(MONEY Magazine) – Q My wife and I want to buy. Should we wait to see if prices fall, or take advantage of today's low mortgage rates? —Heath Hewett, Columbia, S.C.

Answer If you're asking whether a significant price drop would lower your monthly payments more than a big increase in mortgage rates would raise them, it's easy: You should probably root for the price decline. For example, the monthly payment on a $300,000,30-year fixed-rate mortgage at today's rates is $1,847. Rates would have to rise to 8.1%—nearly two full percentage points—before a $250,000 loan would cost that much.

But it sounds as if you're really asking whether prices in your area are likely to decline enough to justify holding off on a purchase. When it comes to that, frankly, your guess is as good as ours. While there's no lack of experts making predictions about where home prices are headed in the next year, no one knows for sure. So instead, focus on what we do know: Over the long haul, home prices in the U.S. have appreciated at about 6% a year, and even in the most volatile markets, one-year declines of more than 10% are very rare. And if you wait to buy, you'll still need to pay rent in the meantime, so holding off would have a cost too.

Meanwhile, a buyer's market gives you leverage to get the most concessions you can from the seller, says Barry Miller, a buyer's agent based in Denver. If prices are stagnating or dropping in your area, you can offer about 10% below the asking price to start off the bidding, says Miller, and ask the seller to pay for closing costs, which can run to 2% or 3% of the value of the mortgage. Or see if you can get a new roof, wiring or better appliances thrown in (just don't get greedy: Your seller might walk away if you demand a Jacuzzi to boot). Bottom line: If you can afford to make the purchase now and you're planning to be in the house for at least five years, "I wouldn't be worried about buying a house today," says Reston, Va. financial planner Patricia Houlihan.

Of course, in any market, it pays not to get in over your head. If you would have to get a short-term adjustable-rate mortgage in order to afford a home, you could run into trouble if interest rates are higher when your mortgage adjusts. And if you think you'll want to sell within a few years, you could end up with a loss (after paying broker's fees) if home prices in Columbia stagnate or increase just 2% a year during that time.

HOME-LOAN RATES

UPWARD BOUND Mortgage rates inched higher last month, with the 30-year fixed up almost a quarter of a percentage point.

[UP] Up from previous month [DOWN] Down from previous month

NOTES: As of Jan. 19. ¹$417,000 or less. ²More than $417,000. SOURCE: HSH Associates.

DEALS: 5/1 Adjustable-Rate Mortgages

The banks below offer some of the best loan rates and terms. Use them as a benchmark for your own shopping. Visit hsh.com for more deals.

NOTES: As of Jan 19. Rates and terms subject to change. SOURCE: HSH Associates.

RENOVATION RETURNS

Remodeling isn't paying back what it did during the housing boom.

Average return on investment for a major kitchen remodel

2005 91%

2006 80%

Average return for a bathroom remodel

2005 102%

2006 85%

SOURCE: Remodeling magazine's Cost vs. Value Report.