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msnbc.com contributor
updated 11/29/2006 12:11:43 PM ET 2006-11-29T17:11:43

A year ago, the typical American homeowner reaped big profits by doing remarkably little.  In 2005 alone — the height of the housing boom — the sale price of an existing home rocketed an average of 12 percent. Owners of modest bungalows and starter condos in the nation's hottest markets pocketed even larger equity gains simply by staying put.

No longer. Last month, the national median price of existing homes sold was $221,000, a decline of 3.2 percent from a year ago, the National Association of Realtors reported this week.

New-home prices rose last month, the government reported Wednesday, although sales volume fell, signs that add up to a market that continues to decline, analysts said.

That chilling prognosis is putting homeowners in an anxious state. With December typically the slowest month of the year for home-buying activity, agents are advising sellers that they probably will have to wait several months to attract a qualified buyer.

"The thing to do is not panic. It's just an adjustment," says Sid Davis, a Salt Lake City area Realtor and author of "A Survival Guide For Selling A Home." While market conditions have changed in the past year, homeowners' options are the same: Prepare to sell or stay put. In a post-boom scenario, however, deciding between an active or passive approach requires a revised set of considerations.

Now, or much later
In San Diego County, Calif. — where the median single-family home price is $550,000 — buyers are no longer rushing to take on mortgage debt. Homeowners, meanwhile, are slashing prices and waiting longer to close a sale.

Realtor Bob Wilson says it has become common in recent months for sellers to shave $100,000 or more off asking prices in the swanky Solano Beach neighborhood where he works. Against such a backdrop, he advises prospective sellers not to procrastinate.

"Time is not your friend," Wilson says. He says many buyers are staying out of the market in hopes that prices will dip further.

This is also not the time to start out with an ambitious asking price "just to see" whether buyers will bite. They won't. A home has the greatest chance of selling during its first 30 days the market, Wilson says, so price competitively from the start.

The "hurry up and list" mantra applies mostly to homeowners in falling markets looking to sell in the next year or so. Property owners with a slightly longer time frame have more reason for optimism, with many economists projecting that home prices will begin to rise as early as this spring.

"In the markets where we've heard the most angst from sellers, I think there's some hope," said Colby Sambrotto, chief operating officer at ForSaleByOwner.com. "If we can get through the winter season and home sellers are willing to negotiate, this isn't going to be a prolonged and painful buyers' market."

But timing a market recovery is a tricky business, dependent on myriad factors, including mortgage rates, inflation levels and wage growth. It's easier to be among the last group, those who can afford to hold for a long time and have less to fear from a cyclical downturn.

Staying put? Quit worrying (mostly)
Don't let talk of an imploding real estate bubble scare you. If you plan to hold on to your home for many years, and can afford to do so, historical data is on your side.

According to the NAR, median existing U.S. home sale prices have increased on average 6.5 percent each year from 1972 to 2005. That pattern of appreciation looks set to resume shortly, the group says. After two quarters of downturns, NAR economists are forecasting a modest rise in prices starting in 2007.

Researchers at Harvard's Joint Center for Housing Studies are also cautiously optimistic. In a report released this summer, the center forecast that house price growth will likely moderate in many areas but that sharp drops are unlikely. Major price declines, researchers wrote, seldom occur in the absence of heavy overbuilding, big job losses or a combination of the two. Those preconditions aren't apparent in U.S. metropolitan areas

The risk of a new home glut has also declined. Last month, U.S. housing starts dropped nearly 15 percent to a seasonally adjusted 1.486 million annual rate, the lowest level in six years, according to the Commerce Department. Economists interpreted the data, released last week, as a positive sign for sellers as it indicates fewer new homes will be coming on the market to compete with existing listings.

But while most long-term homeowners can expect comfortable returns, some locales are poor candidates for the "buy and hold" strategy. Homeowners in cities and towns with declining populations, a shrinking job base, or rising crime rates can expect further price drops, even if markets recover nationally.

Know the competition
Today, as homeowners vie for an increasingly scarce and picky set of buyers, the actions of your next-door neighbor or the developer down the street can have a big impact on your ability to sell your home.

"If you're competing with builders with standing inventory, you're in trouble," says Wilson, noting that homebuilders can offer free upgrades, cut-rate financing, or other incentives that individual property owners can't match. An oversupply of new homes is making selling an old one particularly difficult in Las Vegas and other sunbelt regions where developers have been most active.

Neighbors are another concern. Consider the couple next door who bought their home a decade before you purchased yours. Chances are they have enough equity locked in to undersell you and still walk away with a tidy profit.

Competition from sellers of more desirable homes is another factor to consider. In a seller's market, people are willing to overlook a few shortcomings to get a property at a good price. But in a buyer's market, sellers will have trouble moving homes that aren't attractively prepped for sale or are located in rundown neighborhoods.

"The top 10 to 20 percent of homes in good condition, priced right, will always sell," he said. "It's the bottom that becomes cluttered."

The Associated Press contributed to this report.

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