Many of the critical factors for a recovery in housing prices are in place. The drop in housing prices, coupled with the current low mortgage interest rates has brought affordability back into alignment with historical ranges in most markets. Unemployment levels appear to have bottomed out, and a growing number of real estate economic indicators also suggest that, on a national level, we're also at, near, or just past the bottom of housing prices. Mortgage interest rates remain near all time lows. In many areas, today's buyers have the best opportunity to choose from a very large home inventory at the lowest prices. Nonetheless, there is a great variance among local housing markets, and some may be looking at further declines in home values, perhaps even double digit drops, before prices hit bottom.

Consumer confidence will play a big role in any housing recovery. According to a June and July survey by Fannie Mae, 70% of Americans think it is a good time to buy a house, an increase of 6% responding to the same question in a similar survey conducted in January 2010. Not surprisingly, 83% also think now is a bad time to sell. Those surveyed are also becoming more optimistic about home values-78% think that home prices will either remain stable or increase next year-a 5% increase over the January survey.

Mortgage rates will also play a big role in the housing recovery. They are very low by historic standards today. Importantly, Federal Reserve policies intended to prevent a double dip recession are helping to keep mortgage interest rates low, and are likely to remain in place for some time. The slow recovery of the business sector, while not encouraging from an employment standpoint, also means that there will be less upward pressure on interest rates in the near future.

On the downside, the share of consumers who think housing is a safe investment has dropped from 83% in 2003 to 67% today. Delinquent borrowers and renters still think a home is a safe investment (57% and 54% respectively). More optimistic about the safety of a home investment were those with mortgages (74%) and even those with negative equity (69%). Minorities were also more optimistic on this question than the general population. Also not a big surprise, more people (33%) say they will be more likely to rent their next home, up from 30% in the January survey.

Recent forecasts about home sales and home prices have varied. Most suggest stabilization or near stabilization of housing prices this year, followed by a slight increase next year. On a national level, actual sales and price results have been mixed from one month to the next, suggesting that we may be at or near the bottom of home values.

Most important to your own home purchase decision is the current status of your local market. While at the national level there are many indicators that suggest that now is a good time to buy, the current state of your local market is the most critical consideration. In many areas there is even significant variance from one neighborhood to another. Some markets never got badly hurt by the real estate bubble and are still stable. Others, whether they suffered from price declines or not, are already showing signs of a healthy recovery.

Unfortunately, some of the hardest hit markets and/or neighborhoods are likely to face still more declines in housing prices. Mortgage insurer The PMI Group Inc. estimated recently that just over half of the 384 markets they follow, including 70% of the 50 largest metro areas, face a high risk of declines in housing prices over the next two years. Particularly in those markets, the size of the "shadow inventory"(foreclosed homes and nonperforming mortgages owned by lenders), could delay housing recovery, as could the growth in "strategic defaults" (homeowners who can afford to make their mortgage payments but who choose instead to walk away because they owe so much more than the home is worth).

Since homes tend to appreciate only 2-4% annually over the long term, it doesn't make sense to buy right now if your area is at risk of dropping another 10-20% in value when you could rent the same home today for less than mortgage payments. The short term direction of housing values for current homeowners who are moving up or downsizing buyers is of far less consequence, because their homes market value will be similarly affected whether they stay in their current home or replace it with another. For them, current mortgage interest rates are far more important, and they strongly favor buying now.

While you may want to defer your purchase for any of these reasons, buying a home remains a wise long term economic decision for most of us:

1. Homes can provide an excellent return on investment (ROI). Although historic annual home appreciation rates are modest, the purchase is usually highly leveraged. If you put 10% down, a modest 3% annual increase in your home's value represents a 30% ROI.

2. There are many opportunities to gain sweat equity. For example, a well landscaped home can be worth thousands more than a home with a barren landscape. You don't have to spend that much to get such a return. Buy a shovel and a bunch of small $5-$20 shrubs and trees, and wait a few years. Do your own remodeling (or some of the finish work, such as painting and trim) and those projects can add more to your home's value than they cost.

3. A landlord can (and will) raise your rent, but a lender can't raise your mortgage interest rate (assuming that it is a fixed rate mortgage).

4. Many people pay off their mortgage by the time they retire. With no more mortgage payments, they are able to live comfortably on modest retirement income sources. The equity is also transferrable-many homeowners who move to different locales after retirement simply roll the equity from their old home into a paid off retirement home. A lifelong renter may well have paid more in aggregate for housing over their career, but they will still have to pay rent and many find that this additional expense severely cramps their retirement lifestyle.

5. Most owner-occupied neighborhoods have a sense of community that results from a relatively stable set of residents. That rarely happens in rental environments, where the residents of the neighboring apartments may come and go before you even meet them.

Key to a smart decision on whether or not to buy a home now is research into your current market outlook. There is plenty of research data on the Internet regarding the likely market direction of your area. Experienced real estate agents can also provide very useful local market insight.

Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners.org.