You'd like to buy a home, which can be a scary enough prospect if it's your first home.  Then you ask yourself, is this a good time to buy?  This is a great question, especially since local real estate prices have been settling downward over the past year plus. 

The answer, like so many answers, is it depends upon your situation.  There are some clear cut cases where you should not buy a home right now.  In my opinion, do not buy in Eastern Contra Costa County now if:

• You'll likely need to move in less than 2+ years.  (job transfer, pregnant with triplets, etc)
• You anticipate a possible loss or reduction in income.
• You're buying with the need to refinance within 2+ years in order to be able to afford your house payments.
• You're planning on flipping the property for a profit within the next couple of years.
• You want to buy using an attractive below market rate teaser loan, but cannot afford the fully adjusted mortgage payment.
• You want to buy a home as a rental property.

Most of these are pretty obvious, but you'd be surprised by what some people want to do.  Assuming you do not fall into one of these categories, I believe it's actually a very good time to buy a home.  The reasons why:

• Because values are down, you can get the best price possible in over 2 years.
• Because inventory levels are high, you have lots of good to great choices in homes.
• Because many sellers are very motivated or desperate, you can reasonably negotiate very attractive terms such as credits for closing costs and some nice extras included in the sale, etc.
• Buyers can actually take their time in deciding which home they'd like to buy.  (It was not that long ago when buyers literally had to decide within hours of a home going on the market to make an offer, and how much over the asking price they should bid)Interest rates are still very reasonable.

This does not mean that anyone should run right out and eagerly buy the first nice home they see.  What it does mean is that when you find a home that really meets your needs nicely and you determine you can buy it for an exceptional price, then buy the home and enjoy it.

The question often comes up, ‘what if prices keep dropping, wouldn't we be better off waiting?'.  Great question.  Trying to time the bottom of the market is as difficult as timing the top when selling.  I started telling clients in April of 2005 that I expected prices to top & begin dipping soon.  It actually didn't start for another 6 months and it wasn't clear that the top of the market had passed until April of 2006.  By then, sellers were already struggling to sell their homes and most were trying to get more than they were worth, not wanting to believe the correction had begun. 

The same thing happens to buyers.  They try to time the bottom, usually to miss it and then have to buy in an increasing market that is more competitive. 

Property values have already dropped 10-15% from their peaks.  Let's look at a scenario where homes drop another 10% over the next year.  You could buy a home now for $500,000 now or a very similar home in one year for $450,000 and would be putting 20% down and getting 80% financing. 

If you buy now, your monthly payments will be about $300 more per month than if you buy in a year, assuming the same interest rate is available in a year.  During that year, if you have a traditional mortgage, you will pay down your principle balance by nearly $5,000 and will have tax deductible interest and property taxes of about $30,700 which will save you about $10,700 in income taxes assuming a 35% nominal tax rate. 

At the end of the one year, your financial situation would be as such:

If you could guarantee that you could buy a similar home in one year for $50,000 less than today, then your net worth would be about $34,300 higher.  The problem is that you don't know for sure you can buy for that much less, and other variables, such as interest rates, missing the bottom of the market, competitive buying, etc make waiting a calculated risk. 

The bottom line, if you find a home you love & can afford & can buy for what is a great value today, buy the home.  Enjoy the home, make it your own, and don't worry about whether you could have gotten a little better deal by waiting.