Image: Real estate sign indicating sold house © Ryan McVay, Digital Vision, Getty Images

The housing market was merely confusing a year ago. Now it's downright maddening. Prices are low. In some cities they're rising. Which makes this a great time to buy. Potentially.

"Heck, yes," says Rick Borges, the president-elect of the Appraisal Institute. "You can't get any lower rates or any lower prices. The combination is unbelievable." Experts expect rates to remain low at least through 2013.

But if this is a great time to buy a home, it's not an easy time. From the trenches come tales of hope, frustration, waiting and lost opportunities.

Wild ride

It can be a wild ride. Rachel Wolfinbarger, 24, recently bought a home in Rancho Cucamonga, Calif., with her boyfriend. Four or five of their friends in their 20s also purchased homes in the past 12 months. She found the experience confusing but ultimately worthwhile.

"When we first started looking, I kept hearing that it was a 'buyers' market.' I thought that meant the buyer gets the upper hand. But our agent explained that, because it's a buyers' market, there are a lot of buyers," Wolfinbarger says.

While in recent years, sellers have outnumbered buyers, low interest rates and attractive prices have begun luring a growing number of potential homebuyers to test the market.

They initially looked at condos, then realized they could own a house. "We had good credit, we had a lot saved, and if you are just renting, you are never going to see that money again," she reasoned. They toured about 20 properties to get a good idea of what was available.

One home they loved seemed within their budget. But it needed costly work. When they added in the other expenses -- not just mortgage principal and interest payments but also taxes, private mortgage insurance, homeowners association dues and special assessments -- they were crushed to realize it was beyond their price range.

"That was an eye-opener," Wolfinbarger says.

The next home they liked was a "short sale." That's when the seller's lender agrees to take a loss and let the home sell for less than the seller owes. Since a bank's bureaucracy has to approve the sale price, these can be drawn-out, complex transactions.

Daren Blomquist, the vice president at RealtyTrac, a foreclosure information company, says 12% of all homes sold in the first quarter this year were in "pre-foreclosure," meaning that the foreclosure process had begun but was not complete. Most of those were short sales. An additional 14% of properties sold had been repossessed and were bank-owned.

Wolfinbarger and her boyfriend did the math on the house they liked. The price seemed right. But another buyer beat them to this bargain.

Often, homebuyers find they're competing with investors who have cash to spend, which is a big enticement to sellers. Cash sales make up about a third of transactions today, says the National Association of Realtors.

Finally, the couple hit upon a strategy that worked: shopping at a lower initial price point, so they could offer more if necessary. They found another attractive short sale, an older home in a good neighborhood with no homeowners' fees. It had been remodeled and looked new. The price was low for the area, $239,900.

But there was a huge downside: They couldn't tour the inside of the house.

It's not uncommon these days to find distressed properties for sale "subject to interior inspection," says Los Angeles real estate agent Chantay Bridges. A seller may be unable to get inside for a variety of reasons -- a hostile tenant, for example, who won't show the home and who must be evicted after the sale.

"But you have a loophole to get out of the contract if you do view it or have it inspected and decide 'this is not the one for me,'" Bridges points out.

Wolfinbarger and her boyfriend based their decision on the home's exterior appearance, square footage, legal description, location and the cost of surrounding homes. They decided to take a chance.

They offered the seller $250,000. Another buyer jumped in and matched it. They raised their offer by $5,000.

"And we got it!" Wolfinbarger says, still exultant. "Fortunately, what we saw inside was better than what we saw in the pictures."

Lots of ifs

Wolfinbarger's experience underscores how buying today can be complicated but rewarding. You may find this a good moment to buy if:

  • Your job is secure. Don't get into a tight or unmanageable mortgage payment. Keep a savings cushion to fall back on in case the economy turns bad and you become unemployed.
  • You qualify for a mortgage. Lenders are extremely careful; be prepared to produce lots and lots of documents and to give an excruciatingly detailed accounting of the sources of your money.
  • You can stay put. You'll need to be able to stay in your new home at least five years to recoup the costs of purchasing and reselling it.
  • You're prepared for competition. Many regions are seeing a shortage of desirable homes for sale, and bidding wars are cropping up.
  • You've got time. With short sales particularly, and also with bank-owned properties, buyers must sometimes wait many months for the seller's mortgage lender to act. The lender might decline the offer or even raise the asking price.
  • The home appraisal matches your price. Banks won't lend you more than a home is worth, so you may find yourself praying that the appraiser finds the home's value equal to the price you have agreed to pay.

The problem of value

Not all real estate markets are like Rancho Cucamonga, where bargain hunters are starting to feel pressure to act in the face of rising prices. Each city and neighborhood is recovering from the bust at its own pace.

"In most parts of the country, I think prices have bottomed out, but there are exceptions," says economist Dean Baker, co-director of the Center for Economic and Policy Research.

How to tell if you're paying too much for a home? Baker recommends a rule of thumb called a price-to-rent ratio: "If the price of a house is less than 15 times what a comparable place might rent for over the course of a year, then odds are, you will do OK by buying it.

"If the ratio is more than 20-to-1, then you would probably be better off renting. Between 15 and 20, I would encourage people to be cautious, but if you find a place you like and expect to live there a long time, it probably makes sense," he says.

Some experts, though, fear that today's rising prices are mini-bubbles created by local shortages of good homes for sale. If true, these rising values may not be sustainable. Bear in mind, too, that RealtyTrac estimates at least 2 million more foreclosures will come onto the market in the next few years. That should help keep prices low.

Crazy, but worth it

Despite all the ifs, Bridges urges clients to jump into the market and start looking for good deals. But she prepares them by listing the frustrations they'll encounter:

"You will find a house you like at an amazing price. But then a half-dozen other buyers pile in, making higher and higher offers until this cheap, little short-sale house is suddenly out of your price range. Or you can't get into the game at all because investors with pockets full of cash get there first and elbow the regular homebuyers out of the way.

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"You've finally got your down payment, you're ready to buy, but the bank keeps you going for months, asking for one more document, one more crazy piece of proof that you really are a worthy human being."

But, she adds, "if you wait until it's perfect, you may not be able to take advantage of this disadvantaged market. There are people who have always dreamed of getting into certain neighborhoods. You can get into those places now at prices you can afford."