real estate
'Timing' market a risk for first-time buyers

"The foreclosures are less than 8 percent of all the mortgages out there. That means that 92 percent of the mortgages are strong, good and solid," says McAfee.

Lawrence Yun, chief economist for the NAR, says there is so much variation between and within local markets that it's almost pointless to use national numbers as a means for timing. Away from the coasts in middle America, Yun says, home prices are still well-justified by the fundamentals and are unlikely to see much movement. He points to Indianapolis and Dallas as cities where homes are very affordable when compared to median incomes. And prices that are strongly supported by fundamentals aren't likely to fall as they have been in the "bubble" areas.

Yun says rather than try to time the market and focus on short-term gains, potential homebuyers should look at a 10-year period, the average time people stay in homes. With a long-term outlook, most homeowners will come out ahead even if they buy now and home values continue to fall during the next year or so.

"People shouldn't be buying with the intention of flipping now. If they are buying to live in it, and within a typical holding period, nearly all will come out ahead in building equity," says Yun.

Buy when your time is right
Because their livelihoods and commissions depend on it, few real estate agents will openly admit that any time is a bad time to buy a home. Patrick Killelea, a programmer from Menlo Park, Calif., started documenting the housing market crash three years ago on his Web site. He says potential buyers should focus less on price variations and more on the cost of owning versus the cost of renting. Killelea says home prices on the East and West Coasts are still unjustified and disconnected from fundamentals.

Potential homebuyers should weigh the cost of buying a home versus the cost of renting one of a similar size.


"You can do the math in 10 seconds. You don't need to time the market; you just need to compare the cost of owning with the cost of renting. On the coasts, it's not even close," says Killelea.

While the cost of renting and the cost of owning are quite similar in much of middle America, Killela says it is far cheaper to rent in California, for example, where rents can be less than 3 percent of the purchase price of a home.

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