If you're thinking about buying a home, consider ignoring all those scary warnings about prices declining further.

Like Chicken Little, chances are the housing sky isn't going to fall.

There's plenty of evidence, most of it being ignored, that in all but a few parts of the country where there was a lot of speculative buying, prices have already stabilized.

Deep in the easily overlooked bowels of the New York Times this week was a report from a team of economists from Columbia University and the Center for Real Estate at Wichita State University in Kansas that pooh-poohed the notion that prices are going to collapse. Using a financial model constructed from the Office of Federal Housing Enterprise price index, foreclosures, home sales, building permits and employment figures, the economic team concluded that any declines in house prices are highly likely to remain small.

And last month, PMI Mortgage Insurance Co. ranked the nation's 50 largest metro areas according to the likelihood that home prices will decline further in the next two years. Except for Las Vegas and Phoenix, the top 14 metropolitan areas for which the risk of greater declines was greater than 50 percent are all in California and Florida – where speculators went crazy. The remaining 36 areas mostly have single digit percentage risks –
a much less scary proposition. The full list is available here.

In fact, if you live in the heartland, there's lots of reason to think home prices will soon rise. PMI identifies these 14 areas as having a less than 1 percent chance that prices will decline further. The real estate market never stays still. If prices aren't going down, then they must be going up.


1. Milwaukee-Waukesha-West Allis; WI
2. Cleveland-Elyria-Mentor; OH
3. Austin-Round Rock; TX
4. Denver-Aurora; CO
5. Charlotte-Gastonia-Concord; NC-SC
6. Kansas City; MO-KS
7. Columbus; OH
8. Cincinnati-Middletown; OH-KY-IN
9. Indianapolis-Carmel; IN
10. San Antonio; TX
11. Houston-Sugar Land-Baytown; TX
12. Pittsburgh; PA
13. Dallas-Plano-Irving; TX
14. Fort Worth-Arlington; TX

If you own real estate in New York, you have been no doubt telling yourself and anyone who would listen that prices here were not going to fall like they were in the rest of the country. Limited supply, increasing urbanization of the country, enduring appeal, tight co-op loan restrictions were probably among your reasons. And if you looked at rental or sale real estate ads for the city, where some studios rent for $4,000 a month or sell for $600,000, you would not worry about a downturn. But now some data suggests New York may not be totally immune.

The S&P/Case-Shiller Index out yesterday showed home prices in 20 major markets were down an average 15.3% from a year ago and 1.3% in the latest month of survey data, April. Yesterday the Office of Federal Housing Enterprise said that nationally home prices fell 0.8% in April and 4.8% over the last year. The Pacific region lost the most--down 2% in a month--and the east south central did best--up 0.9%.

Case-Shiller shows that New York peaked in June 2006 at 215.83 on their scale and has slid steadily ever since. The April number was 193.93 (up slightly from the month before.) But Case-Shiller looks at the whole metro area, all five boroughs, parts of Jersey, Connecticut, Westchester, Long Island and even a bit of Pennsylvania. When people think of New York prices, they think of Manhattan. Today The Real Estate Group of New York issued figures showing an uneven market that has been mostly stagnant all 2008. Across Manhattan non-doorman one-bedroom rental prices are down 4% to $2,859 for the last 12 months. (With a doorman it's up slightly. Two-bedrooms were down a little in both categories.) Of course, I'm a renter and prospective buyer, so I've been telling everyone prices will fall.

Tuesday's news that home prices in 20 major cities have fallen over 15% from a year ago were not terribly shocking to many of us. If you watch the news or pick up a newspaper, you've got to know that homes have been selling for less.

Of course, lower values hurt borrowers who seem to want to leverage as much of their value as they can. Instead of paying off a mortgage like was done in earlier generations, today's home buyers seem more prone to borrow and refinance as often as possible. They're pulling equity out of their houses faster than ever, and rely heavily on the "market value" of their homes to keep playing this game. And the banks have suffered too, as a handful of their customers with not-so-good credit and a sketchy ability to repay loans were counting on easy refinancing and defaulted when they couldn't get it.

But who says home "owners" with little to no equity are a good thing? I don't necessarily think that the artificially high home values were benefiting consumers a whole lot. Sure, they allowed some people to turn a nice profit and lots of others to refinance into infinity. But the flip side is that home buyers found themselves not being able to get as much house for their money as they might have a few years earlier.

The drop in home prices is not all gloom and doom. Lower home prices present a great opportunity for buyers. Is it a bad thing that they are now able to get more house for their money? Why so much sadness for the home sellers, but no happiness for the buyers who are benefitting? I realize that our economy relies, in part, on real estate values to keep humming along. I'm just saying that it's not all bad that home prices have pulled back.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Today a fellow blogger pointed me to this blog post, which basically shows a 50% price cut for homes in a California neighborhood. One home was sold for $855,000 in April 2006, and now two houses down, a similar one was listed for sale at $400,000 in April 2008.

The writer of the blog says, "Mr. Bernanke, that'll be $455,000 to keep the poor folks at 4565 Casa Nova from foreclosing, thank you very much kind sir."

But whose fault is it really, that there is such a disparity in home prices over two years? What if the real value of each home always was in the $400,000 range? Doesn't that just mean that the buyer from 2006 was stupid and overpaid for his home? Why do we automatically assume that it is the fault of the government that someone's house isn't valued high enough?

While banks, homeowners, and home builders are bemoaning the status of the real estate market, bargain hunters may have a chance to get more house for their money. Depending upon the metro area, house shoppers may be able to take advantage of prices ranging from 10% to 17% lower than just a year ago in some of the most depressed real estate markets.

A few metro areas have seen a slight increase or no noticeable change in real estate values from a year ago. But some areas are definitely hurting. The metro areas with the biggest one year pricing drops include Detroit, Las Vegas, Phoenix, Los Angeles, San Diego, Tampa, and Miami. If you're looking for a property in one of these areas, you definitely have a lot of choices and a lot of power during negotiations.

Of course, bargain pricing in the real estate market is no excuse to buy more house than you can afford. But now may be the time you can afford more house than you could one or two years ago. Buyers looking for investment properties could benefit as well from the lower prices in the housing market. One word of caution for those buying rental properties: Make sure you have the money to pay the mortgage even if the property isn't rented. A bargain priced duplex or apartment building isn't such a bargain if it's vacant and you can't pay the mortgage.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

If you've gone out to shop for a new home lately and been offered some outrageous freebies, run don't just walk away. You may be wondering why builders are offering cars, vacations and other incredible incentives to get you buy one of their homes at an inflated price. That's because they're paying interest on unsold homes (many of these homes were contracted by people who already decided to walk away) and they need to get rid of them. But, the catch is that they're trying to keep the inflated house prices in place by giving you these incredible incentives.

Instead of taking these incentives, if you do like the builder and his homes, contact a real estate agent and find similar homes on the resale market. There are lots of almost new homes, and often homes that have never been lived in, being sold by investors who hoped to flip them for a profit and can't now that the real estate bubble has burst.

All around me in Florida are brand new homes that have never been lived in standing unsold at prices $50,000 to $100,000 less than the ones the builders are offering. Better yet by buying a resale home you don't have to pay the extra impact fees Florida counties charge, which can total thousands of dollars at closing, because those fees are only paid by the person who buys the new home from the builder.

Isn't it amazing all the free stuff you can get for a few hundred thousand dollars?