Home sales tumbled in 2006, but prices mostly dipped. Even so, don't expect a boom soon.

What's the shape of the post-bubble, post- correction real estate market? And what does it mean for buyers and sellers in the new year?

The latest sales data show a small but unmistakable uptick in activity and declining unsold inventories. In late December, the National Assn. of Realtors reported that existing home resales were up by a hair in November — 0.6% — the second straight month of modest increases off the cyclical trough in September. On Dec. 27 the Commerce Department reported sales of new houses rose 3.4% over the previous month, while builders' unsold inventories dropped to their lowest level since last February.


All of this suggests that the 18-month market correction that followed the four-year housing boom has just about run its course. From a national statistical perspective, we're somewhere near slack tide — but no one's looking for another frothy high tide anytime soon.

Some local markets are moving contrary to the relatively flat national trend. Three dozen metropolitan areas — primarily markets with moderate prices and solid employment growth — were still racking up low double-digit house price inflation at the end of the third quarter of 2006, according to federal data. The L.A.-Long Beach-Glendale metropolitan area continued to chug along with an annualized appreciation rate above 7%. Dozens of other areas — primarily where unemployment has been a persistent and increasing economic drag — showed signs of modest deflation in home values, according to the same data.


In the main, however, the housing market appears to have weathered the correction phase of the cycle without the blood running in the streets that some bubble-bust bears had forecast. Median prices of resale houses have fallen 3.6% nationally year-to- year, and anecdotal reports of 10% to 20% asking- price reductions in formerly hyper-inflated markets are common. But that's what corrections are all about, as opposed to outright busts.

Moderate price cuts also eventually stimulate buyers — who'd been sitting on the sidelines wondering when the market might bottom out — to wade back in and start shopping again.

That's where we appear to be at the moment, and where we're headed in 2007, absent unexpected economic jolts to the global capital markets that could send mortgage rates spiking. In that event, all bets are off.


So what are smart strategies in a slowly recovering real estate environment for heads-up buyers and sellers? One good rule: Think baby steps instead of big leaps. Sellers shouldn't assume that with the trend line turning positive they can suddenly price their house for what they might have commanded in early 2005. Forget about it.

In most places, buyers still have the upper hand. There's plenty of inventory to choose from, shoppers are picky and unrealistic pricing is a guaranteed route to sitting dead in the water for months, unvisited and unsold. Be realistic on pricing. And be happy there are buyers out there again.


On the other hand, smart shoppers should recognize that the game is changing, the spring buying season is looming and that lobbing low-ball offers at already marked-down properties isn't a winning strategy. If you are seriously in the market, be prepared to pay a price that may not be as low as you'd hoped, but that just might be your last shot at a particular house before it sells for closer to the asking price a few weeks from now. Shoppers also need to understand that today's prevailing mortgage rates — a little above 6% for 30-