Here is a great article on for First-time home buyers, stressing that patience and location make a big difference. There will be some tremendous buying opportunities in the next 6-12 months as the housing market corrects.

Buying Your First Home?
Bide Your Time
By Sonja Ryst
BusinessWeek Online

As the housing market cools, more young workers put the American dream on hold, betting relief from lofty prices is around the corner. For Rachael Selfridge, independence means waiting to buy your first home. The 30-year-old grew up in a North Dakota farmhouse with lots of land and grass surrounding it, so now she wants her own place with a back yard. But when she tried to fulfill that American dream in the San Francisco Bay Area last year, all she could find for her dollar were tiny condominiums. She saw one-bedrooms going for $400,000. Disgusted at the "ridiculous" prices, she gave up her hunt and in recent months started renting a three-bedroom in Walnut Creek, Calif., with two roommates. Owning a house "wasn't as important as being able to afford other things and save money," says the portfolio manager and certified financial planner.

Selfridge isn't the only young adult to opt out of homeownership these days. The median age for first-home buyers has been 32 since the National Association of Realtors (NAR) began to measure it in 1981. But now, as housing prices finally stop rocketing, professionals ages 25 to 35 are taking their time. More are deciding this year not to risk their long-term financial independence by chaining themselves to mortgage payments.

Even the more optimistic housing market observers acknowledge this trend. "I'm sure that there are young households saying: 'Let me wait a couple months and get a lower price,'" says David Lereah, NAR's chief economist. "All households now, whether young, middle-aged, or old, are postponing their home purchases because of the cooling market" in areas like California, parts of the Northeast, and Florida.

"BRUTALLY EXPENSIVE." It began happening in recent months. The proportion of people under 35 who lived in their own households amounted to 42.4% during the three months ended in June of this year, according to the Commerce Dept.'s Census Bureau. That's down from 42.8% in the same quarter of 2005. That rate had been mostly rising each year from 38.6% in 1995, when the economic boom and a lower lending-rate environment boosted young homeownership.

For Generations Y and X (terms often used to describe the twenty- and thirtysomethings), "homeownership is coming later than it did for the baby boomers," says Tamara Draut, director of the Economic Opportunity Program at think tank Demos. She points out that young adults today must grapple with new obstacles, such as exorbitant student-loan burdens and higher housing costs. "It takes them longer to scrape together a downpayment, and then they have to face a housing market that's become brutally expensive."

Housing is pricey indeed. The median-priced home in New York City sold for $465,000 during the third quarter of 2005, according to the National Housing Conference (NHC), which estimates that you need to make $147,000 per year to afford such a place. But young people who are struggling on entry-level salaries might have better luck elsewhere.

Unlike in New York, police officers and elementary school teachers earn enough to buy a home in Springfield, Ill., for example. There the median home only costs $122,000, which anyone who has $38,690 per year can manage. (To see NHC info on how home costs compare to average salaries in your city, click here.)

Generation X members -- the upper age range of the twenty- to thirtysomething group -- are more likely than Generation Y to have financial independence instead of a home.

BUY-IN HAS BALLOONED. "Who in the world is buying the $500,000 condos?" says James Chung, president of marketing strategy firm Reach Advisors. "It's Gen Y, but they're coming to the table with 20% downpayments given to them by their parents." He says Generation Y are more likely to have tight bonds to their families than Generation X. Meanwhile, the baby boomers who have seen the greatest income growth in the U.S., and can afford to give their children a helping hand, are those most likely to have children in the younger age group, Chung says.

Art Ford, a certified financial planner at Sullivan Bille in Tewksbury, Mass., says he'd feel uncomfortable if his 28-year-old son said he wanted to spend $500,000 on a condominium right now. In a weak housing market, some people could end up losing tens of thousands for having bought at the wrong time, he says.

And the 57-year-old Ford isn't worried about his son as a renter. "I think he's happy with his lifestyle," Ford says. While splitting with a friend the $1,300-per-month rent for a place in Somerville, his son can still go on ski vacations every winter and own a car with the income he gets from his job in human resources. "For him to consider buying in the neighborhood he's in, where he wants to live, is out of the question."

Ford remembers how he bought his first home as a married man at 26. The mortgage on the $29,000 house only cost him and his wife $165 a month. "There's no comparison" to what it's like today, Ford says.

PATIENCE, NEWBIES. While more young people are putting the American dream of homeownership on hold these days, there's a silver lining in this cloud. "The current slowdown is a much healthier environment for new home buyers. They can take their time and wait to find the right place for them," says Kevin Dorwin, a portfolio manager and certified financial planner at San Francisco Bay Area wealth management firm Bingham, Osborn & Scarborough.
With time to think before you buy, you can use a Web site such as zillow.com to find out how much homes are selling for in your neighborhood, and then analyze the mortgage your budget can handle at bankrate.com. When you're calculating the maximum monthly mortgage payments you can afford, remember to include extras like property taxes, homeowners' insurance, maintenance costs, interest, and principal.

Most financial planners warn people away from loans that get tough later. If a banker tries to sweet-talk you into promising to pay the principal back at the end of a specified term, be wary. In tried-and-true traditional mortgage financing, you would put down around 20% and borrow 80% of the home's value.

To figure out the right monthly payments, Bankrate recommends that you calculate your maximum housing expense by multiplying your annual salary by 0.28 and then divide that by 12 months.

ARMS OPPORTUNITY. "Some of these mortgage brokers will have you approved for up to 60% or 65% (of your income toward debt payments), and that's just too high," says financial planner Ford. "It doesn't leave room for vacation or dinner."
If you discover you're not ready to buy your home yet, don't worry about it. When Selfridge was doing her homework on the Bay Area housing market, she noticed that a lot of five-year, adjustable-rate mortgages (ARMs) are coming due in 2008. Those mortgages are designed to adjust to current interest rates. Selfridge doesn't think housing prices will crash, but neither does she buy the notion that they will rise during the next couple of years, miraculously making the mortgage easier to pay.

Selfridge sees it this way: People who banked on a housing market like the 1990s will get burned when the interest rates on their mortgages suddenly adjust to a tougher environment. "I hate to take advantage of people hurting," she says. "But I think people will be hurt because of the loans they took out."

When more people have to sell those homes they could never afford, Selfridge -- and other savvy young buyers -- will be ready to jump in.