The House of Your Dreams

Before deciding which house to buy, think about your lifestyle, your current and anticipated housing needs, and your budget. Finding the right house involves striking a balance between your wish list and the reality of the housing market.

Your Wish List

When creating your wish list, take a look at your lifestyle.  For example, if you love to cook, you'll want a well-equipped kitchen.  If you love to garden, you'll want a yard.  If you want to work at home, you may want a room for a separate library or home office.  If you have several cars, you may require a garage or parking spaces.

Write down on paper all the things you and your co-purchaser, if there is one, would love to have in your home.  You can let your imagination take over, but realize that you will have to cut the list back later.

As you think about your housing needs, it's important to consider how long you may live in your home.  If you are newly married, you might not be concerned with a school district right now.  But you could be in several years.  Will you move then — or is the house you are looking for now is in a neighborhood where good schools are available?  If you have aging parents, might they need to live with you in the near future?  If so, you may want to look at homes that offer living arrangements for them as well as you.  So, when preparing your wish list, factor in both your current housing needs and what you may anticipate a few years from now.

Pulling Cash From Your Home

Not long ago, a well-known economist surprised me by suggesting that it's a good time for homeowners to tap their equity to buy stocks.

Crazy, I thought. If you had risked your house to invest in the stock market before the dotcom crash, you could have lost everything.

But his idea got me thinking. For many of us, our house is our biggest cash reserve, and raiding that piggy bank made financial sense for years because interest rates were low and rising home prices kept replenishing the bank.

Now, with rates up and prices soft, is there any reason to tap your home equity?

Opening a home-equity line of credit is no longer a slam dunk for three reasons.

Home Ownership - Are You Ready?

Home ownership means you no longer pay monthly rent for the roof over your head. Now you own it, and most of what's under it too. You can do what you want with your house (within reason of course). When you leave, you can sell it to recoup the purchase price and — with a little luck — earn a profit too.

But like most good things in life, home ownership comes with a list of disadvantages, responsibilities and downright headaches. In fact, it's probably the second biggest financial commitment most people ever make — the biggest being children. So before going any further, consider whether your lifestyle and finances make homebuying a smart move.

Let's start with lifestyle.  Except in a roaring real estate market, it usually doesn't make sense to buy a home you'll own for less than three or four years. Reason: the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money on the deal, you'll pay capital gains taxes if you're in the house less than two years.

So ask yourself if you can really stay put for that long. Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school? Will your income remain steady or grow, or is it likely to decrease?

Some more mundane, but equally important, questions: Do you want to call the plumber and pay for his services every time a pipe leaks? Or would you rather leave it to the landlord to fix the plumbing, paint the walls, patch the roof and buy a new refrigerator? There's nothing wrong with that.

On the financial side, one key question is whether it costs more, on average, to rent or own in your area. If you want to calculate this out on your own, the rule of thumb is that if you pay 35 percent less in rent than you would for owning — including the monthly mortgage, property taxes and any homeowner's fees — then it's smarter to keep renting.

Ask your real estate or rental agent to help you figure out whether now is the right time for you to consider owning, instead of renting.

Winterizing Your Home

With heating fuel prices generally lower than last year's levels, many homeowners this winter could be in for a pleasant surprise when they open their monthly bills. Those who take steps to improve energy efficiency might even start to recover some of the extra cash they spent keeping warm over the last few years.

On average, the Energy Information Administration, or EIA, reports households heating primarily with natural gas, the most popular source of heating fuel, can expect to spend about $119 (13 percent) less this winter in fuel expenditures. The price of natural gas last year was artificially high, a result of hurricane damage to oil refineries.

Households heating primarily with propane can expect to pay an average of $15 (1 percent) less this winter, according to EIA, while those that heat with electricity will pay out $58 more on average (a 7 percent increase). The relatively small number of heating oil users should expect to pay about $91 (6 percent) more.

If you do have a little extra in your household budget this year because of lower heating bills, and many Americans will, then consider investing some of that money in energy-saving products.

Housing Correction Has Further to Run

According to an updated forecast for 2007 released by a real estate industry group, the housing market correction has further to run, with new-home construction expected to fall another 12% next year.

While the market for existing homes will probably flatten out, the new-home market will probably continue to slow through next year, said David Lereah, chief economist for the National Association of Realtors.

Sales prices are expected to rise slightly. "Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Median existing-home prices are expected to rise 1.7% next year, while new-home prices are expected to rise 1.3%.

Housing starts will probably fall about 12% next year to 1.63 million after falling 11% this year, he said. Starts totaled 2.07 million in 2005.

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