(First of three parts)

If you've been reading RealtyTimes.com you've known since last May what more and more real estate analysts are now forecasting -- the real estate market is correcting.

And that could be true more than previously forecast in the nation's hottest housing market.

Along with Wall Street's sell off, mounting poor earnings reports, a job demand slow down, dwindling consumer confidence and other negative economic indicators, the real estate market has also showed signs of weakness.

How weak it gets is a matter of local market conditions in regional markets where in some cases it could have dire consequences for your plans to buy or sell a home.

How well you cope as a consumer depends largely upon how well you watch the market and how well you design your buying or selling strategies to fare in the transforming market.

"The key statistic to monitor is job growth," said John Burns, head of published research for Irvine, CA-based new home data bank Meyers Real-Estate Information, Inc.

With job growth comes demand for housing.

"If your economy is dependent on a single employer or industry (such as Los Angeles's dependence on the defense industry 10 years ago, or St. Louis' dependence on TWA today), I would be particularly cautious. Job losses lead to housing depreciation, which will have a far greater negative impact on the housing market than a stock market decline," Burns added.

San Diego Real Estate Report real estate agent Robert Campbell says buyers and sellers should also keep an eye on interest rates, building permits, home sales, loan defaults and foreclosure sales, all of which impact real estate prices and sales.

A seller's market doesn't become a buyer's market over night and if you aren't tracking indicators during the transition you won't see the change coming.

"One or two months doesn't make a trend. Trends develop over the long term. It is not what you think. It is what the market tells you," Campbell says.

More and more often, according to forecasts, the market will begin to frown on seller greed and it will find fence-sitting buyers perched in the catbird seat.

As the year wanes, the need for new, effective buying and selling strategies likely will become more apparent both for real estate consumers and the professionals who assist them.

What's a buyers market?

UCLA's Anderson Business Forecast last year predicted 2001 would bring a 60 percent chance of slight negative economic growth of the gross national product in the second and third quarters this year. Anderson hedged its forecast by saying there's a 40 percent chance the slow down could be milder.

The down turn is forecast to include a corresponding deceleration in rising residential real estate values -- though not a reversal of fortunes.

No one has yet forecast a full-fledged national buyer's market, but more pockets likely will emerge where buyers rule.

Often designated by community, region or some larger geographic areas in today's economy, buyer's markets generally include high inventories, slow appreciation, flat or falling prices and more sellers than buyers. The regions may also be marked by economic distress.

Generally, if more than half of the houses remain on the market a month or more before selling and most of them sell for less than asking, it's a cool buyer's market, says George Devine, San Francisco broker and author of "For Sale By Owner In California" (Nolo Press, $24.95).

A cool market freezes over when the supply of houses for sale continues to increase, sales slow and prices actually decline, Devine added.

More specifically, a market with nine or more months-of-inventory is considered a buyer's market said Ted Jones, chief economist at Houston-based Stewart Title Company, who studied 23 national markets' trends.

Months-, weeks- or days-of-inventory is a theoretical measure of the time it would take to sell all available homes if no more listings came to market and the current sales pace continued for the duration.

Others say a smaller inventory can mark the onset of a buyer's market.

"If there is more than 80 days (about three months) of inventory, it is a buyer's market," says Richard Calhoun, a San Jose, CA realty statistician and owner-broker of Creekside Realty.

A seller's market doesn't become a buyer's market over night, but you can see it coming if you watch the trends.

Economic indicators

A recent and telling report offers a previously unforeseen trend for the nation's hottest housing market -- prices will drop in California.

As history often reveals, as goes the California real estate market, so goes the nation. Kiplinger.com, along with Standard & Poors/DRI foretells of a 6 percent drop in the median home price in San Francisco. If it comes true it will be the first such price drop since the early 1990s.

"That doesn't mean the value of all homes will drop, but it is indicative of wild volatility in the market there and the likely end of rapid price increases," say reporters Josephine Rossi and Elizabeth Razzi who wrote "Sanity Returns to the Housing Market."

Some experts in California say there's enough built-in resilience in the market to allow a retreat without surrender, but the Washington, D.C.-based Kiplinger.com forecast isn't so bullish. The Kiplinger.com report says while all San Francisco homes won't lose value, high-end sales will likely slow enough to put downward pressure on the median price while moderately priced homes will continue to see value spikes.

A ripple effect from Silicon Valley, in the south Bay Area, could be a factor.

Rather than imploding Silicon Valley's tech-stock driven housing market, dot combustion and sticker shock have combined to split the market in two.

"The high end is going down or not selling, but the stuff at the low end is continuing to increase. When you get into the moderate priced homes, they are still skyrocketing at 5 percent in a few months," said realty statistician Richard Calhoun, broker-owner of San Jose, CA-based Creekside Realty.

Kiplinger.com says buyers elsewhere are also scorning high prices and raising the white flag over bidding wars forcing home price increases to more closely match the march of inflation.

The report calls for an average nationwide home price increase of just 2.6 percent, the most modest price gain since 1995. For 100 large metro areas tracked by S&P/DRI, the price change ranges from a high of 12.3 percent in Boston to a low of the minus 6 percent in San Francisco. Last year, 13 of the report's 100 cities enjoyed double-digit price increases. Boston topped the list at 27.2 percent, according to the Kiplinger.com report.

Kiplinger.com/S&P/DRI also forecasts California price drops in Los Angeles, Orange County and San Diego as well as declines in Greenville, NC and Omaha, NB. Many Midwestern cities' home prices will not appreciate as much as they did last year.

The slow down is also hitting new home prices and sales as inventories have begun to surpass demand.

Irvine, CA-based Meyers Real-Estate Information, Inc. says its New Housing Demand/Supply ratio declined again in December following continued job growth slowdown.

There's buyer demand for 1,520,000 new housing units, but builders were supplying a projected 1,808,000 by the end of 2000, Meyers reported.

Right now, the market's saving grace is low mortgage rates, which could get lower still. "If I were a betting man, I'd bet that mortgage rates would go down further next year. However, I'd still take on a fixed rate mortgage rather than an adjustable rate mortgage because I'd feel confident that I can make these mortgage payments for many years to come," said Burns.

Tomorrow: Part 2-The New New Economy's Impact On Real Estate: What's A Buyer To Do? Next Week: Part 3-The New New Economy's Impact On Real Estate: What's A Seller To Do?