Is there merit in waiting for the housing market to cool before jumping in to buy a home? While that question may be on the minds of many consumers, the possibility of a significant drop in home prices coupled with a terrific downward trend in mortgage interest rates is rather remote.

Potential buyers and investors have given considerable thought to both housing prices and interest rates recently for two reasons: First, they have been intrigued by comments from national economists about the statistics supplied by the U.S. Census Bureau and Department of Housing and Urban Development that showed a 10.2 percent drop in the rate of new single-family home sales between July 2006 and July 2007. Second, mortgage money for many homes will be more difficult (and possibly more expensive) to obtain, given the subprime fallout and reports that borrowers in the "jumbo" category (loan amounts greater than $417,000) were facing increased scrutiny.

The idea of "saving my money until home prices come down" has probably become a contradiction in terms -- at least for the foreseeable future. Yes, housing is cyclical but it usually does not go backward for very long, if at all. The additional money you save now probably will not offset the potential appreciation or the fatter monthly payment that could result if interest rates rise.

For example, if a $250,000 home appreciated 5 percent in the next year, could you sock away an extra $12,500 in after-tax savings to counter that gain? This also does not take into account additional tax savings from the mortgage-interest deduction. Or, if the market remains flat and mortgage interest rates rise, will you still even be able to qualify for the home of your choice?

Mortgage-interest news has not been positive. The inflation and energy fears that were in the news two years ago have now taken a backseat to how scarce mortgage money could become -- especially for jumbo loans.

So, if you find the home you've always wanted and have your financing lined up -- whether it be a primary residence, a second home or investment property -- buy it and hold on to it. Real estate has been a terrific long-term investment and will continue to be especially in neighborhoods with a consistent, proven rental clientele -- like a college or university town.

For example, a 55-plus couple that we know has always wanted to return to the college town where they attended school. Their kids have grown and moved away; their primary source of income was Internet-based; and their dream was to reconnect with Slavic languages, earn teaching credentials and become teachers at a community college. Even though they had found a home in the college town and the area had shown consistent appreciation, the couple was concerned about the housing outlook.

While the market "might have peaked" nationally, housing is local. Boom markets, where real price growth increases at least 30 percent over three years, have been heavily concentrated in California (21), the Northeast (18), and Florida (11). And, according to the Federal Deposit Insurance Corp., boom does not necessarily lead to bust -- only 17 percent of all housing booms ended in busts. Most busts were preceded by a significant stress in local economies, such as loss of jobs. A bust is defined as a nominal drop of 15 percent over five years. Having that type of decline -- for that long -- would require a dramatic event.

There are usually no such dramatic events in college towns. A permanent pool of buyers and renters makes a college town a prime target for older residents (like our friends) and investors. The number of visiting professors to college campuses always is underestimated, as are the number of staffers (secretaries, security, catering and librarians) who often are terrific rental-lease prospects. Investor inquiries to human resource representatives have worked wonders in landing mature renters, as have inquiries posted in faculty lounges and in on-campus faculty living areas. Graduate students (some married) also form a significant, yet not-targeted, renter pool. Sometimes, professors seek alternative housing for highly coveted students.

Do not take all national housing news and apply it as gospel in each and every neighborhood. Housing will continue to work well as a long-term investment as long as strong fundamentals are in place.

Copyright © 2007 Inman News - Tom Kelly

In order for this strategy to be successful, your property must be in a desirable location. It also must have qualities that are in high demand, such as excellent condition, a coveted public school district or good upside potential. Lastly, this strategy is most effective in markets that lack enough homes for sale to meet the demand.

For instance, a listing came on the market in North Berkeley, Calif., at the end of June. It was a charming, sunlit home with enchanting gardens, a remodeled kitchen and master bathroom. And, it was located on a desirable street within walking distance of Solano Avenue, a popular shopping district. Given the increased number of buyers looking for good homes within close proximity to shops and cafes, it wasn't surprising that the listing received offers from four different buyers. The listing sold for considerably over the list price.

Some sellers in markets that were formerly hot but have subsequently softened are still using this pricing strategy, hoping that a low list price will yield a higher sale price. Whether or not this approach works depends on the character of the home sale market in the area. There are still pockets of the market where listings are in short supply, as in the above example.

However, there are pitfalls with this strategy, particularly in a market where buyers are holding back from making offers. If you're attempting to sell in a soft market, you could be sorely disappointed if you offer a tempting price expecting a much higher price and find that not a single buyer makes an offer.

Your options are limited in this case. You can take your home off the market and re-price it for a price you would be willing to except. However, if your first price was out of line for the market, you may be wasting your time trying to resell for an even higher price.

HOME SELLER TIP: To be a successful seller, you need to manage your expectations. Don't set yourself up for disappointment by scheming for ways to generate more offers and a higher price in a market where you should be grateful for one offer at a reasonable price from a well-qualified buyer.

The real estate market is continually in flux. Sales information from six months ago may be out of date in terms of establishing a realistic market price for your home. Focus on the most recent sales information you can find in your area.

Sellers who don't like what they hear about the probable selling price of their home should seriously consider if it's the right time to sell. Having a home on the market priced over market value only serves to help agents sell the well-priced listings in your area. It does nothing to help your cause. You would be better off waiting until the market improves if you can't bring yourself to sell at current market value.

THE CLOSING: Using gimmicks to attract buyers, such as a free trip, may increase the number of showings your listing receives. But, it's unlikely to result in a sale if your listing is priced too high. Buyers are not overpaying in today's market.

Copyright © 2007 Inman News - Dian Hymer