Home prices have plunged in 2008, as air continues to escape from the housing bubble. Foreclosures in many cities have created a buyer's market, dropping prices 30 percent or more from their highs.

Now the Federal Reserve has moved in to buy up mortgages in an effort to reduce interest rates to historic lows. The move is aimed at encouraging people to buy houses and help restore equilibrium to the housing market.

So, is it the time to buy?

The National Association of Realtors (NAR), quite naturally, believes that it is. NAR, which lobbied hard for the Fed action on mortgage rates, estimates that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes, causing prices to stop their slide.

"Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership," said NAR President Charles McMillan.

That may be true, but it will take some time for these ingredients to work together and create a floor under the market. While that process is taking place, prices could go lower in some areas if enough buyers sit on the sidelines. Buying before that process is completed can lead to trouble.

The S&P;/Case-Shiller U.S. National Home Price Index — which covers all nine U.S. census divisions — posted a record 16.6 percent drop in the third quarter of 2008 versus the third quarter of 2007. That downward trend has accelerated this year, from a 15.1 percent decline in the second quarter and a 14 percent decline in the first quarter.

A recent real estate analysis by Forbes Magazine found that a significant number of consumers who purchased homes in 2008 in some hard-hit areas, such as Bakersfield, California, Yuma, Arizona, or Port Saint Lucie, Florida, are already "underwater," meaning they paid more than their homes are now worth, just a few months later.

The way to avoid that, says economist Joel Naroff, is to do your homework.

"The real issue is where prices are now versus the beginning of the bubble," Naroff told ConsumerAffairs.com. "In many areas prices have come back to 2003 levels. That tells me that the bubble has been wiped out of the price. In other areas, they are just getting back to 2004 levels and those are areas where I would be worried about buying."

If you scan the real estate ads, you'll see that, with the exception of foreclosures and distress sales, very few homes are being offered at 2003 values. Most sellers find it hard to accept that their homes' dramatic appreciation in the last couple of years has been wiped out.

Those who are trying to sell after owning the property for only two or three years can't sell for 2003 prices, which is one reason so many properties are now in foreclosure. But if you want to buy now, Naroff says you need to make sure you're getting the house at, or near, the 2003 value.

Using the Web site Zillow.com, consumers considering a home purchase can look up the house in question and see when the owner bought it, and what they paid for it. If they purchased it recently, they probably have little or no wiggle room.

The site will also show you a graph of the home's estimated value over a number of years. In that way you can determine the property's approximate value in 2003, and make your offer based on that.

"Doing the homework on where prices are versus 2003 is important but finding a place that is affordable and desirable is even more important," Naroff said. "In large parts of the country, with mortgage rates coming down, this is probably a good time to buy."