For your last question ask realtors in your area how the ending of the first time buyer credit is affecting traffic. In some areas people are desperately trying to buy before the free money goes away. In other areas very few people are even looking to buy a house. I have no way of knowing what is going on near you.
If you are looking long term there are things to consider. Can you now buy for less or the same amount as rent? If yes and you plan on owning it forever maybe now is a good time to buy. There is one wrinkle that will change prices even more. You are aware of how foreclosures have dropped prices. Are you as aware that going from 5% to 7% mortgage rates will take away 23.9% of buying power? As buying power goes away prices will have to drop unless wages increase dramatically. With about 10% unemployment I do not see that as likely.
When buying a house make sure you buy it at a discount below what is considered fair market value today. That way when prices drop more you will have some protection. I would say at least 10%, but perhaps more is a safer bet.
Below are some blogs to look at. Just consider what is shown there and decide for yourself what to do. They give different reasons prices could drop more in the next 2 years or so.
Does it make more economic sense to rent or to buy? Look at your numbers and see how to find out below.
Why paying more for rent might might more sense than buying under certain conditions
10 valid reasons to wait to buy a house
do low interest rates really make it a good time to buy a house?
qhat will (or could) happen when the free $8,000 goes away.
Look at the site below.
In Phoenix home sales have seen a healthy improvement, but prices have fallen at an unprecedented rate, nearly half from the market's peak. The pro-longed downturn has sustained for more than two and a half years, but should begin to see improvement in the latter half of the year. Government tax incentives and further enhancements in government backed lending are projected to aid in the markets recovery.
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accounting for nearly a third of all sales has acted to strengthen the Phoenix market. But more active purchasing has not yet developed in the higher price
ranges, and will have to before a full-fledged recovery develops. Housing Predictor forecasts Phoenix housing prices will average deflation of 11.3% in 2010.
p.s. I would not go into a bidding war. That only causes people to overpay.