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Research the Market Before
You Buy


I am a believer that once the market fully bottoms, it can be the buying opportunity for a lifetime for many people.  Real estate, like any market, has the tendency to over-correct and when this happens, prices could well drop below "intrinsic value".  In my own research, I've already seen homes in certain towns/neighborhoods where prices for new homes have dropped below the current construction costs.

The key to profiting from this however, is being prepared and armed with the information on current real estate pricing trends.  That's why I've included a home values statistics chart below - for those of you outside of CA, I would suggest regularly using sites like Zillow or Trulia for research on your town/neighborhood.

Another good source of data for those who are more analytical is this link where you can access downloadable spreadsheets courtesy of Standard and Poors with historical price indices for key cities in the US.  A simple way to use this if you are a buyer today is to see when the prices in your city last reached the current index level and use that as a benchmark in setting your price for a particular property.  For instance, in Atlanta the current price index of homes as of November 2010 according to this data was last reached in January 2000, so if you can find historical price data for your target home in the Atlanta market, your starting point should be the sold price from roughly 10 years ago, with any adjustments for additions, renovations, etc.

Know What You Can Afford before You Buy

Not fully understanding affordability is in part what got us into this mess today.  So anyone looking to buy a home needs to start by developing a realistic view of what it would take to own a home.   
The calculator below should at least help you build a good initial estimate of what you can afford based on current mortgage rates and your available down payment.

For a realistic sense of the level of monthly mortgage you would likely be approved for, you should assume a typical 36% debt to income ratio which most lenders use as a starting benchmark.  This means that your total monthly debt inclusive of mortgage, credit cards, as well as other home related costs such as taxes and insurance should not be more than 36% of your total gross monthly income.