Is this a good time to buy a home?

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During the run-up in real estate prices over the last decade, members of the millennial generation were either in college or in entry-level jobs, watching helplessly as they were priced out of the market while aging boomers gleefully cashed in their newfound equity and used excess money for real estate speculation, driving prices even higher. But now, as the real estate bubble deflates, is this a good time for frustrated millennials to finally buy a home? The answer, unfortunately, may be no. In the aftermath of the subprime mortgage mess, mortgage brokers and banks have sworn to tighten lending standards. Gone are the days when a 5 percent -- or less -- down payment was commonplace and banks glossed over problems in employment history, credit history or proof of income. Now, new homebuyers are likely to need at least 10 percent down and can expect lenders to scrutinize every aspect of their financial pictures. "First-time homebuyers would be better off renting and accumulating a larger down payment rather than jumping into a soft housing market," says Dr. Anthony B. Sanders, professor of finance and real estate at Arizona State University. What this means for first-time homebuyers is a steeper price of admission in the form of a higher down payment, and likely some difficulty getting financing at all for those with sketchy credit or high debt-to-income ratios, which includes the many millennials who come out of college with stratospheric credit card bills and tattered credit histories. Even if you can afford to buy a home under these conditions -- and with many distressed homeowners and builders desperate to sell, chances are you can -- the real question is, should you? Again, the answers here might frustrate homebuying hopefuls. While falling prices may seem like a blessing for young homebuyers, they also create an element of risk. According to the National Association of Realtors, or NAR, the median existing-home price fell 3.3 percent nationally in 2007, and as much as 10 percent to 12 percent in troubled markets such as Florida and California. A probable wave of foreclosures resulting from rate resets on adjustable-rate mortgages signed in 2005 and 2006 threatens to drop prices even further in 2008. This is an especially bad situation for people in their 20s and 30s. Because they are just starting out in their careers, young adults relocate often in search of better jobs. If the house can't be sold for at least what is owed, homeowners are stuck. "First-time homebuyers tend to move on fairly quickly," says Holden Lewis, Bankrate.com's mortgage expert. "Buying at a time like this, they run the risk of being immobile." Still, in some markets, where prices didn't skyrocket as much as in former boom areas like Florida and California, the outlook for prospective first-time homebuyers is much better. Some markets in Texas, Utah, North Carolina and other states have actually seen modest growth and may offer less risk for first-time buyers. Dawn and Michael Kessay purchased their first home in Seattle recently and enjoyed the best of both worlds -- a good selection and relatively risk-free pricing. Their agent, Sheryl McLaren, believes that despite the grim national news, this is still a good market for first-time buyers with strong credit. "Yes, the market's tightened up, and the buyers that are out there are very qualified," says McLaren, who is an agent with Seattle's ZipRealty. "You have to be a strong buyer, but you'll have more negotiating power." The couple searched for only two weeks before finding a house that gave them room to grow and fit their price range. "I think we got a bargain," says Dawn Kessay. "They had already lowered the price, and we got it lowered even further, and they paid closing costs and for a couple of repairs." The Kessays have no plans to move in the near future, so they should be able to ride out any downward turn in prices in the Seattle market. For young buyers like the Kessays, with good credit, a down payment and the intention to stay put, the time might just be right. Still, for most millennial homebuyers, the risks outweigh the benefits, especially with a glut of affordable rental units coming available as desperate sellers try to rent out units that are just not selling in the current markets. It may be best to spend most of 2008 kicking back, calling your landlord when your appliances break down and watching the real estate market for signs of a recovery. X...X...XThe benchmark 30-year fixed-rate mortgage rose 4 basis points, to 6.41 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 6.2 percent; four weeks ago, it was 5.88 percent.The benchmark 15-year fixed-rate mortgage was unchanged, at 5.87 percent, while the 30-year jumbo, for loans more than $417,000, fell 12 basis points, to 7.43 percent. ARM rates declined. The benchmark 5/1 adjustable-rate mortgage fell 9 basis points, to 5.68 percent, and the 1-year ARM fell 7 basis points, to 5.49 percent.(Distributed by Scripps Howard News Service. E-mail Holden Lewis at hlewis(at)bankrate.com)