(MONEY Magazine) – Finally! After a three-year slump during which home prices in some cities fell 15% or more and selling a house sometimes took eight months to a year -- or more than twice as long as building one -- the housing market is snapping back. Sort of. The National Association of Realtors reports that sales of previously occupied homes jumped 8.7% in 1992 and could increase by another 5.7% this year to 3.7 million, the most in nearly 15 years. What's more, the combination of stagnant house prices and low mortgage rates (recently 7.95% for 30-year fixed-rate and 5.05% for annually adjustable loans) has made homes more affordable than at any time since 1978, when another southern Democrat, Jimmy Carter, sat in the Oval Office. But if you own or are trying to sell a home whose value has stagnated, or if you're a would-be buyer hoping for a return to through-the-roof appreciation, chill! Fact is, the pickup in sales will not translate to anything even approaching a comparable jump in home prices. Admits John Tuccillo, the Realtors' chief economist: ''The economic recovery just isn't strong enough to create a boom in housing appreciation.'' No matter what President Clinton does, says Tuccillo, job growth -- likely to be below 2% this year -- will be too weak to boost consumer confidence enough to produce a home-buying spree that propels prices. Indeed, an analysis prepared for MONEY by Regional Financial Associates (RFA), an economic forecasting firm in West Chester, Pa., predicts that the median home price nationwide will crawl upward by 0.1% a year from 1993 through 1995, after adjusting for inflation averaging 2.8%. (As shown by the map on page 148 and the table presenting the outlook for the 50 biggest U.S. metropolitan areas opposite, some places will fare far better, and some worse, than the average.) Today's steady housing markets, however, offer excellent opportunities in most places for buyers to snag affordable homes and for realistic sellers to unload their properties within 90 days or so. But given the slow-go outlook, it's imperative that your decision to buy, sell, improve or borrow against your home be based on a rigorous assessment of the financial realities of today's markets. In this article, we offer the wisest strategies for home buyers and homeowners, culled from interviews with dozens of real estate agents, housing analysts, financial planners and economists. For advice from Richard Loughlin, president and chief executive officer of Century 21 Real Estate Corp., the nation's largest network of real estate brokerages, see page 155. First, some good news. Few housing analysts think that President Clinton would risk sabotaging the housing recovery -- and perhaps his chances of re- election -- by tampering with the hallowed mortgage interest deduction on primary residences. It, of course, lets taxpayers write off interest on home loans of as much as $1 million. Says Stan Collender, director of federal budget policy at the accounting firm Price Waterhouse: ''It wasn't part of Clinton's original plan, so I'd be shocked if he brought it up.'' Nor do the experts believe Clinton's spending programs will be large enough to reignite inflation fears and drive up mortgage rates much. Result: In 1993, borrowers will see mortgage rates vary only slightly from where they are today, perhaps ranging between 7.75% and 8.5% for 30-year fixed loans. (For more on the interest-rate outlook, see page 172.) Now, though, some news that will be either sweet or sour, or somewhere in between, depending on where you live. The hottest price-gaining cities of the '80s have traded places with the basket cases of the previous boom. The most amazing volte-face is in Denver, where 40-year-old single mother Deborah Carter (page 150) recently took advantage of low rates and affordable prices to snag her first home, a $76,000 five-bedroom brick tri-level. During the mid-'80s energy recession, prices plunged as much as 30% in some neighborhoods in the Mile High City. Today, Denver ranks as the nation's hottest housing market with 1992 sales up 23% over 1991 and home prices projected by RFA to zip along at 6.6% this year, or more than twice the 3.2% inflation forecast. The reason: The city added jobs at an estimated 1.1% annual rate last year, vs. the U.S. average of 0.1%. Says Denver agent Julie Hummel: ''Things have gotten so hot here that brokers are slipping notes under people's doors saying, 'If you're interested, I have a buyer for your house.' '' Houston, where home prices had dropped 30% from their 1983 peak, is also reviving -- just in time to welcome home two former residents, George and Barbara Bush, who are building a 2 1/2-story home in the city's affluent Tanglewood section. Estimated cost: more than $500,000. Last April, appreciation potential in Houston had been clouded by the 4,500 repossessed single-family homes that were being peddled by the Resolution Trust Corporation, the federal agency disposing of assets of failed thrifts. Today, that inventory has shrunk to 51 houses, and the RTC plans to shut its Houston office in May. Meanwhile, areas that cruised to huge gains in the '80s, including much of the Northeast, are now languishing at the bottom of the heap. Just ask Kim Whittaker and Greg Papazian, 35 and 29 (page 156), who are now stuck with a $60,000 Boston condo they'd like to sell. Its value has plunged 48% since she bought it for $115,000 in the heady days of 1986. Or ask any Southern Californian. The state's severest recession since the 1930s has pounded home prices in Los Angeles by 20% or so over the past three years. And the tarnished image of lotusland has led to recent net out- migration in Los Angeles County, the first time since 1979. Though experts believe prices in L.A. will probably bottom out this year, the median home price there (currently $214,500) may not return to its 1991 peak of $223,500 until 1995. Analysts expect some battered cities in the Northeast, such as Boston and Philadelphia, to turn up this year, though price increases will still lag inflation over the next three years. In the economically ravaged Hartford area, however, where aircraft manufacturer Pratt & Whitney just announced plans to lay off thousands of local workers this year, median house prices may not return to their 1988 peak of $167,600 during the '90s. Outward-bound Californians are rousing housing markets in many smaller western cities, such as Spokane, where median prices (lately $75,300) have chugged along at a 12% annual pace for the past three years. Says Spokane broker Jerry Boyd: ''We also have the advantage of being among the top 25% of housing markets for affordability.'' Benefiting too from California's emigrants is Salem, Ore., where the median price rose 8.6% last year to $76,000. Vacation homes, which have been rocked by price declines of 30% or more in the hardest-hit resort areas in recent years, may also see a turnaround. A growing number of analysts foresee a mini-boom within the next few years as hordes of baby boomers swell the ranks of prime second-home buyers -- people ages 45 to 54 -- by 46% over the next decade. Century 21 South Central States' general manager Dave Jenks is already seeing a 15% to 25% sales spurt in areas such as the Texas hill country west of Austin, the Ozarks and northeastern Oklahoma as buyers snap up $40,000 to $120,000 vacation retreats or future retirement homes. ''I wouldn't be surprised to see prices in those areas increase 8% or so a year over the next five years,'' says Jenks. Some other vacation-home locales that are offering the potential for big inflation- beating gains: Alexandria, Minn., Lake Lure, N.C. and the lake areas of Hartwell and Lavonia in Georgia, where appreciation could average 10% or more annually over the next three years. Warning: In the unlikely chance that a revenue-hungry Congress decides to scrap the mortgage deduction for second homes, values of such properties could fall drastically. Burl East, a real estate analyst at Kemper Securities in Chicago, believes prices in vacation spots could almost instantly drop 25% or more. To help you capitalize on trends in today's markets or avoid costly mistakes if prices are swinging against you, here is what the pros suggest:

What buyers should do now -- Run a rent-vs.-buy analysis if you don't own a place. Now that home prices can easily lag inflation for years at a time, anyone who is thinking of buying a first house must closely examine whether renting would be more economical. In the '70s and early '80s, when houses and condos frequently delivered double-digit annual appreciation rates, buying tended to be a smarter investment even if you stayed in the house only two or three years. With price gains slower now, however, you are usually better off renting unless you plan to live in a home at least five years and thus can count on enough appreciation to offset closing costs and broker commissions. Such outlays can easily run 8% to 10% of the value of a house. Denise Leish, a partner in Money Plans, a Silver Spring, Md. financial planning firm, offers this buy-vs.-rent rule of thumb: Rent if the monthly tab on a place you now like is 65% or less of the monthly mortgage payment -- including property taxes and insurance -- you'd have as the owner of a comparable dwelling. In other words, rent for $650 a month instead of buying a comparable place that would cost you more than $1,000 a month to own. For an in-depth analysis, you can compare the after-tax costs of owning and renting using a computer software program such as Buying Your Home from Home Equity Software of Mountain View, Calif. ($49.95; available at computer software stores) or Buy or Rent from Real Estate Consultants ($29; 800-289-6773). -- Assess the local market closely before you buy. You need to know not only the current health of your housing market but the potential for appreciation over the next few years. To do that, check out the area's recent job growth. ''Job growth helps drive prices,'' says Ingo Winzer, publisher of Local Market Monitor, a Wellesley, Mass. newsletter. ''If you don't have strong employment growth, housing prices will be weak.'' The key is whether the local job-growth rate is rising or falling. In general, if the annual rate declines by 50% or more -- say, for instance, it drops to 1% from 2% -- home prices will likely stagnate in the coming year or two. And if the rate turns negative -- that is, the area is losing jobs -- home prices may actually fall. Similarly, if job growth is picking up locally, housing prices will probably do likewise. You can find job statistics for 282 U.S. metropolitan areas listed in Employment and Earnings, a monthly publication put out by the U.S. Bureau of Labor Statistics, which is available in most large public libraries. -- Don't get caught up in the euphoria of a rising market. Once sales pick up, real estate agents instinctively tend to urge their customers to move quickly. ''Another buyer will get your dream house,'' they like to say, ''if you don't make an offer soon.'' Hooey. With house prices moving ahead modestly these days, you can safely ignore such high-pressure tactics from agents. Instead, shop as the typical home buyer did in 1992, according to a recent report from Chicago Title Insurance: Buyers looked at an average of 16 houses over five months before deciding on the one to buy.

What sellers should do now -- Price your house realistically, even if it means taking a loss. ''Your list price should be based on what homes are actually selling for in your area these days, not on what you paid or what you'd like to get,'' advises David Wluka, president of the Greater Boston Multiple Listing Service. To determine an appropriate list price, ask your real estate agent for data on recent sales of comparable homes as well as current listings. If the market is healthy -- house prices are rising steadily and homes are selling within 90 days -- ask for exactly what similar homes have recently fetched. But if prices are soft and houses are languishing on the market for four months or longer, consider listing your home at about 5% below other sales prices. -- Give your home a cosmetic makeover. In boom times, a little curb appeal -- cutting the grass and hedges and making minor exterior paint touch-ups -- is often enough to make a sale. But in most places today, you've got to do all you can to make your house the belle of the block. Pouring in only $1,000 to $3,000 on cosmetic fixes such as a fresh coat of paint and replacing dated appliances or carpets can make your house stand out.

What owners should do now -- Look into refinancing your mortgage if you haven't already done so. Before you refinance, however, be certain that you'll stay in the house long enough to recoup the loan's closing costs from the new, lower monthly payments. If your new mortgage rate would be one percentage point lower than your current one and the closing costs would equal 4% of the loan amount, for example, it will take approximately five years for you to break even. Owners in areas like Los Angeles and Hartford, where house prices have slumped recently, face another possible hitch: not enough equity to refinance. If your home is worth less than you paid for it, most lenders won't let you refinance unless you bring enough cash to the closing to reduce the mortgage. -- Improve your home, but don't overspend on it. A 1992 Roper poll shows that only 39% of homeowners are completely satisfied with their abodes. If you're in the other 61%, remodeling may enhance your enjoyment of your biggest asset. But before launching a major reno job, remember that the house's resale value probably won't increase by as much as you spend on it. For example, according to Remodeling magazine's latest cost-vs.-value report, a homeowner who adds a family room at the national average cost of $28,455 would reclaim only 85% of the expense if the house were sold within a year. You could recoup even less if prices soften locally. To avoid overimproving, be sure the market value of your house plus the cost of renovating won't exceed the price of the most expensive homes locally by more than 20%. -- Don't go overboard on your home-equity debt. A 7.7% home-equity credit line can be an ideal way to finance a home renovation or pay for college tuition. But if home prices fall, you could have to dip into savings to sell your home. Assume, for example, that you put down 20% on a $250,000 house and then took out a $40,000 home-equity loan. If prices drop by 10%, the debt would exceed your home's market value by $15,000 -- a shortfall you'd have to make up to close the deal. -- Moral: Limit your borrowings so that a price decline won't wipe out your home equity. After all, you'll want to walk away with some extra cash in your pocket when you finally unload the old homestead.