(MONEY Magazine) – Opportunities for great house deals will improve next year-but only for buyers who can easily qualify for costlier mortgages. Everyone else will have to work harder than they did in 1994 to achieve a satisfactory outcome. Sellers will have to make sure they don't price their homes higher than the shrinking market will bear. And buyers will have to negotiate more aggressively if they want to shave even a few thousand dollars off asking prices.

The reason 1995 will be a more difficult year for the housing market: higher mortgage rates. Mark Zandi, chief economist at Regional Financial Associates (RFA), a West Chester, Pa. consulting firm, sees fixed-rate mortgages rising to around 10% by the end of '95, up from 9.3% today and a 28-year low of 6.83% in October 1993. Average adjustable-rate mortgages could rise from 6.5% currently to as high as 8%.

Dampened by those ratcheting rates, sales of new and existing houses are expected to drop from 1994's near-record 5.15 million to 4.9 million in '95, according to the National Association of Realtors in Washington, D.C. Average prices will keep rising but at a more subdued pace. An RFA exclusive forecast of housing prices for Money shows that the median price in the 50 largest U.S. housing markets will rise a gentle 3.2% next year, vs. 3.5% in 1994. The '95 increase will actually be slightly below Money's forecast of 3.5% inflation for the year.

To learn what's in store for housing where you live, see the 50-market ranking at right. No. 1 Portland, Ore., where house prices rose an estimated 10.8% in 1994, towers above the crowd with a 9.7% hike forecast for '95. Among the chief reasons: strong expansion of the area's computer-based manufacturing industries, and a steady stream of house-hungry refugees pouring in from megacities like Los Angeles. Just behind Portland rank the Salt Lake City/Ogden metro area (7.8%), Orlando (5.4%), San Antonio (4.7%), Fort Lauderdale (4.5%) and Greensboro/Winston-Salem, N.C. (4.4%).

With Portland's economic strengths, it's hardly surprising that the metro area's home prices are now some $14,000 above the U.S. median of $102,575. Happily for buyers elsewhere, median prices in half of the 10 hottest housing markets fall below the U.S. figure. The five most affordable--Salt Lake City, Orlando, San Antonio, Greensboro/Winston-Salem, N.C., and Phoenix--all have strong economies, and their states are attracting plenty of new residents. By contrast, the biggest population centers in California and New York--with slowly reviving economies and population losses--fall toward the bottom of Money's ranking. The single high-performing metro area in the Northeast: No. 10, Middlesex/Somerset counties, N.J., which are enjoying an influx of high-tech manufacturers and other companies seeking proximity to New York City and Philadelphia without the high costs of locating there. For the first time, this year's table also lists the income needed to qualify for a mortgage in each of the 50 markets.

Bottom line: "With prices up moderately and rates up sharply, affordability will be worse everywhere next year," says RFA's Zandi. So if you're about to edge into the housing market as either a buyer or seller in '95, follow this advice:

Buyers. "It will be more of a buyer's market next year," asserts John Tuccillo, chief economist at the National Association of Realtors. Because higher mortgage rates will chill demand, fewer enthusiastic buyers will be competing for desirable houses.

To give yourself an edge, you might hire your own broker, which won't cost a penny: He or she will take 50% of the commission that the seller will pay his broker. While some real estate agents refuse to represent buyers, an estimated two-thirds will do it if asked. A knowledgeable broker can steer you to suitable neighborhoods, size up the positive and negative features of each house you view, and help you negotiate the lowest possible price on the one you want to buy. Even though this reduces the broker's commission, it also makes it more likely that you'll buy a house through him.

"The most significant talent a buyer's broker brings you is the ability to know all the pertinent facts," says Tim Stockwell, director of relocation and human-resource operations at Sprint. Each year, most of the company's 400 relocating employees who are seeking houses to buy use their own brokers. In a study three years ago, Sprint found that employees with buyer's brokers paid an average of 91% of the asking price, vs. 96% for those who bought homes without help. On a $250,000 house, an employee with a broker typically saved an impressive $22,500, compared with only $10,000 for one who did it all herself.

Another wise move could be paying for a competent home inspection; typical cost: $200 to $400. For that outlay, "you get not only tremendous cost savings but also a negotiating chip if you still want the house," says Jordan Clark, president of the United Homeowners Association, a consumer group in Washington, D.C. "You can often negotiate several thousand dollars off the price just by knowing something like the life expectancy of the roof."

When you set out to get a mortgage, your first shock may be that adjustable-rate loans are no longer the low-digit darlings they were even a year ago. But if you're pretty sure you won't be living in your new house for more than a decade, you might consider an adjustable-rate loan known as a 10/1 ARM (see the Best Borrowing Idea box on page 98). You pay a fixed 8.8% for the first 10 years of the mortgage and then a rate that adjusts annually for the next 20.

Wise buyers should also keep an eye on demographic changes in shopping for a home. "Think about how easy it will be eventually to sell the house," advises Stanley Duobinis, director of forecasting at the National Association of Home Builders in Washington, D.C. His point: With the numerically challenged baby-bust generation now moving into the starter-house market, "prices for smaller homes will not continue to grow along with the rest of the market." A particular scourge: condos, which buyers see as economical starter homes. But "condo prices are flat compared with five years ago, and people aren't getting their initial investment back," warns Duobinis. He recommends against buying in markets that were hot in the late '80s and consequently are awash in condos today--especially Boston, the District of Columbia and Los Angeles.

Sellers. It's always advisable to sell your house within 90 days of listing, before shoppers start shunning it--for example, because they think it's overpriced or must have some defect. Timing will be even more critical in '95 as the pool of potential buyers shrinks. So it's essential to price your house to sell. Best advice: Base the price on those for comparable homes sold in your neighborhood in the current market. Moreover, after you have found a broker you feel comfortable with, agree to let his or her agency list your house exclusively for no more than 90 days, advises Joseph Eamon Cummins, author of Not One Dollar More: How to Save $3,000 to $30,000 Buying Your Next Home (to be published in January 1995 by Kells Media Group, $17.95; 800-875-1995). He adds: "If you have a salable house that's priced right, at least four to eight people should be looking at it every two weeks. Otherwise the agent probably isn't doing the job and should be replaced."

Another key tip: Don't invest in unnecessary improvements, such as an expensive new bathroom or kitchen, hoping to get a better price for your house. Instead, says Cummins, apply a fresh coat of paint, place vases of fresh-cut flowers in strategic spots, and banish that old piano and maybe even the extra sofa to unclutter the living room. He explains: "Otherwise you're stunting the imagination of the buyers, who like to fantasize about how their things will look there."