May buying advice: Should you wait to trade up? (© Burle/Triolo Productions/Jupiterimages)

© Burle/Triolo Productions/Jupiterimages

With home prices still falling across most of the country, you might think it's a horrible time to trade up.

And you could be wrong, says Stan Humphries, chief economist for real-estate search site Zillow.com. In this installment of Buying Advice, Humphries will examine why you might have more to gain from selling your house and buying a fancier one. (Bing: What house-hunting mistakes do potential buyers make?)

We'll check out the latest housing stats, a cool new tool and some of the markets with the best prospects. We'll also share a tip on how to house-hunt more effectively.

Trade up or wait it out?
You're outgrowing your house, but its value is still falling. Does that mean you should forget about a move? Not necessarily, Humphries says. What's crucial is the rate of decline in your area versus the area where you are looking.

What's your home worth?

"If you're trading homes in a declining market, it's not the absolute decline in home values that you need to focus on, it's the relative difference between the two homes you're moving between," Humphries says.

He cites a couple of examples in Seattle and Philadelphia, assuming a 5% decline in both of these markets in the next year, to prove his point.

  • In Seattle, for instance, a family who owned a three-bedroom, 1,400-square-foot townhouse with no yard could sell for $439,950 and purchase a five-bedroom home with a large yard in nearby Bellevue for $519,000. Selling and buying now would mean a 1.3% hit over the next year, in loss of equity and higher selling cost and commission, versus that 5% decline in values.
  • The owner of this 728-square-foot Philadelphia row home could sell her dwelling and move to this palatial-by-comparison, four-bedroom Springfield, Pa., home for $239,900. The buyer would lose $2,151, including $856 in higher selling costs and commissions, or 1% of the value of the new home by acting now versus waiting for the 5% decline.

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Of course, both of these examples assume an equal decline in both neighborhoods — something of a long shot. They also don't consider the cost of financing, a point that could push some folks off the fence.

"Financing costs will undoubtedly be higher in a year than they are now," Humphries says.

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Home sales snapshot
Existing-home sales increased 3.7% in March, to 5.1 million from 4.92 million in February, according to data from the National Association of Realtors. Sounds good, but that's still 6.3% below March 2010, when the homebuyer tax credit was still in effect.

Lawrence Yun, NAR chief economist, sees it as the start of a real but slightly unstable recovery, given that existing-home sales have risen in six of the past eight months.

"With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain — primarily because some buyers are finding it too difficult to obtain a mortgage," he says.

The NAR's Pending Home Sales Index, based on contracts signed but not closed, showed a 5.1% gain in March, but still fell 11.4% below the same period last year. Overall, the NAR projects a 1.8% drop in the median price of U.S. existing homes, steeper than the 1% it had predicted in March.

What will you find out there in the market? This year, it's not first-time buyers leading the pack; it's repeat buyers, rich folks and investors looking to snap up bargains.

  • All-cash sales accounted for a record 35% of total sales.
  • Investors accounted for 22% of all purchases.

And the bargains are there: The national median existing-home price for all housing types was $159,600 in March, down 5.9% from March 2010.

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Help your agent help you
Want to make your home search that much less frustrating? Think smaller, says Eddie Bernard, a real-state agent from Encino, Calif.

If you are casting too wide a net for that perfect home, you're not going to know enough about neighborhoods or property values to know when something comes up that's a real value.

Home affordability calculator

"You won't be ready to pull the trigger," he says.

Meanwhile, another buyer who's more familiar with the types of homes on the market and recent comparable sales will know a bargain when he sees it and will jump in with a quick offer.

Bernard recommends driving through all of the neighborhoods you are interested in first, to see if you can narrow your focus. Do some online research on schools and amenities.

Should you give your agent your wish list for that new home? Sure, Bernard says, but keep in mind your tastes may change once you see what's on the market.

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"It's like dating or courtship," he says. You might think you want a Tudor-style home and then fall in love with Spanish stucco.

"In my experience, what people end up buying is often different than what they had been wishing for."

Drive a hard bargain
Want to know if that last offer you made should be your final one?

Real-estate website Trulia recently released its Home Offer Report to give potential buyers information on the price reductions that are happening in each ZIP code.

By clicking on an interactive map, you can see the average days before a price reduction in that area between March 2010 and this year, the average first reduction and the probability of a second reduction based on similar discounts in the area. It's not a substitute for agent knowledge of local comps, and it's culled from the latest information, but it might make you feel better about holding your ground or embolden you to raise your offer.

The best and brightest
Here are Local Market Monitor's picks for the markets with the rosiest outlook over the next year. Did your city make the list?

  1. San Jose-Sunnyvale, Calif. (Silicon Valley): With recent job growth of twice the national average, a 2% home-price increase in the last 12 months and a good outlook for the high-tech sector, home prices in this area are expected to increase 4% in the next year and more quickly after that.
  2. Pittsburgh: Population had been slowly declining in this market for a decade but has stabilized as migration into the city increased in recent years. Job growth is well above the national average, and home prices increased 2% in the last 12 months and are expected to increase 2% in the next year.
  3. Bethesda-Frederick, Md.: Government-related jobs stabilize this market, which had a mild recession. Job growth is now twice the national average, and home prices were up 1% in the last 12 months. LMM expects a 2% home-price increase next year, and 3% to 4% after that.
  4. Oklahoma City: Despite a sharp recession, job growth is now well above the national average, population growth has been strong and home prices have bottomed out. Home prices should remain flat over the next year, with increases of 3% to 4% after that.
  5. San Diego-Carlsbad, Calif.: Although the recession was deep in this market, the recovery has been strong, with job growth running at twice the national average. Home prices have bottomed out. LMM expects a modest increase in prices next year and 4% increases after that.

Remember: Your questions are welcome. We'd love to answer them in future installments of this column. Please submit them in the comments section below or on MSN Real Estate's Facebook page, or email them to refdback@microsoft.com. Please keep in mind that short questions with the broadest range of interest have the highest chance of being answered. 

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