By Elizabeth Razzi
Saturday, September 29, 2007

It takes a bit of courage to buy a home in a weak real estate market.

But buying can still be a reasonable, financially sound choice for anyone with the traditional reasons for settling down: You need a bigger house for a growing family. You want to live in a particular school district. You want a place you can remodel and expand over time. You're a first-timer who wants to snag a place while interest rates are affordable.

But you will have to tune out a lot of alarmist commentary if you wish to keep your composure. Just last week on the "Today" show, Jim Cramer, the nuance-allergic host of CNBC's "Mad Money" program, told viewers nationwide to pass on a purchase. "Don't you dare buy a home now. You will lose money," he said. They might wonder about that advice in Seattle, where prices rose nearly 7 percent from July 2006 to July 2007, according to the Standard & Poor's/Case-Shiller Home Price Indices, or in Charlotte, where prices rose 6 percent.

The Washington area is not one of the nation's few rising markets. According to S&P/Case-Shiller, resale home prices across the region declined an average 7.2 percent from July 2006 to July 2007. (That index uses the broad Census Bureau definition of the region, which stretches into West Virginia. Other ways of measuring price changes produce different bottom lines.) Local multiple-listing-service numbers still show that popular neighborhoods close to the District are faring better than elsewhere, but overall, the supply of unsold homes in the area keeps growing. In many neighborhoods, prices will have to fall further before higher sales volume cuts into the stockpile.

If you buy now, will you really lose money? If you sell that home in the next year or two, you bet. Even in a normal housing market, in which home values rise a little more than inflation each year, you would lose money selling during the first couple of years of ownership, thanks to high transaction costs. Brokerage commissions alone, at 4 to 6 percent of the sales price, make it tough to sell quickly for a gain.

Other expenses involved in the purchase nibble at your gain, too. They include money spent on loan applications, appraisals, home inspections, title search and title insurance.

Buying and selling real estate is expensive and time-consuming. That's one of the reasons a home should always be thought of as a long-term commitment. If prices decline, that amplifies your loss.

In a market burdened with excessive inventory, what you really don't want to have to do is sell. Why compete with a crowd if you don't have to?

However, the tough sales market has helped people in search of rentals. The Washington area has long had one of the lowest apartment vacancy rates in the nation, leading to high rents, particularly in amenity-laden apartment buildings in and near the District. Because of slow sales, developers have converted thousands of condo apartments into rentals. Condo owners unable to sell their units have also added them to the rental stock. And owners unable to sell their detached houses are looking for renters.

Grant Montgomery, vice president of Delta Associates, an Alexandria firm that tracks the commercial real estate market, said even more units that had been planned as condos will become rental apartments through the end of the year. Still, developers plan tens of thousands of more apartments in coming years.

That makes it a good time to negotiate a lease, at least in the suburbs.

You will still find it tough to find a vacancy in the most lavish apartment buildings in the District. Delta calls such buildings Class A and measures a vacancy rate there at a mere 1.3 percent. And rents for those units rose 6.5 percent over the past year, the most in the region. But some suburban landlords are lowering their rents, especially in complexes that are older, that lack amenities such as pools and party rooms, or that aren't close to Metro. You're more likely now to see deals such as a 13-month lease for the price of 12 months, according to Montgomery.

In addition, there is an unusual abundance of attractive detached houses available for rent now. These rentals are making it even more difficult for strapped owners to sell, as skittish buyers can move into the neighborhood without putting their money into ownership.

Should you rent and wait until the housing market gets past this slump? Once again, the answer depends on your household's needs and your temperament.

If you might be moving in the next couple of years, then, by all means, rent.

If you would like to buy but can't afford the down payment (the new "in" accessory for real estate deals this fall), rent the most affordable place you can and bank your cash until you have at least 3 to 5 percent of the purchase price.

If you don't mind hauling your furniture to a new place if your rent increases, if the landlord doesn't keep the place in good repair or if he pulls it off the rental market, sign that new lease.

If you want to lock in a low home price, establish roots in a neighborhood and snag a low mortgage interest rate, now is as good a time as any to make a purchase.

It's a much less risky move than it was in 2004, when bidding wars sent prices soaring and practically everyone seemed certain that buying a home was the right thing to do.

E-mail Elizabeth Razzi at razzie@washpost.com.