Here’s the good news:  housing prices are the lowest since 1971 as a proportion of income.  Average home prices in February were at 2003 levels, at $165,400, according to the National Association of Realtors.  The government is encouraging first time home ownership by rebating $8000 in what is expended on a home (or up to 10% of the cost) as long as the home is bought before December 1, 2009.  Third, interest rates are at historic lows (4.78% for a 30 year fixed rate loan as of early April 2009 according to Freddie Mac). In addition, the Federal Reserve Bank is proactive in buying mortgage-backed debt in order to get lending moving again in the country.

 Here’s the bad news: these particular good indicators can’t last forever.  Interest rates will go up as deficits mount.  The first time buyer credit will end November 30.  Inflation will start to creep its way into the equation and the Fed will begin to raise interest rates again.  So, now is the time for buyers to take advantage of the huge benefits of home ownership before some of these record-breaking factors diminish.   

 It appears as if buyers in many parts of the country are getting the message.  Home buying took a turn upward in February with existing home sales up 5.1% over January. The trend upward is slow, but steady according to data from the National Association of Realtors.  The supply of homes is also starting to come down.  In February it had fallen to less than a 10 month supply of homes already on the market, a reduction from the high of 11.3 months in April 2008.

 The drop in interest rates is not only affecting existing home buyers.  Many are taking advantage of historically low rates to refinance.  A family with a $200,000 loan at 8.5% a few years ago might have monthly payments of over $1500.  Those same payments at 4.5% will only be slightly over $1000 per month—a big savings to the monthly budget!

 The $8000 first time tax credit is not the only help the government is giving new home owners.  FHA loans are available to first time homeowners with only 3.5% down payment.  So, homeowners with steady jobs but little money saved up can still qualify for a loan under the FHA guidelines.  Homeowners can also take advantage of 203(k) loans to repair fixer-uppers as part of their FHA loans.

 Homeowners who missed out on taking the $8000 tax credit can turn in a 1040x amended return and form 5405 to claim the credit.  The credit can be claimed in 2009 through November 30.

 Of course, as always, these aggregate figures can hide the misery experienced in many local markets.  Housing Predictor researched over 250 local markets and compiled a list of 25 cities where losses in value in 2009 is predicted to exceed 14%.  Because of the disastrous losses on Wall Street the New York City housing market is expected to decline by 32.8% in 2009.  The next greatest losses are expected in Las Vegas at 27.1%, and Miami and 26.9%.  Stockton, California’s housing market is expected to drop another 26.4%, while Phoenix, Arizona may drop another 25.9%.  Detroit’s already weak housing market will drop around 25.2% during the year.  Fresno, CA comes in next in the predictions at 23.1%, while Long Island follows suit with NYC at 22.7%.  At number 10 on the list of worst housing markets will be Los Angeles at 20.1%, according to Housing Predictor.  It is possible that in some markets total market value will drop more than 75% from their high price marks!

 Housing Predictor also prognosticates on the best housing markets.  The ten best markets tend to be in smaller cities with growing employment bases: McAllen, TX; Casper, WY; Biloxi, MS; Logan, UT; Bismarck, ND; Sioux Falls, SD; Austin, TX; Corpus Christi, TX; Baton Rouge, LA; and Idaho Falls, ID.  These cities have stable employment pictures and home prices that are steady to moderately increasing, thus bucking the trend for most communities in the U.S. during 2009.