actual sale prices. And the only way to determine the true price of a specific home is to make a bid. If the seller says no, move on to the next house on your list.

The risk that most buyers face today is paying too much for the property. It’s impossible to predict how much longer — or how much further — housing prices will fall. Let’s go over that one more time. Some of the same real estate agents who assured buyers during the boom that they needed “get in now” before prices rose further are now reassuring potential buyers, for example, that recent interest rate cuts mean the worst is over. The only honest answer to the question: “Have prices bottomed?” is “No one knows.”

You also need to keep in mind that the national statistics about home sales, median prices, and foreclosures are averages. Areas where the boom in housing sales and prices was the strongest (places like California, Florida, Nevada) are now seeing the biggest drops. In other areas, where price gains were not as rapid, the market has remained relatively stable. So your risk of further price declines in these areas is more limited.

MORE FROM ANSWER DESK

Answer Desk Section Front

Who'll take California IOUs? Slow stimulus spending Raiding college savings There’s a reason GM stock is cheap Housing rebound may be slow Beware the hidden agendas of 'experts' Meltdown will leave vastly changed economy Yikes! Series I Savings Bonds paying 0.0% Who's going to fix my Pontiac? Bailouts and banks’ bottom lines Answer Desk Section Front   Add Answer Desk headlines to your news reader: