This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.

Buying a home is especially difficult these days, especially because it’s hard to predict what will happen next. Mortgage interest rates and home prices are at their lowest in decades, but it doesn’t mean now is the time to buy.

The real issue is whether you’re really getting the best deal possible on your home: Interest rates are low, but they could keep dropping. Prices are down, but they may not seem so spectacular in a couple of years from now. A home you would have considered a steal five years ago may be ridiculously expensive now, right? So how do you buy a home in a down market and know you’re paying what you should?

How Market Value Is Determined

The market value of a home is what a seller can expect to receive from a buyer at any given time. It’s sort of like the Blue Book value on a car–an average asking price, but not necessarily the exact amount someone would pay.

The market value is determined by a professional like a real estate appraiser or agent based on a number of considerations. These can include what homes of similar size and location have sold for in the past six months to a year, but does not factor in things like cosmetic improvements made to the property. Importantly, the market value of a home can change dramatically over a short period of time, which is why the number is not completely reliable.

How To Tell If a Home is Worth Its Price

One way many potential buyers gauge whether the property they’re interested in is a fair price is similar to how appraisers judge market value–by comparing it to similar homes for sale in the area. However, this can be misleading. According to lendingtree.com, homes that have been on the market for just over three weeks might be priced too high.

Valuation

This is why valuation is important to consider. Valuation is the difference between what a home should cost and what the actual price is. For example, CNNMoney reports in mid-2006, at the height of the housing bubble, 53 metro areas were considered to have over-valued properties. Just two years later, that number dropped to only 8.

Aim for Pre-Bubble Prices

Right now, most areas are considered to be undervalued, which means you could score a good deal on a home. Additionally, due to the recession, unemployment and high rates of foreclosure, the demand for homes for sale is weak. This means sellers are forced to cut prices even further to entice buyers.

Even if it’s already a bargain basement price, judging the accuracy of a home’s market value can still be difficult. To be sure you’re really going to get your money’s worth from a purchase and not want to kick yourself years down the road when prices drop further, judge how closely the asking price matches what you would expect in a “pre-bubble” environment.

MSN Real Estate writer Luke Mullins describes a scenario where we will return to pre-bubble prices where there was only an increase of one to two percent above the inflation rate over the next decade. This is in line with average historical appreciation rate of about half a percent every year when adjusted for inflation. So, with this trend in mind, compare the historical value of a property you’re interested in against the asking price today. Ascertain whether the two match up by starting from 1995 and adding a percentage point or two above inflation each year until you get to 2010.

Will Home Prices Continue to Drop?

Even if home prices are abnormally low now, they might continue falling, making a premature purchase more expensive than necessary. Associated Press real estate writer, Alan Zibel, explains that home values are projected to to decline well into 2011 and maybe even 2012. He writes that Moody’s Analytics senior director expects “home prices could drop another 20 percent by early 2012 if there is another recession. If the economic recovery remains on track, she sees prices falling another 5 percent and hitting bottom early next year.”

Waiting for home prices to fall further could really be a gamble, though. It seems they will trend downward at least for a little while longer, but wait too long and you might miss out on rock-bottom numbers. Homes are already priced at historical lows, so if you use the above criteria to judge a home’s true value and find you’re set-up to profit from your purchase in the future, you might want to snag the opportunity while it presents itself. Of course, missing the boat and buying on the way up will still ensure that you’re purchasing during a time when home prices will continue up.

In another life, I will become an architect. I absolutely adore researching residential house plans, both exterior and interior. There’s so much history associated with the how and why of design. For instance, early saltbox style farm homes were mostly vertical in design from the exterior, with chopped up small rooms in the interior. My guess is that with the common-place large families of the past, each person needed their own space within the house leading to smaller rooms. This floor plan would also be easier and less expensive to heat in the winter, you wouldn’t have to heat the whole house, only one small room that the family could crowd into.

Over time with a decrease in family size, the floor plans began opening up. There wasn’t a need for so many rooms because there weren’t as many people living in the house. All of a sudden the same square footage seemed much more usable because there were fewer people utilizing the same amount of space.

Another factor influencing home design was region. The northeast is known for it’s row-style homes and cape cod architecture. Victorian also had a strong influence on architecture on the eastern seaboard.  Many of their homes include large, screened porches to keep the gnats out. With all the humidity, it’s no wonder the screens are so popular.

The mid-west homes have evolved from saltbox style farm homes to one-level ranch style. This movement, I’m sure, was due to the influence of Frank Lloyd Wright. His idea of incorporating the outside with the inside had a huge impact on homes built in the 1950’s west of the Mississippi. I especially love the homes of some of the more modern architects of his time, like Joseph Eichler and Gilbert Leong. These homes were built with the same concept, lots of windows and light, an open floor plan, and a great utilization of a central space.

Here are a few sites that have some great floor plans, no matter what style you prefer:

• Cool House Plans: They have a lot to choose from, including some small backyard projects. They also offer narrow lot floor plans.
• The House Designers: Wonderful tiny house plans to choose from. I really like the Maple Street Plan. It’s adorable! Oh, and the Rosabella. It’s a beautiful Mediterranean house plan.
• Cusato Cottages: These are the Katrina Kit homes offered by Lowes. However, I’ve never seen this site before, and it actually goes more into detail with the plans.
• Clayton Homes: They offer a lot of different manufactured plans, but I really love their i House. It reminds me of the modern architecture of the 1950’s. I’m a SoCal girl, what can I say.
• The Bungalow Company: I also love craftsman homes! See, I should really be an architect. I can’t even decide which is my favorite!

I’ve noticed that some of these sites don’t list build prices. This always leads me to believe that they may be more expensive than the sites that do list square footage price or kit home price. However, they are a great place to start looking at least! (Or dreaming in my case.)

Today Mrs. Accountability from Out of Debt Again and I are exchanging question and answer posts. Mrs. Accountability shares some personal finance choices.

After you read her answers here, go over to her site and read my answers. And while you’re at her site, take a look around and subscribe to her blog!

How many pairs of shoes do you own?

Up until one month ago I could only wear one type of shoe. A certain very comfortable, cushion-y but unfortunately very ugly men’s casual wear shoe. However, in December I embarked on a way of eating which eliminates specific foods and I am so pleased that my feet have stopped hurting! This means I can now wear my brown wedge heeled Aerosoles and my black low heeled Aerosoles, and my favorite black Route 98 sandals. So I guess that makes four pairs for me. Little House and I aren’t much for shoes, are we?

Do you use coupons?

I really don’t use coupons very often, unless I am going to Joann’s and sometimes I still end up buying nothing at all. I used to use coupons faithfully about a decade ago.

If you had $1000 to spend right now, and you could not put it toward debt or save it, you HAD to spend it, what would you buy yourself?

I would invest in a new computer. The one I have now is several years old. I recently dusted it (what a mess!) and I think one of the fans is going out on this one, so I am having my son check it for me so that I can extend its life since I don’t any money to spend on a computer right now.

How many checking accounts do you have?

Two business checking accounts (for Mr. A’s businesses), one personal checking at a credit union, and two personal checking accounts at a big name bank. The personal checking at the credit union and the second personal checking account at the big name bank don’t get used very often.

Name one of your financial goals for 2010 (that you want to complete by the end of the year).

Continue to pay down on our debt. As has been the trend, Mr. A’s businesses have been slow the past couple of months. The first couple weeks of January were also slow but in the third week it finally started picking up with several calls from repeat customers. I am very happy that we have not gone any further into debt, even with the slowdown.

Any thoughts on the state of our (United States of America’s) economy?

I try not to pay too much attention myself but I am happy that Mr. A has an interest. That way at least one of us is aware of what’s going on. I personally find it scary to see what is happening, not to mention I feel guilty that my own family is in debt, and it is frustrating to see that our country is going deeper and deeper into debt and there seems to be no way to help ourselves out of the spiral we are in.

Do you drink Starbucks or regular coffee? Or do you not drink coffee at all?

I am not a coffee drinker. I used to drink coffee very occasionally as a pick me up, but I have not had any coffee since December.

Thank you, Mrs. Accountability! Now go on over to Mrs. Accountability’s, read my answers to the same questions and take a look around!

Just the other day, Get Rich Slowly wrote a terrific post about renting versus buying property. I’ve been meaning to write my own post about this, especially since purchasing property has been on my mind now for over a year. It is also one of my goals I hope to accomplish by the end of this year or the middle of next year. However, I’m still not ready to take the plunge for a few reasons:

• Down payment: I don’t have the down payment saved up. I’d like to have at least 10% saved, which would be about $30,000 on a $300,000 home. I am really far from this goal.
• House prices: Decent homes in good neighborhoods are still selling for around $300,000. We live in a suburb of Los Angeles, so our prices are a little inflated compared to the rest of the nation.
• Fluctuating income: My husband owns his own business and it’s currently a little slow (normal for January). I work as a substitute teacher so I’m not ever guaranteed work. This will also make it a little difficult to qualify for a traditional 30-year mortgage at a decent APR.
• Indecisiveness: Lately, there are a few things about LA that are really getting on my husband’s nerves. He’s been complaining about everything: from the traffic to the grocery store clientele, to our neighbors. I’m not so sure he’ll be happy in LA in a couple of years if the city doesn’t begin to offer better services, smoother roads, or less traffic! Also, there is little hope for me obtaining a teaching job within the next couple of years with the school district I work for. They are one of the largest districts, and can’t find the money to continue paying it’s teachers. I live smack-dab in the middle of that district.

This brings me to rethink our idea of purchasing property. I know that we will eventually be property owners, I just don’t know if it’s going to be as soon as I had hoped. I have been really struggling with this new train of thought. That is until I read J.D.’s post. Basically it boiled down to what it really means to own property and is it a good investment?

Deep down I know that owning property is a good thing. If by the time of retirement, the home we purchase is either paid off or is worth more than we purchased  it for, it could be used to help us retire or move. It could function as an added security later in life. However, if we move only 5 years after we purchased our property and the market hasn’t improved, we would be breaking even if we’re lucky. In that event, we would be better off renting.

I found a great, free calculator from Yahoo.com that puts renting and owning in perspective. (I tried the NY Times link on GRS, but you have to be a subscriber to use it). Here is what the calculator figured out based on my numbers:

Rent vs. Buy Calculator

You’ll notice that based on these figures, it would be better if I continued to rent. The only thing this really doesn’t calculate is the profit earned by selling the property. I’m not quite sure how that works, but I would think that if you purchased a property for $300,000 and decided to sell 20 years later, the property would be worth more than what you paid for it. This is in sharp contrast to renting for the same period of time, there’s no profit in that scenario at all.

Again, I do intend to be a property owner myself in the near future. At least now I don’t feel as rushed or guilty if I don’t own my own little house in the valley by mid-next year.

What are your thoughts? Does this calculator factor in everything? Or is it missing the resale value somehow?

Looking to save money on groceries, I’ve been clipping coupons and purchasing items on sale. Last night, I ran to the grocery store to catch up on my weekly shopping. My local grocery store is currently under construction, so many of their items are deeply discounted to encourage shoppers to remain loyal during their rearranging of aisles. I purchased a total of 60 grocery items for an average of $1.15 per item, and it wasn’t just packets of Kool-Aid!

I started out with coupons totaling $17.00 in savings;  I  had a pile of Gatorade coupons, a dollar off Jennie-O ground turkey coupon, and a dollar off any cereal coupon. I also had a $10 off grocery store coupon if I spent more than $25.00 (more incentives to keep shopping during their construction phase). Because I made a point to only purchase items that were on sale, many of the items I purchased were reduced in price by 30% or more. My grocery list is always pretty consistent:

• cereal
• oranges
• Gatorade
• bread
• Jennie-O ground turkey
• Easy Mac
• applesauce
• Pepperidge Farms Goldfish crackers
• beer
• canned spaghetti-o’s and ravioli
• chili
• pudding cups
• diet soda

Okay, so I’m not a model for healthy eating, but these items aren’t too bad if you don’t count the carbs! During checkout, I noticed my bill shrinking dollar by dollar. Reviewing my receipt showed I saved a total of $62.00, that’s almost the amount I ended up spending. My grocery items cover a week of breakfast, lunches, and a few dinners using the ground turkey.

My coupon organizer has also been helpful during shopping. As I check off my grocery list, I quickly look through my categories to see if  I have a coupon for a similar item. If I do, I move it to the front of the pouch so I don’t forget to give it to the cashier during the checkout process. This has helped me use those soon to expire coupons. I find I’m not throwing away expired coupons as often. If I can continue saving money on groceries, I will find more money for savings! Now if only I could save money on my utilities I’d be golden.