Laura Rowley Money & Happiness

Homeowners, get your down payments ready.

Single-family home prices in the United States dropped nearly 8 percent in the first quarter of this year, the biggest year-over-year plunge since the National Association of Realtors began keeping score in 1982. The Census Bureau reports that a record 2.9 million vacant homes are on the market.

"We think affordability is at its peak," says Gus Faucher, director of macroeconomics at Moody's Economy.com. The firm predicts prices will bottom out in the middle of 2009, declining 23 percent on average from the peak in the second quarter of 2006.

Do Your Homework, Then Buy

Start crunching the numbers, brushing up your credit score, and getting pre-qualified for a mortgage now, because interest rates continue to hover at historic lows. "House prices in the U.S. are going to continue to fall through the first part of next year, but on the other hand, interest rates are likely going to be higher," Faucher says. "If you're looking to buy, you need to take that tradeoff into account."

At the same time, choose your market carefully. While some metro areas have dropped significantly, Economy.com still views them as overpriced based an analysis of long-run supply and demand fundamentals. For example, the Washington, D.C., area, including suburban Virginia and Maryland, experienced 6 years of double-digit price growth, including 2 years with price growth of greater than 20 percent.

"Prices have come down, but they certainly have more room to fall," says Faucher. "In the Washington Metro division we expect a peak-to-trough decline of more than 30 percent. Prices peaked in the first quarter of 2006, but they have only fallen 15 percent so far, so we're only halfway there." For instance, five cities in Virginia made it into Economy.com's top 20 most overpriced markets. (See my blog for the rest, and the 20 most underpriced markets.)

Research Is Crucial

In the bad old days of the real estate boom, homebuyers were so busy just trying to win the bidding that they had little time to ensure they were getting the best value for their money. The beauty of a buyers' market is that you not only save on the home price, you can take your time and do more thorough research, possibly saving thousands of dollars and a plethora of headaches.

First, check up on the community in which you want to live: Websites like HomeFair, HomeSurfer.com, and City-Data.com offer a broad overview of U.S. communities. Also surf local chat rooms that may reveal the biggest community complaints, such as escalating property taxes or a lack of playing fields for kids' sports.

Take the time to commute to work and back from the neighborhood where you want to buy, and don't forget parking issues. (I had a friend who bought in a town with a great commute, who then discovered a five-year waiting list for train station parking.) Also visit the area during different times of the day, and check out the noise, traffic, and parking logistics.

There Goes the Neighborhood

That's something Claire Mylott of Denver wishes she'd done when she bought her first townhouse at age 26.

"It was a neat, loft-like place with a nifty urban backyard and garage -- a very chic location across the street from popular bars and restaurants, as well as a big park," Mylott says. "I came over to look at it in the middle of a Tuesday afternoon, and it was reasonably quiet during that time. I thought it would be cool to live so close to the hot spot."

Unfortunately, the "cool location" meant significant noise at all hours of the early morning and night. After work, the happy-hour crowd made traffic and parking difficult -- visiting friends had to park two miles away. "The late-night crowd meant drunk screamers outside my front door at two a.m., fender-benders and sirens, and minor vandalism," says Mylott, who eventually moved to a quieter street. "My lesson to the first-time homebuyers is to think about your 'cool location' and how it might affect your ability to sleep, especially in the summer when the windows are open."

The ABCs of School-Shopping

Next investigate the schools, from elementary through high school. We made two mistakes on this front when we moved into our town: I didn't realize the kindergarten program was half-day, so we ended up sending my oldest to private, full-day kindergarten. (We liked the school, so all three of my kids ended up there.)

Now my oldest is just three years away from high school. We're concerned that the town high school, with nearly 2,000 students, might be too large for her, so we're faced with the prospect of moving or sending her to private school.

Start your school search with a website like SchoolMatters or GreatSchools. SchoolMatters, for instance, offers data including school size, class size, household income, household education levels, number of single-parent households, district expenditure per student, teachers' educational achievement, performance on state tests, and percentage of students who go on to college. For more on researching schools, see my blog.

On Inspection

Meanwhile, a buyers' market may offer the opportunity to avoid thousands of dollars in repairs that seem to magically appear seconds after the closing. "You can save on those things you would have had to repair in a boom market," says Faucher. "There is that opportunity to get the seller to chip in for more of that kind of stuff."

Invest in more than one home inspection, advises Adrienne van Dooren, a North Carolina-based author who has bought and sold nearly a dozen homes over the years. "It may be worth the $300 to get a second inspection, because any mistake is going to be a lot more than $300," she says.

For instance, one inspector told her that the old wiring in a home she was buying was fine, because it was grandfathered into North Carolina building codes. But she couldn't get property insurance for the home because of the risk of fire, and it cost $5,000 to rewire the house. In another case, she didn't get a separate radon inspection before the closing -- and ended up spending $1,500 for radon mitigation after the fact.

Water, Water Everywhere

Take the time to examine all the flooring, van Dooren adds. One home she purchased was so beautiful she never thought to look under the basement carpet. "They put a wool carpet over what was basically a dirt floor, so six months later it was all moldy and horrible and disgusting," she says. The cost to pour three inches of cement and seal against water: $3,500.

Mylott recommends turning on the shower and checking the water pressure. In her townhouse, "if you had the dishwasher on and took a shower, you were in a world of hurt -- it was a trickle," she recalls. "You could only run one water-oriented appliance at a time, and even then it was low-flow."

Finally, make sure the inspector runs the appliances, suggests New York homebuyer Renee Young. "I didn't run the dishwasher and the first time I used it, water remained inside and leaked into the ceiling of the basement," she says. "I went down to do laundry and part of the ceiling fell down."

Do you have tips for first-time homebuyers based on experience? Email me at laurarowley.column@yahoo.com.