12 Rules for the Housing Market Turnaround

(MoneyWatch)  Today the Federal Reserve concludes its two-day Open Market Committee Meeting, which will grab headlines. But what does this meeting have to do with the economy and more importantly, your financial life? You may not realize it, but the Fed's actions have helped the housing market.

In order to revive the economy, the Fed has been buying U.S. government and mortgage-backed bonds, helping to keep mortgage rates low. Low mortgage rates, in addition to a sweet $8,000 first time home buyer credit that was part of the stimulus plan, have helped spur the housing market.

Yesterday, the National Association of Realtors reported that Existing home sales rose for the second month in a row (by 2.4%), but prices fell sharply. Of the homes sold in May, about one-third were foreclosures and short sales, which pushed down prices -- the median price was 173,000, down 16.8% from a year ago. New home sales have not shown the same level of activity, primarily because of the massive inventory that still plagues the market.

On The Early Show this morning, I discussed with Harry Smith what buyers, sellers and re-fi-ers should be doing to take advantage of the current housing market.



IF YOU ARE BUYING:

• Determine whether you can afford the house and the on-going commitment that it demands. Renting allows great flexibility, an asset that becomes ever more important amid a deteriorating job market
• Your total mortgage, tax and homeowners insurance payments should amount to no more than 28% of your pre-tax (gross) income
• Get pre-qualified by a mortgage lender. This process will reveal your credit score -- it's still hard to qualify, but not impossible
• Shop around/conduct research

IF YOU ARE SELLING:

• Don't snub low offers: Buyers know prices have fallen, so they're being aggressive in their offers. Even if they come in with a shocking lowball offer, counter and engage in a negotiation
• Focus on first-time homebuyers, since that's where the action is right now
• Be ready with comps: Unlike experienced buyers, who know value when they see it, show new buyers why your house is special
• Maintain your home: A well-presented home offers a stark contrast to a vacant, empty foreclosure
• Offer to help pay closing costs: this could be an extra motivator to bring in a buyer

IF YOU ARE REFINANCING:

• Don't be stunned by your appraisal: Appraisers are erring on the very low end to contrast their behavior during the bubble
• Make sure that it's worth it: the cost may not be justified if you can't save enough money on a monthly basis or it you are planning to move in the near future
• Don't be greedy: If you can lock in a rate that saves significant dollars, don't wait for rates to get back to historic low levels - just do it!