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Is It Really a Bad Time To Buy a House?

Is now a bad time to buy a house?

CNBC’s Jim Cramer's recent comments on the "Today Show" have reignited the debate over whether home prices have hit bottom or will continue falling.

“Don’t you dare buy a home now, you will lose money,” Cramer declared on the NBC morning show.

KB Homes
Matt York
KB Homes

The comments sparked criticism from some members of the National Association of Realtors, who called his remarks “misleading, inaccurate, and inappropriate.”

But Cramer is far from alone in raising warning signs about the current housing market.

Los Angeles-based homebuilder KB Home painted a painful picture on Thursday of what the market looks like from the company's perspective.

"The oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets," said Jeffrey Mezger, president and chief executive of KB Homes, in a press release.

Mezger said his company is cutting prices to sell more homes from its bloated inventory.

Earlier this month, another big homebuilder, Hovnanian, took the unusual step of having a weekend fire sale of its homes in several markets around the country, slashing prices by up to 25%.

Prices May Keep Falling

Eugenio Aleman, a senior economist for Wells Fargo, said he expects prices to continue falling because higher mortgage rates will discourage buyers.

“It seems to have confused investors and individuals that home prices are going up always, but that is not the case,” Aleman said.

Despite the Federal Reserve's surprise rate cut earlier this month, mortgage rates have continued to go up, Aleman said. And as mortgage rates rise, home prices generally fall.

“That is the reason people have stopped buying and stopped fixing or improving their home,” he said.

There are, of course, parts of the country where home prices are still rising, as realtors are quick to point out. Even so, you might be better off investing in stocks right now than buying a house.

According to a study by the Fidelity Research Institute, stocks provided investors with greater returns than real estate from 1963 through 2005.

After adjusting for inflation, investors could have realized an average return of 5.95% during the period, while the average home value appreciated just 1.35% during the same period, the study found.

The Fidelity study showed real estate prices rose on average by 7.06% in the West from 1963 to 2006, before adjusting for the impact of inflation. In the Northeast, the increase was 6.91%. In the Midwest, it was 5.89%. In the South, it was 5.75%.

The study did take into account some of the tax advantages of home ownership as well as its costs, which include interest on mortgage payments, property taxes and maintenance.

Can't Live in Stock Portfolio

Of course, there are other benefits to home ownership.

“You can’t live in your stock portfolio,” said Steven Feinschreiber, a senior vice president at Fidelity Research, who worked on the study.

Still, there are concerns because individuals have a tendency to put too much of their net worth into their home.

“You shouldn’t put too many eggs in one basket,” said Lori Taylor, a professor at Texas A&M University, who previously was economist at the Federal Reserve Bank of Dallas. “It is always a risky proposition to have too much of your portfolio invested in one source, and it’s probably safe to say that some have probably gotten imbalanced.”

The Fidelity study also uncovered that many expect they can rely on their home’s value to help them through retirement. But it is unlikely that homeowners in once-booming area will see a return of skyrocketing prices soon, making this strategy potentially devastating for some retirees.

If you want to see more of the debate, Cramer is scheduled to return to the "Today Show" on Friday to face off with a member of the NAR. The expected verbal fireworks are set to air at 7:30 am New York time.

Christina Cheddar Berk is a news editor at CNBC.com. She can be reached at christina.cheddar-berk@nbcuni.com.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.