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Several indices confirm what homeowners know: It was 4 quarters of misery. But for buyers with stable jobs, plummeting prices and low interest rates have created a sweet spot.

A slew of indexes confirm what every homeowner knows: 2008 was 4 quarters of misery. But for would-be buyers with stable jobs, plummeting prices and low interest rates have created a sweet spot.

Two home-price surveys released today showed a fourth quarter unmatched in its misery for homeowners:

• The Federal Housing Finance Agency’s House Price Index showed American homes losing an average 3.4% of their market value in the fourth quarter, worse even than the third quarter’s record-setting 2% drop. The fourth-quarter losses were the worst in the 18-year history of the government’s price survey. In all of 2008, prices fell 8.2%; 9.6% when adjusted for inflation.
• The S&P/Case-Shiller U.S. National Home Price Index, also out Tuesday, reported prices dropping 18.2% for the year. It was the greatest loss recorded in the report’s 21-year history. Prices dropped in every one of the 20 cities studied.

In a third report, out earlier this month, the National Association of Realtors showed the U.S. median house price falling to $180,000 — a 12% loss in 2008.

The surveys differ in their results because each uses different information. The housing finance agency doesn’t include jumbo loans, for example, but surveys 292 cities rather than 20. All, however, show the same record-breaking declines in values.

Some analysts had predicted an even worse performance for 2008, noted James B. Lockhart, the director of the agency. “We are hopeful the housing initiatives announced last week by President Obama will begin to provide much-needed stability to the housing markets,” he said in a prepared statement.

The government’s index, considered the broadest, shows prices falling last year in 44 states and Washington, D.C. In eight states, they fell more than 10%. Losses were worst in the disastrous housing markets of California, Florida and Nevada. In Merced, Calif., prices fell 16.29% in the fourth quarter alone and nearly 50% in all of last year, the worst decline in the country. The other bottom 10 cities included:

• Stockton, Calif. (down 40.2% in 2008)
• Modesto, Calif. (-37.8%)
• Vallejo-Fairfield, Calif. (-34.4%)
• Riverside-San Bernardino-Ontario, Calif. (-34.3%)
• Cape Coral-Fort Myers, Fla. (-32.9%)
• Naples-Marco Island, Fla. (-32.9%)
• Las Vegas-Paradise, Nev. (-32.6%)
• Salinas, Calif. (-32.2%)
• Punta Gorda, Fla. (-29.7%)

Prices actually rose in six states last quarter, however: North Dakota (1.9%), Wyoming (1.5%), Alaska (0.4%), Texas (0.3%), Hawaii (0.3%) and South Dakota (0.2%).

Ah, but if you’re a buyer . . .

In this rain of economic misery, it’s understandable if you missed the lone scrap of good news: Putting a roof over your head is growing more affordable by the day. “It’s the one thing that’s getting better,” says Daniel McCue, a research analyst at Harvard University’s Joint Center for Housing Studies.

In fact, housing is likely to grow even more affordable, at least for those who have still have jobs and can take advantage of plummeting prices and low interest rates.

The monthly payment on a $160,000, 30-year fixed-rate loan at today’s average rate of 5.34% is $892. A year ago, at 6.37%, that loan would have cost $997 a month. If, as at least one economist predicts, rates drop to 4.5% this summer, that same mortgage will cost just $810 a month.

The spoiler is, you’ll need a job to profit from this opportunity. A stable job. With the economy shedding a half-million or more jobs a month, that leaves out plenty of people. You also may need a loan, not a simplest thing while lenders are being extremely cautious.

“There’s just not a lot of action at all,” says McCue. “The market has frozen up due to a lot of uncertainty.”

You can see the banks’ point: With home prices still dropping, lenders can’t pin down a home’s value with any certainty. With sliding home prices, their collateral could end up worth less than the loan.

“Even a healthy bank would be much more cautious in this environment, and it is unrealistic to expect battered, rescued institutions to behave very differently,” economist Ian Shepherdson wrote in his High Frequency Economics newsletter recently.

Who’s best positioned to profit

As if those weren’t enough obstacles, here’s another: Even if you’ve got a down payment saved, do you dare spend it? “Are you willing to use your savings for a down payment when you could need it for living if you take a hit on your income?” McCue asks.

Who’s left to capitalize on this window of affordability? “People who were lucky enough not to lose a lot of equity in their homes or had been unable to participate or were priced out from the get-go,” says McCue. For them, “this is a chance to potentially have some more stable, more affordable housing.”

Those best positioned to enjoy the discount:

• Buyers who have good credit, stable employment and a down payment saved, including younger, first-time buyers who have been waiting for prices to drop so they can get into the housing market.

• Sellers who still have plenty of equity in their homes, so they can afford to drop their selling price and use their equity to trade up to a better house.

• Homeowners who can afford to wait out the bad years and feel no pressure to turn a profit anytime soon.

Renters get a boost, too

Already, falling prices spell opportunity for renters with stable incomes. Apartment rental prices fell in the third quarter of 2008 in nearly all of the 31 metro areas tracked by RealFacts, a Novato, Calif., company that analyzes apartment rent data. The biggest reductions: Miami‐Fort Lauderdale, Fla. (down 2.4%); Riverside‐San Bernardino, Calif. (down 2.4%); San Jose, Calif. (down 2.0%); and Oxnard‐Thousand Oaks‐Ventura, Calif. (down 1.8%). Other areas with substantial rent declines: Los Angeles, Orlando, Fla., and Phoenix.

Nationally, the average rent dropped to $993 from a high of $1,002 in September 2007. Foreclosures and other financial pressures are keeping some people from launching households. Others are bunching up to save costs.

“Some people who’ve gone out on their own have gone back home, or they’re going back to sharing an apartment with somebody,” says Caroline Latham, the CEO of RealFacts.

For renters, what this means is, if you shop around in your city, you can lower your housing costs by moving or by using price comparisons to negotiate a drop in rent with your current landlord.

Affordable? Or ominous?

Housing will remain affordable, at least for those in the right position, as long as prices and interest rates stay low. If government stimulus efforts work — and there’s no guarantee they will — house prices should start rising slowly in mid-2010, hitting levels in 2013 last seen in late 2003, according to Economy.com. Mark Zandi, the company’s chief economist, predicts prices will probably get back to their 2006 peak 11 years from now.

He’ll watch for these signs that the stimulus has begun to work: consumer confidence rising by early this summer and job losses dropping from their current rate of a half-million a month.

Here are the reasons for Zandi’s guarded optimism:

• While enormous numbers of foreclosed houses will remain on the market for years to come, the “inventory” of these distressed properties seems to be stabilizing, not growing.

• Mortgage rates are low and could fall. Zandi predicts they’re about to dive again, with government monetary programs pushing rates as low as 4.5%, causing a refinance boom in the second quarter this year.

Read another way, the tea leaves show diminishing chances that the turnaround will begin soon. When rents and home prices fall simultaneously in the same market, that’s a sign of continuing declines, warns economist Danilo Pelletiere, the research director for the National Low Income Housing Coalition. Rents are a kind of weather vane, Pelletiere says, pointing which way a local economy is headed. Stable or rising rents provide a floor for house prices, enabling investors to jump in.

“Declining rents and declining home prices is a sign of a market in trouble,” Pelletiere says. Right now, that’s the case in most major cities in the U.S. “That’s not a situation you want to buy into, assuming you are buying for investment purposes and not because you’re buying into a house you love,” he says.

Bottom line: If you buy at this point, be prepared for the home’s value to continue falling for a while. Even if the worst is over soon, Zandi’s prediction of prices reaching 2003 levels again in 2013 is a forecast for values nationally and on average. That means some cities could see price growth sooner and others could lag badly, depending on when the housing bust hit town, how hard it hit and the strength of the local economy.