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Buyers Market?

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Falling home prices should give aspiring homeowners the upper hand this spring and summer, but in a growing number of locations, it doesn't feel like a buyers market.

Blame the nearly five-year slide of home prices. Those declines, which accelerated in recent months, have left many sellers unable or unwilling to lower their prices. Meanwhile, buyers remain gun shy about agreeing to any purchase without getting a deep discount.

That dynamic has fueled buyers' appetites for bank-owned foreclosures. Those homes often hit the market at bargain prices, but they are snapped up by investors paying cash.

At a focus group in April, the mood among buyers was "nasty," says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based brokerage that operates in nine states.

"There's a shortage of attractive inventory," he says. "Customers just keep getting outbid on the houses that they want."

It took Susan Hunter just one month to unload her home in Redondo Beach, Calif., last fall. But she has been outbid on four homes at a lower price point in Eagle Rock, an emerging neighborhood in northeast Los Angeles. Some sold to investors who paid cash. Other listings, she says, are resold by investors at prices that she says are too high.

"It's the Wild West out here. It's a daily, tireless search," says Hunter, who works in television production and marketing. Demand is up because "we haven't been able to find homes here below $500,000 since the 1990s."

In 2010, software engineer Young Hammack gave up looking to buy after being outbid on three properties. This year, he has his eye on a four-bedroom foreclosure house with a pool in Citrus Heights, Calif., that hasn't yet hit the market. He hopes to pay about half the $492,000 it fetched six years ago.

But the 32-year-old, who is relying on a 3.5% down-payment mortgage backed by the government, is at a disadvantage against buyers who can pay cash.

"It's a false buyers market," he says. "If you think prices are cheap, wait until you start putting offers in."

Many buyers are looking for discounts because they don't think that prices have reached a bottom, and sellers won't have much pricing power as long as buyers such as Hammack and Hunter are in no hurry.

The Wall Street Journal's quarterly survey of housing-market conditions in 28 major metro areas shows inventories of unsold homes remain high but fell in the first quarter of this year.

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  • Joanne Loftus
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