Top 5 home-buying blunders for 2009

With cheaper home prices, lower mortgage rates and big discounts on foreclosures, buyers will have plenty of incentives to get into the real estate market in 2009.

But anyone considering buying a house next year should proceed with caution. After all, a gloomy outlook for home prices, the ongoing financial crisis and a potentially historic recession create a number of potential pitfalls.

* Talk back: Will home prices keep falling in 2009?

To help you navigate an uncertain market, we've compiled a list of leading home-buying mistakes for 2009, based on conversations with real-estate professionals.
1. Buying for the short term
With home prices at the national level expected to continue declining throughout most of next year at least, 2009 won't be a good time to try to turn a quick buck in the real-estate market.

Many homes purchased in 2009 will lose value in the short term. And although they are likely to recover that value when the market rebounds, it remains unclear just when home prices will bounce back.

"If you're not planning on living in that house for more than three to five years, I wouldn't buy anything right now," says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. "Nobody knows what is going to happen to prices over the next few years."

So if you're going to buy real estate in 2009, you're better off buying a home that you plan to live in for a long time, rather than a short-term investment property.
2. Not understanding your local market
Although it's easy to get caught up in the gloomy national housing trends, prospective homebuyers should be paying more attention to what's going on in the market where they are considering purchasing property. After all, home prices in your market could be moving in the direction opposite to the rest of the country.

"Individual markets are not the national market," says Keith Gumbinger of HSH Associates. "(The real estate market) is tremendously individualized."
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3. Not scouring for deals
Prospective homebuyers can obtain a solid understanding of conditions in their market by talking to a real-estate professional, reading the local newspaper's real-estate section or finding a good housing blog that covers the area.

With the fall in home prices expected to persist, 2009 will be a buyer's market. As such, people considering a home purchase should understand that they are in the driver's seat and be on the lookout for deals.

"It's definitely a buyer's market," says Mark Hanson, a managing director who handles real estate and finance research for the Field Check Group. "Look for deals; go in there and lowball; look at foreclosures."

But while haggling is healthy, be careful not to go overboard. Buyers who make insultingly low offers are likely to be considered "bottom feeders" and dismissed by sellers, Gumbinger says.
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Look out below
Home prices in October dropped by the sharpest annual rate on record and there's no sign the pain is over, according to the Standard & Poor's/Case-Shiller 20-city housing index, which fell by 18% from a year earlier. (Dec. 30)
4. Purchasing a foreclosure just because it's cheap
While foreclosures can offer homebuyers big discounts, such properties sometimes come with a great deal of baggage.

For example, the previous owners could have left the home in poor condition, requiring thousands of dollars of repairs, says Joshua Dorkin, the founder and CEO of BiggerPockets.com, a real-estate networking and information site.

"A pitfall for 2009 would be buying a foreclosure without knowing what you are getting into," Dorkin says. "Because that great deal may not be so good if you get inside and you find out that the floors are ripped up and the walls are destroyed."

* MSN Real Estate: 10 questions for first-time homebuyers

Before you decide to go foreclosed-home shopping, do your homework or contact a real estate professional with experience with such transactions.
5. Overly aggressive buying
Even if you've found the perfect property, make sure it is something you can reasonably afford.

Many economists expect the current recession to be the nastiest in decades, with some projecting the unemployment rate to hit 9%. That means that 2009 won't be a good year to try to stretch your finances.

"Just because a lender says you qualify for this much of a loan doesn't mean you should buy that much of a house, especially if that is 50% of your take-home pay," Hanson says. "What happens if you lose your job? We're going into a period of heavier unemployment, so buy conservatively."

Southland October home sales climb to highest level of the year

Southern California home sales rose unseasonably last month from September as buyers shook off gloomy financial news and took advantage of often-steep discounts. The median sale price fell to $300,000 - a 67-month low - as foreclosures once again accounted for half of all resales, a real estate information service reported.

A total of 21,532 new and resale houses and condos closed escrow in the six-county Southland in October - the highest for any month this year. Last month's sales rose 5.0 percent from 20,497 in September and jumped a record 66.7 percent from 12,913 in October 2007, according to San Diego-based MDA DataQuick, a real estate information service.

Fueled by lower prices, Southland sales have risen on a year-over-year basis for four consecutive months, breaking a 33-month streak of annual declines.

October home sales dropped below September's in 11 of the past 20 years, when the change between the two months averaged -1.2 percent. October has never been the peak month for sales in any year back to 1988, when DataQuick's statistics begin.

"You could easily imagine a meaningful decline in sales last month, given the seasonal norm and the dire financial news that potential buyers had to ponder in September. But we have yet to see any big, sudden drop in the number of transactions closing escrow. It tells us there were a lot of very serious buyers in the market during late summer and early fall - buyers who consider housing a relatively good buy or investment," said John Walsh, DataQuick president.

He added: "Whether the worst of the housing correction is behind us will depend largely on the depths of this economic downturn, especially with regard to job losses. Also important will be the outcome of recently announced efforts to reverse the tide of foreclosures."

October's home sales total was the highest in 20 months but was still the second-lowest for an October since 1996. Last month's sales were 12.4 percent lower than the 21-year average for October sales.

Last month's record annual sales increase reflects two things: Very weak sales a year ago on the heels of the August credit crunch and earlier subprime meltdown, and this year's big sales gains in inland markets where prices have fallen 30 percent or more. Depreciation in such areas has triggered record foreclosures, which tend to sell at a discount, attracting bargain hunters.

Fifty-one percent of existing homes that closed escrow in October were foreclosed on at some point in the prior 12 months. That's up from a revised 50.0 percent in September and 16.0 percent in October 2007.

At the county level, these "foreclosure resales" ranged from 39.2 percent of October existing home sales in Orange County to 67.7 percent in Riverside County. In Los Angeles County foreclosure resales were 40.3 percent of sales; in San Diego 48.6 percent; San Bernardino 65.2 percent and in Ventura County 47.0 percent.

High foreclosure resale levels help explain the Southland's $300,000 median sale price in October, the lowest since it was $298,000 in April 2003. Last month's median was 2.8 percent lower than $308,500 in September and 32.6 percent lower than $445,000 in October 2007. The October median stood 40.6 percent below the peak $505,000 median reached in spring and summer of last year.

Several factors explain the plunge in the median price, the point where half of the homes sold for less and half for more: Regionwide home price depreciation; much slower high-end sales; and the rising market share of foreclosure resales, which tend to be located in mid-to lower-cost areas.

Many of the region's relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier.

Meanwhile, use of larger mortgages known as "jumbo loans," common in higher-cost coastal neighborhoods, is still far below normal. Before the credit crunch hit in August 2007, 40 percent of Southland sales were financed with jumbos, then defined as over $417,000. Last month just 13.1 percent of purchase loans were over $417,000.

MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,413 last month, down from $1,458 the previous month, and down from $2,115 a year ago. Adjusted for inflation, current payments are 33.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 45.8 percent below the current cycle's peak in June 2006.

Indicators of market distress continue to move in different directions. Foreclosure activity is at or near record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages. Down payment sizes and flipping rates are stable, non-owner occupied buying activity appears flat but might be emerging, MDA DataQuick reported.