In January, the National Association of REALTORS® (NAR) reported that national home inventories were at an all-time low, just three months available homes for sale on hand. And it's easy to see why - both the NAR and the National Association of Homebuilders reported record sales for 1998 and 1999, and housing starts are once again on the increase in January. That's made it pretty hard for buyers to find homes.

Home inventories and how quickly they sell are a strong indicator of the national economy, but they are just as effective a barometer for the local economy. However, other indicators show that a change may be on the horizon. Will the seller's market shift and begin to favor buyers?

The stock market is beginning to teeter with such dizzying highs and lows and with such unpredictability that some pundits are afraid that stock-picking has become too speculative, particularly with issues that boat more cachet than earnings. Even the Federal Reserve Board Chairman Alan Greenspan has suggested that stock prices are higher than many company profits suggest they ought to be. Recently a Goldman Sachs analyst sent tech stocks tumbling when she recommended lowering technology stock holdings by only five percent.

To keep inflation from gaining on economic expansion, the Fed has raised interest rates five times in the last year to curb inflation. Meanwhile, consumers are already beginning to feel the pinch of rising costs in goods and services, particularly in the healthcare industry and at the gas pump. In some areas gasoline prices have nearly doubled.

Mortgage prices have gone up accordingly, with interests rates almost a point and half higher than they were six months ago. In a recent interview Vincent Daniel of CIBC World Markets said he expected mortgage originations to take a dip, similar to the 15 percent drops of the 1992, 1993 and 1995 markets. "When interest rates rise, mortgage volumes decline," he said.

Home prices have shot skyward, too. The Affordability Index by the N.A.R. shows that the median home price has risen from $122,000 in 1997 to $133,300 in 1999, a difference of nine percent in two years. Starter homes have jumped from 103,200 in 1997 to 113,300, also a nine percent difference, but median salaries for these buyers for the same period have only increased six percent.

When the first-time buyer is shut out of the market, move-up buyers are not able to sell their homes as quickly. Housing sales inevitably slow down, and the inventory on hand will rise. Prices should also stabilize.

Does that mean you should wait to buy a home? Absolutely not. It may take 18 months or longer before rising interest rates affect the home market in your area. Better inventories don't necessarily mean bargains are available. By then, interest rates may be significantly higher and you may find yourself paying more for a lesser home than you can afford right now.

What should you do?

Position yourself to buy. Visit Qspace.com and review your credit reports online. Clean up what you need to in order to better qualify for a loan.

Get pre-qualified. Visit a good online lender such as E-loan or Onepipeline.com and get pre-qualified for a loan. You'll know exactly how much you can spend and you'll have a letter that can show sellers and their agents that you mean business.

Hire a Realtor. Most Realtors have agreements that you can sign that mean that they represent you as a fiduciary. That means they can't legally do anything that is not in your best interest. When you sign, you become a client instead of the seller. When you don't sign, you are a customer and the seller remains the client.

Keep contingencies to a minimum. Home sellers in a hot market have no patience with contingencies such as letting your mother see the home. They will also favor an offer where the buyer doesn't have a home to sell first, particularly if they are relocating. Better to get a bridge loan or a low-down payment loan if your home for sale is an issue.

Don't forego an inspection. In a hot seller's market, buyers think that sellers will be more impressed if they waive their right to have the home inspected by a professional. Don't do it. The inspection shows you what you are really buying, seller's market or not. You don't want to pay top dollar for a home that later requires thousands more in repairs that could have easily been negotiated after inspection.

Be available. You may go back and forth with a seller once the offer is made. Make sure both you and your husband or wife, or other buyers on the contract can easily be reached and that you can each "speak for the other." No Realtor should have to track each of you down before getting an answer on a offer point. If s/he can't locate one of you, it could cost you the home.

This is not a win-lose situation. Remember that you will only be able to buy a home if you get what you want and the seller gets what s/he wants. If you try to run your negotiation like a contest in which you win and they lose, you will both lose. Be reasonable, flexible, and don't sweat the small details. Pick the battles that will win you the most ground and forget the rest.