Monday, December 21, 2009, 5:44AM ET - U.S. Markets open in 3 hours and 46 minutes.

Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

A Spring Break for Homebuyers

by Laura Rowley

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Good (286 Ratings)
2.311184/5
Posted on Wednesday, May 21, 2008, 12:00AM

Homeowners, get your down payments ready.

Single-family home prices in the United States dropped nearly 8 percent in the first quarter of this year, the biggest year-over-year plunge since the National Association of Realtors began keeping score in 1982. The Census Bureau reports that a record 2.9 million vacant homes are on the market.

"We think affordability is at its peak," says Gus Faucher, director of macroeconomics at Moody's Economy.com. The firm predicts prices will bottom out in the middle of 2009, declining 23 percent on average from the peak in the second quarter of 2006.

Do Your Homework, Then Buy

Start crunching the numbers, brushing up your credit score, and getting pre-qualified for a mortgage now, because interest rates continue to hover at historic lows. "House prices in the U.S. are going to continue to fall through the first part of next year, but on the other hand, interest rates are likely going to be higher," Faucher says. "If you're looking to buy, you need to take that tradeoff into account."

At the same time, choose your market carefully. While some metro areas have dropped significantly, Economy.com still views them as overpriced based an analysis of long-run supply and demand fundamentals. For example, the Washington, D.C., area, including suburban Virginia and Maryland, experienced 6 years of double-digit price growth, including 2 years with price growth of greater than 20 percent.

"Prices have come down, but they certainly have more room to fall," says Faucher. "In the Washington Metro division we expect a peak-to-trough decline of more than 30 percent. Prices peaked in the first quarter of 2006, but they have only fallen 15 percent so far, so we're only halfway there." For instance, five cities in Virginia made it into Economy.com's top 20 most overpriced markets. (See my blog for the rest, and the 20 most underpriced markets.)

Research Is Crucial

In the bad old days of the real estate boom, homebuyers were so busy just trying to win the bidding that they had little time to ensure they were getting the best value for their money. The beauty of a buyers' market is that you not only save on the home price, you can take your time and do more thorough research, possibly saving thousands of dollars and a plethora of headaches.

First, check up on the community in which you want to live: Websites like HomeFair, HomeSurfer.com, and City-Data.com offer a broad overview of U.S. communities. Also surf local chat rooms that may reveal the biggest community complaints, such as escalating property taxes or a lack of playing fields for kids' sports.

Take the time to commute to work and back from the neighborhood where you want to buy, and don't forget parking issues. (I had a friend who bought in a town with a great commute, who then discovered a five-year waiting list for train station parking.) Also visit the area during different times of the day, and check out the noise, traffic, and parking logistics.

There Goes the Neighborhood

That's something Claire Mylott of Denver wishes she'd done when she bought her first townhouse at age 26.

"It was a neat, loft-like place with a nifty urban backyard and garage -- a very chic location across the street from popular bars and restaurants, as well as a big park," Mylott says. "I came over to look at it in the middle of a Tuesday afternoon, and it was reasonably quiet during that time. I thought it would be cool to live so close to the hot spot."

Unfortunately, the "cool location" meant significant noise at all hours of the early morning and night. After work, the happy-hour crowd made traffic and parking difficult -- visiting friends had to park two miles away. "The late-night crowd meant drunk screamers outside my front door at two a.m., fender-benders and sirens, and minor vandalism," says Mylott, who eventually moved to a quieter street. "My lesson to the first-time homebuyers is to think about your 'cool location' and how it might affect your ability to sleep, especially in the summer when the windows are open."

The ABCs of School-Shopping

Next investigate the schools, from elementary through high school. We made two mistakes on this front when we moved into our town: I didn't realize the kindergarten program was half-day, so we ended up sending my oldest to private, full-day kindergarten. (We liked the school, so all three of my kids ended up there.)

Now my oldest is just three years away from high school. We're concerned that the town high school, with nearly 2,000 students, might be too large for her, so we're faced with the prospect of moving or sending her to private school.

Start your school search with a website like SchoolMatters or GreatSchools. SchoolMatters, for instance, offers data including school size, class size, household income, household education levels, number of single-parent households, district expenditure per student, teachers' educational achievement, performance on state tests, and percentage of students who go on to college. For more on researching schools, see my blog.

On Inspection

Meanwhile, a buyers' market may offer the opportunity to avoid thousands of dollars in repairs that seem to magically appear seconds after the closing. "You can save on those things you would have had to repair in a boom market," says Faucher. "There is that opportunity to get the seller to chip in for more of that kind of stuff."

Invest in more than one home inspection, advises Adrienne van Dooren, a North Carolina-based author who has bought and sold nearly a dozen homes over the years. "It may be worth the $300 to get a second inspection, because any mistake is going to be a lot more than $300," she says.

For instance, one inspector told her that the old wiring in a home she was buying was fine, because it was grandfathered into North Carolina building codes. But she couldn't get property insurance for the home because of the risk of fire, and it cost $5,000 to rewire the house. In another case, she didn't get a separate radon inspection before the closing -- and ended up spending $1,500 for radon mitigation after the fact.

Water, Water Everywhere

Take the time to examine all the flooring, van Dooren adds. One home she purchased was so beautiful she never thought to look under the basement carpet. "They put a wool carpet over what was basically a dirt floor, so six months later it was all moldy and horrible and disgusting," she says. The cost to pour three inches of cement and seal against water: $3,500.

Mylott recommends turning on the shower and checking the water pressure. In her townhouse, "if you had the dishwasher on and took a shower, you were in a world of hurt -- it was a trickle," she recalls. "You could only run one water-oriented appliance at a time, and even then it was low-flow."

Finally, make sure the inspector runs the appliances, suggests New York homebuyer Renee Young. "I didn't run the dishwasher and the first time I used it, water remained inside and leaked into the ceiling of the basement," she says. "I went down to do laundry and part of the ceiling fell down."

Do you have tips for first-time homebuyers based on experience? Email me at laurarowley.column@yahoo.com.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Good (286 Ratings)
2.5/5
Sign-in to rate!

127 Comments

Showing comments 6-35 of 127<< PreviousNext >>
Sort: first to last

  • Yahoo! Finance User - Tuesday, May 27, 2008, 1:13PM ET  Report Abuse

    • Overall: 3/5

    Not Bad, Do your research! How long will prices keep dropping. How long do you think interest rate will stay low? Hey all you doom and gloomers out there. Don't buy homes, your right. Leave them to the investors who are coming back in the market. Then you can complain again when prices start to rise again. Woe is me "now prices are too expensive because the investors bought all the cheap houses." First buy a house because it is a place you want to live for a years. Not because it is an investment. Yes there are benefits to home ownership but it is a home first. Second buy a rental house as an investment. Have someone else pay your mortgage. By the way in April the phx area had an unseasonal up tick in homes sales volume. Prices continued to decline. houses under $250k are selling

  • Yahoo! Finance User - Tuesday, May 27, 2008, 10:44AM ET  Report Abuse

    • Overall: 3/5

    Every day at 4:30 p.m., I walk down the streets of my neighborhood. It appears that 1 out of every four homes in the 1 mile radius around my house is vacant. Lawns are dead or overgrown, and over abundance of bird crap has seeped into the stucko and weeds are growing in record numbers. I haven't seen a house sell in months. In fact, even the houses that were touted as short sales are still sitting on the market. My house once appraised for $620,000.00 just a year ago. But my model is now selling for $379,000.00 with NO buyers taking the plunge. The grim reality is that the market absolutely sucks. It will continue to suck for a couple more years. Anyone who believes that the market is making a comeback is delusional. Because equity lines have dried up because of low equity ratios, people don't have the cash to put down on homes....even as cheap as they're becoming. But what is cheap? Although I paid $480,000.00 for my house, the land it was built on is in a flood zone, it stinks like cow dung because of the surrounding dairy farms, and there is an over abundance of land around me where builders have packed their bags and left the land to dust. The most I'd pay for my house right now in this market would be $200,000.00. That would be a bargain. I'd rather spend a little more and buy a house in Orange County where home prices are coming down just as fast. Bottom line is that this market doesn't have a bottom..........yet! Never in history has there ever been a time when banks aren't lending to the masses and wages were actually on the decline......except in the GREAT depression. Let's face it, the reality hasn't sunk in yet. Our country is financially screwed and some people like Laura Rowley live in the clouds. Day to day, people forget the big picture and suddenly get the idea that we might be recovering. RECOVERY??? A recovery is nearly impossible. I'm waiting for China or Saudi Arabia to do a hostile take over. One thing that banks aren't talking about right now is that some borrowers still hold onto their open lines of credit even though their equity is gone. I know 3 people that used their lines of credit to purchase cheaper homes.....then bailed on the loans for their previous residence. There are plenty more of those coming. The bank write offs have just begun. Best advice to anyone would be to buckle down. Get a second job, rent out a couple rooms in your house, cut your losses by shedding off some unnecessary bills such as Internet, extra phones, the gym, extra cable channels, expensive food, eating out, etc. Things aren't going to get better anytime soon. Personally, I think this is a financial lesson that is way overdue. I think we need to learn all over again how to be fiscally responsible. It will make us a much stronger country.

  • Yahoo! Finance User - Monday, May 26, 2008, 11:53PM ET  Report Abuse

    • Overall: 1/5

    Do you work for the NAR?

  • Yahoo! Finance User - Monday, May 26, 2008, 11:47PM ET  Report Abuse

    • Overall: 2/5

    to me,housing compared to 2 or 3 years ago is more affordable-but is it a bargain?absolutely not.for the average homeowner,25 to 30% of income is probably the threshold for "affordability".for a person with annual income of 50,000 dollars that comes to about 1000 bucks a month.

  • Yahoo! Finance User - Monday, May 26, 2008, 9:47PM ET  Report Abuse

    • Overall: 3/5

    Although overall good advice...Believe Moody's, The NAR ??? That now is the time to buy? These guys were touting prices never go down,and moody is in bed with these guys to push the market....Buy now at your Peril ! This is not the bottom ,or a good time to buy unless you wish to watch the price you paid go lower....( even if you can afford it ) Prices are going down,Inventory up with another couple of million ARM's resetting, job losses and slower economy also spells better deals in another year...Rent & save..DO NOT believe the so called experts. They have lots of snake oil to sell ya !

  • Yahoo! Finance User - Monday, May 26, 2008, 9:12PM ET  Report Abuse

    • Overall: 1/5

    Good grief... Now I know how we got into the house mess. Too many people reading these overly optimistic articles on Yahoo Finance. Another aspect to consider before buying a house is to think about what you want the house to do for you? Why is a house the the solution? What is wrong with the place you're renting right now? Before you shell out a lot of money on a house, identify what the NEED is and consider all your alternatives. Your rental apartment is keeping you warm, dry and secure.... So, exactly what and why isn't your rental apartmet cutting it anymore.

  • Yahoo! Finance User - Monday, May 26, 2008, 8:34PM ET  Report Abuse

    • Overall: 1/5

    Tradeoff?? What is worse, higher interest rates to buy a house, or lower interest rates and runaway gas prices and inflation? The Fed's interest rate cuts are causing the Dollar index to plummet. This in turn is causing Dollars to be priced higher in relation to the price of crude oil. Crude oil is traded in Dollars. This is having a dramatic effect on gas prices at the pump. How can one even afford a house these days with increasingly higher gas and food prices. What is more important? Eating and driving or having a home mortgage? You can always rent. However, you have to eat and drive.

  • Yahoo! Finance User - Monday, May 26, 2008, 8:24PM ET  Report Abuse

    • Overall: 1/5

    "'We think affordability is at its peak,' says Gus Faucher, director of macroeconomics at Moody's Economy.com. The firm predicts prices will bottom out in the middle of 2009, declining 23 percent on average from the peak in the second quarter of 2006." How can one say that affordability is at its peak in one breath and that prices will continue to fall into mid-2009 in the next?

  • Yahoo! Finance User - Monday, May 26, 2008, 7:11PM ET  Report Abuse

    • Overall: 2/5

    I think that most of us understand that "affordability" is a combo of price and interest rates. But the perception is that housing prices will fall substantially before interest rates rise substantially. Anyway, I say it's best to buy when interest rates have been high for a short bit (pressing housing prices down), then refinance years later, when rates are down. This way, you get the house for cheap, yet avoid the bulk of the high interest payments. And one more thing...with all the hidden costs of owning a house, at their current price, it might just be better to rent for the rest of your life. You get to do the math, for your locality.

  • Yahoo! Finance User - Monday, May 26, 2008, 6:16PM ET  Report Abuse

    • Overall: 1/5

    Stay away from housing. Housing prices will continue to fall for years. We have only begun seeing declines and they get steeper every month. If a house costs $500k now and in two years it costs $300k does it really matter what your interest rate is??

  • Yahoo! Finance User - Monday, May 26, 2008, 3:35PM ET  Report Abuse

    • Overall: 1/5

    Hmmm. It's a good time to borrow money, but not buy a house. It's a good time to borrow money because we're going to have the worst inflation for the next several years and the long term interest rates are not yet factoring that huge inflation into the interest rate. But when it does, home values will decrease even further. Now that we're out the free money and frenzy part of real estate era, it all comes down to what peoples salaries can afford, so even if interest rates go up, prices must come down to compensate. There's no magic here. Buy when you're ready to buy, but expect to take losses for at least the first 1-3 years and the market will be flat for the next 10. Looking for a place to invest money- look elsewhere.

  • Yahoo! Finance User - Monday, May 26, 2008, 1:07PM ET  Report Abuse

    • Overall: 1/5

    Affordability is FAR FAR removed from today's prices! Who pays this gal, the Association of Realtors? When median housing prices drop another 25-50%, you can tell us about affordable! Affordable SHOULD mean multiply YOUR annual income by 2 or 3. THAT's the price range of a home that's affordable by YOU. Do the numbers, folks

  • Yahoo! Finance User - Monday, May 26, 2008, 11:44AM ET  Report Abuse

    • Overall: 3/5

    To all of you clueless onestar posters - 'affordability' is not only about the price of the house, it is the price plus interest paid. In other words, within given parameters, you will pay less for a higher priced house with a low interest rate than a lower priced house at a higher interest rate. The interest rates are probably as low as we are likely to see them for some time to come. This makes it a good time for first time buyers or for those people who are willing to buy older, lower priced housing. If you were one of the suckers who bought new housing just before the bubble popped, then use this time to REFINANCE and reduce your potential losses. Enough of bashing Laura, I will listen to her before I would any of these anonymous whiners, what is their so called area of 'expertise'? These are the same people who were stupid enough to buy overvalued property with an ARM loan and then claim the sky is falling. Why would anyone listen to them? Not to mention, the naysayers and doom & gloomers contribute nothing useful to this forum or probably even society, if that is their attitude. Those kind of people are sheep who blindly follow other sheep over the edge of the cliff while expecting the watchdog of government to save them from themselves.

  • Yahoo! Finance User - Sunday, May 25, 2008, 11:20PM ET  Report Abuse

    • Overall: 3/5

    Well, judging by most of these posts it looks like the herd is saying not to buy so now might be a good time to buy. 3 years ago the herd was screaming BUY! BUY! BUY! but I wisely stayed on the sidelines as valuations were way out of wack. Not all areas are overbuilt and awash in foreclosures. Prices here in Salt Lake City dropped in 2007 but have now stabilized and are on a slight upswing, although this bucks trends elsewhere. It's been proven that the Case-Shiller model has overstated the declines in many areas. Then of course the media jumps on the bandwagon and sows fear and loathing for ratings and everyone gets spooked. Do your homework, press for a good deal...but for heaven sakes DON'T listen to the herd. You'll never make money that way.

  • Yahoo! Finance User - Sunday, May 25, 2008, 9:00PM ET  Report Abuse

    • Overall: 1/5

    "...affordability at its peak." This comment and article is presumptous and arrogant. How can anybody be so bold to predict the future? You have a huge credibility problem, Ms. Rowley. My advice is to shake the 8-ball a little harder before titling your next article.

  • Yahoo! Finance User - Sunday, May 25, 2008, 4:58PM ET  Report Abuse

    • Overall: 1/5

    "We think affordability is at its peak" What a joke. Homes in many areas are still grossly inflated. If a home appreciates 100% and later falls 15%, remaining far above long term tends, with values local income levels can not support, how is that affordable? We have a long way to go before many areas are affordable!

  • Yahoo! Finance User - Sunday, May 25, 2008, 4:10PM ET  Report Abuse

    • Overall: 3/5

    We've all heard all the same over and over. This recession will be with us for a long time so do all the over and over things we've all heard. Its going to take a long time for things to come back... Hey take a course that has anything to do with remodeling, financing, study the different styles, color, learn about solar, wind so when the time comes you'll be like the article says be ready.

  • Yahoo! Finance User - Sunday, May 25, 2008, 2:51PM ET  Report Abuse

    • Overall: 1/5

    The article implies that in the DC area prices are likely to drop an additional 15%. The average house in DC is $800K. I'm sad that I'm not rich enough to afford a $120K loss right now, so I think I'll wait it out. And I don't think we should there should be a bail out, but a 50 year refinancing option. Let the morons that bought houses remember their stupid choices for 50 years instead of 30.

  • Yahoo! Finance User - Sunday, May 25, 2008, 2:25PM ET  Report Abuse

    • Overall: 3/5

    I live in Los Angeles, and I still don't think now is the best time to buy.... I'm hoping in 2 years we'll hit a true bottom. In the past two years I've doubled my income from under 50K a year to almost 100K a year. I'm 28 now and am living the exact same lifestyle I was living when i was making 50K.... I figure in 2 years I should have close to a 100K to put into a downpayment on a forclosed home. So far, the economy is great for me... Not to mention i just opened a 401K in Mid-january when the first big stock market drop occurred in awhile. I gotta say my pay raise timing couldn't have been better timed...

  • Yahoo! Finance User - Sunday, May 25, 2008, 1:27PM ET  Report Abuse

    • Overall: 4/5

    The Negative that is in the Market is overwhelming and the biggest thing that is driving values down further are the number of Foreclosures on the Market. It is a supply and demand issue. In So.California we are now at a point where you can buy cheaper than you can build. That is normally when the market starts to take notice and recover. I can not help but think that we are getting close to the end. The Gov is about to pass and FHA bill that will allow many people to stay in their home and avoid being thown out with the dog. Because passage of this Bill is not yet in effect the EXPERTS are not factoring this in. What is the magic day this all starts to go the other way, who knows. Myself I would rather look at the numbers and let the MEDIA tell me what is going on. WE ARE WORKING ON OPINION we are not working on FACTS. I understand 96% of all mortgages are paying on time 2% are in troulbe and 2% are in the process of forclosure. That does not sound like the END OF THE WORLD to me. I enjoyed your article and something comes to mind an add slogan I heard for a new High Rise Condo Project in San Diego. " Where are you going to be living when the Buyers Market is over". People are still moving to San Diego and for good reason, it is now cheaper to live here.

  • Yahoo! Finance User - Sunday, May 25, 2008, 12:26PM ET  Report Abuse

    • Overall: 1/5

    Most projections are for next Spring to be a better break!

  • Yahoo! Finance User - Sunday, May 25, 2008, 11:48AM ET  Report Abuse

    • Overall: 1/5

    rah rah rah...

  • Yahoo! Finance User - Sunday, May 25, 2008, 9:51AM ET  Report Abuse

    • Overall: 1/5

    How did this so called analyst calculate that affordability is at it's peak? In Southern California, I think affordability index is still less than 20%. Historically, I've seen the affordability index at close to 50% so I would think we have a long long way to go. Also, if we have pro-longed recession, then average incomes could decline which would put additional downward pressures on real estate to keep the same low affordability index. Finally, we have had many real estate cycles and the prior downward cycle lasted over 7 years. I don't see a quick turnaround, but I'm not an overpaid Analyst.

  • Yahoo! Finance User - Sunday, May 25, 2008, 9:42AM ET  Report Abuse

    • Overall: 1/5

    Terrible article. Time to buy county tax deliquent properties. Go to bid4assets.com and enjoy.

  • Yahoo! Finance User - Sunday, May 25, 2008, 9:32AM ET  Report Abuse

    • Overall: 1/5

    Amazing - the american dream as we knew it is evaporating before our very eyes and no one wants to talk about it. REMEMBER the days when we could buy big SUV's and never have to worry about filling them up, or flying on big airplanes with plenty of room and satisfying meals with all the liquor we could consume. Those days are gone forever my friends and our future is bleak!! And like our government, all the hacks can do is to gloss over our decline with articles like this.

  • Yahoo! Finance User - Saturday, May 24, 2008, 9:42PM ET  Report Abuse

    • Overall: 1/5

    I live in central New Jersey and after seeing prices on homes more then double in the past 5 years, a 10% drop is by far nothing to make me feel like I am getting a bargain. If you can hold off, rent. Its cheaper and a good way to save for a good down payment (something a lot of those fools who claim they were taken by mortgage brokers should have done). Homes are stock piling and will only drive the prices down further. I see homes that have been on the market for over a year. When will these people get it that they are asking to much!!! Anyone who believes the housing market will turn around in a year should look at history. Down housing markets takes years to recover and considering this is the worst housing market this country has ever faced and the other issues pulling down our economy, this will drag on for years.

  • Yahoo! Finance User - Saturday, May 24, 2008, 4:30PM ET  Report Abuse

    • Overall: 1/5

    How do you sleep at night?

  • Yahoo! Finance User - Saturday, May 24, 2008, 3:38PM ET  Report Abuse

    • Overall: 1/5

    Wow! You sound just like the ads from local Realtors trying to drum up business. If you are renting, wait. Real bargains are coming. If you are already locked into buying a home. Pay it off quickly. Use proven tools that maximize your interest savings. Research "Current Account Mortgages" in Australia, "The One Account"in the UK and "Mortgage Savings Accounts" in the U.S. Paying too much for your home is made worse when you are also paying too much interest!

  • Yahoo! Finance User - Saturday, May 24, 2008, 1:59PM ET  Report Abuse

    • Overall: 1/5

    Now is not the time to buy. Prices are still much to high and will go much lower. It appears that the greedy banks, homebuilders, brokers and Real Estate agents, along with Sally, Jane and Joe Six-Pack, have killed the goose that was laying the gloden eggs.

  • Yahoo! Finance User - Saturday, May 24, 2008, 1:57PM ET  Report Abuse

    • Overall: 1/5

    Idiots, Idiots everywhere. I listend three years ago when real estate people said the rise will never stop and buy now or never. Thanks! Now I am 250000 dollars in the hole and I am guessing government will limit price growth to at most 5% after this and this means it will take me 15 years to get break even spending tons of money to break even. Rent and have a financial adviser invest your money, you will have less headaches.

Showing comments 6-35 of 127<< PreviousNext >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

More From Laura Rowley

Money & Happiness

Discover the secrets to financial happiness. Laura's book offers practical tools and positive strategies to create "the good life" in a meaningful way.

More about Money & Happiness

Learn to identify your values, banish debt, start saving, and investing; plus Laura's favorite online resources.

Order your copy of Money & Happiness today and boost your financial well-being!

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.