America's big, fat housing inventory

In Chicago, which has the second-highest housing inventory level in the country, the situation is a little different. Inventory has shot up 17.2% in the past year, to 82,839, even though the area did not experience the housing boom and speculation buying that led to a market correction in much of the country, with Miami and Southern California standing as prime examples. It may be that even in Chicago, buyers and sellers have become wary because of all the negative national news about real estate, Lashinsky suggests.

The same seems to be true of Dallas and Houston, where inventories are among the highest in the country but home price appreciation remains relatively strong. In the second quarter of 2007, the median home price was up 1.7% in Chicago, 1.7% in Dallas, and 1.4% in Houston, compared to a national decline of 1.5% in the same year-over-year period. These particular areas, where the economic outlook is positive and prices are still going up, may be ideal spots to look for bargains since they are also buyer's markets with high housing supplies.

Selling hesitance
Housing inventory rose 15.8% in Houston in the past year, but luckily, inventory levels have fallen 2.4% in Dallas since September, 2006. Inventory in Boston is down 5.8% from a year ago. "It's a good sign," says Lashinsky. "A lot of people aware that inventory is out there are being careful about putting homes on the market right now."

Of course, some sellers will remain stubborn, but more and more seem to be setting or reducing prices to levels the market can bear. In 8 of the top 10 U.S. cities with the biggest housing inventories, at least 40% of the homes are listed at reduced prices. A percentage in the high 30s is indicative of a near-equilibrium market, according to ZipRealty.

For home buyers, this is a good thing. "Sellers need to be aware of the competition, and buyers need to realize that they definitely have a lot more ability to negotiate right now," Lashinsky says. "It's an interesting market to be involved in."

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