Ming Dong, a 37 year old biochemist at Lawrence Berkeley National Laboratory near San Francisco and a regular reader of housing blogs, needs some answers before placing his bet on real estate. He’d be happy with an unbiased answer to one question in particular: “Has the housing market hit bottom?”

“I’m waiting for more information to make a decision whether to buy now or a couple years later,” said Dong, a renter who hopes to buy his first home for about $500,000. “Different bloggers and different experts give different perspectives. And if you listen to the National Association of Realtors, it’s always a good time to buy. Even in 2008, they said it was a good time to buy. How can you believe them?”

This week’s BusinessWeek.com real estate slide show takes a crack at answering Dong’s question, and 24 other housing questions, including another handful posed by readers: Which direction are interest rates likely to move in the next year? Why are homebuilders starting work again when they still have homes left to sell? What home improvements add the most value with the least investment? Can the National Association of Realtors’ housing data be trusted?

[We'll admit that our answer to Dong's question is a bit of a cop-out. We provided strong arguments from optimists and pessimists and like Fox News says we thought we'd let you decide].

Declines for Inflated Home Markets?

Tom Stratton, a 26 year old Purdue University PhD candidate, thinks the market as a whole has probably stabilized but wonders whether price declines are in store for markets where values are still inflated compared with local incomes. Stratton is especially interested in Berkeley, Calif., where he’d like to start his academic career. The median home value in Berkeley in July was $665,000, down just 4% from a year earlier, according to Zillow.com. And the median income for a family in 2007 was $93,297, according to the U.S. Census.

“You have families out here making $150,000 a year but can you really afford an $800,000 home on that salary?” Stratton asked.

Existing residents can afford to live in pricey markets such as Berkeley because many of them bought houses decades ago before property taxes and home values reached stratospheric levels. Once longtime residents leave [a likelihood if unemployment rises], prices could take a dive. Berkeley has the advantage of being home to the University of California; college jobs have been relatively recession resistant. Real estate consultant John Burns said the worst hit markets have already fallen back to 2002-2003 prices. The other high priced markets could follow.

Baby Boomers’ Influence on Prices

Wes Dumey, a 31 year old software engineer in Tampa with a graduate degree in economics, wonders how the aging baby boomers will determine future housing trends. Dumey’s parents, now in their late 50s, recently told him they’d likely leave their three bedroom home and find a smaller condo when they retire. Dumey questions whether younger buyers will step in to fill the large homes the boomers vacate.

“From my personal experience, there’s no way I would buy a large house like that,” Dumey said, “when you factor in insurance, property taxes, utilities, and if you look at the state of Florida you can have a $400 or $500 electric bill for air conditioning a house for 10 months out of the year.”

Burns expects that homes smaller than 3,000 square feet will be in greater demand in the future. So called echo boomers prefer urban digs to suburban sprawl and they prize energy efficiency, not only because it’s great, but because it’s cost efficient.

“Baby boomers are going to be interested in downsizing because smaller homes are easier to maintain,” Burns said. “Generation Y is much more interested in urban environments and not spending their time on the freeway.”

Since the program’s launch in March, 360,165 borrowers had received three month trial modifications through August. If they keep up their payments for the trial period, lenders are supposed to extend the modifications for five years.

Lenders have offered trial modifications to 571,354 borrowers, or about 15% of those eligible, since March, but not all have enrolled.

Some economists say they’re doubtful that the administration’s goals are realistic, given the current pace of modification activity.

“It’s still a slow ramping up,” says Mark Zandi, at Moody’s Economy.com. “It’s much improved from earlier in the summer, and servicers are better staffed. But it’s slow going compared to the serious delinquencies and foreclosures that continue to surge.”

Among major lenders, those in the lead include JPMorgan Chase, which has started trial modifications on 25% of eligible mortgages that are 60 or more days delinquent. CitiMortgage started trial modifications on 23% of eligible mortgages.

Those trailing the pack include Wachovia, which has modified 2% of those eligible mortgages, Bank of America, which has modified 7% of those mortgages, and Wells Fargo, at 11%.

At the same time, foreclosure related filings were reported on 358,471 properties last month, an increase of nearly 18% from August 2008, according to a RealtyTrac report out today. One in 357 homes received a foreclosure filing in August. Those numbers include default notices, scheduled auctions and bank repossessions.

During a House financial services subcommittee Wednesday, legislators criticized lenders and the federal program’s slow progress.

“I am disappointed in the pace of this program,” said Rep. Barney Frank, D-Mass. “The servicers are not doing a very good job.”

But servicers defended their progress, saying they are doing many modifications on their own that don’t get counted in the federal government’s tally. And they say they have added staff and are ramping up efforts to modify more mortgages under the government’s plan.

Wells Fargo has added 4,600 workers to help with modifications this year.

“We’re very focused on ramping up the program,” says Mike Heid, co-president, Wells Fargo Home Mortgage. “We’re very committed.”

Bank of America says it has doubled the number of customers in a trial modification to nearly 60,000 in one month.

Interestingly, the most affordable and least affordable housing markets haven’t changed much since the housing market was booming a few years ago. Last year, the most affordable housing markets were dominated by cities in Indiana, Ohio, and Michigan, and the same is true this year as well. Midwestern home buyers get the best bang for their buck. And most homes sold in pricey East and West Coast metros remain unaffordable for average earners.

Dennis Torres, Executive Director of Real Estate Operations at Pepperdine University, said the housing crash and low interest rates have combined to create a once in a generation opportunity for buyers. “People are going to talk about this as ‘I could have, I should have’ for decades,” he said. “If you’re confident that you’ll stay in the location for seven years and you’re confident of your income, don’t walk, run.”

Housing is at its most affordable level since the National Association of Home Builders/Wells Fargo Housing Opportunity Index [HOI] began tracking affordability in 1991. In the second quarter, 72.3% of new and existing home sold were affordable to families earning the median income [down a tiny fraction from the previous quarter but up from 55% a year earlier].

Affordability at Record Highs

The National Association of Realtors’ own affordability index, which stretches back to 1981, says that this July’s level set a lifetime record for the month. Home prices in Northeast metros such as New York which remains the least affordable metro in the country have dropped somewhat. But the most significant improvements are in California, Florida, Nevada, Arizona and other hard hit markets. In San Francisco, the second least affordable metro with a median home price of $580,000 , 26.9% of homes sold in the second quarter were affordable to a family earning the median income of $96,800. That’s a big improvement from the same period in 2004 when only 13.3% of homes were affordable for median earners.

Flagstaff, Ariz., the 10th least affordable metro and a popular tourist stop for visitors to the Grand Canyon, is trying to boost affordability by raising the salaries of its residents. It is nurturing the biosciences, renewable energy and other high paying industries, said Vice-Mayor Al White.

Dave Romero, mayor of San Luis Obispo, Calif., the third least affordable metro in the nation, said home prices remain relatively strong because the city has limiting the supply of properties by limiting growth. The affordability ranking is impacted the many students from nearby California Polytechnic State University living in the area who pull down the median income, he said.

For old time residents, housing costs can be reasonable. Romero, for example, built his 1,800 square foot home for $23,000 in 1959. “The real affordability problem is for people trying to buy a new house,” he said. “Young families have a really tough time.”

Greg Goodnight, mayor of the nation’s most affordable metro, Kokomo, Ind., said nice homes aren’t for the privileged few in Kokomo. In the second quarter, 97.5% of homes were affordable for families earning the median income in the metro of $61,800. It helps that the median home price was just $79,000. A visit to real estate Web site Trulia.com reveals 94 homes for sale in the area priced between $50,000 and $100,000, most of which with have three bedrooms or more and a garage.

But job reductions at Kokomo’s Chrysler plants have pushed unemployment above 14% and made it impossible for many families to even consider a home purchase. Still, the city remains home to four plants one stamping and three transmission plants all of which are part of the new Chrysler.