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Real estate's new hidden market

Unable to sell, a growing number of homeowners are simply pulling homes from market.

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The NAR, which does not seasonally adjust its numbers, estimates in March there were 4.058 million existing homes on the market. In January, there were 4.16 million homes for sale. Since the number of homes for sale normally increases in that time period, those 102,000 homes that were no longer on the market are "implying that people just pulled their homes off the market," says Lawrence Yun, chief economist for the NAR in Washington.

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In terms of the monthly supply of homes on the market, it would take 9.9 months at current sales rates to work down the supply of houses. In the early 1990s, during the last housing market downturn, there were 10 months' worth of houses to sell, says Mr. Yun.

There are few immediate hopeful signs for homeowners. In its March assessment of the economy, the Federal Reserve Open Market Committee said it expects home values to continue to fall and suggests that lower home prices and stresses in the financial markets "could lead to a more severe and protracted downturn in activity than currently anticipated."

One of the problems is a lack of buyer confidence in the stability of house prices. "Many buyers feel prices are going lower, not higher, so they decide to wait a month," says David Blitzer, managing director at Standard & Poor's in New York. "It is typical when you have a falling market, trading activity dries up."

Some economists think the shadow inventory will only start to come down once sellers realize prices are not returning to their peaks for some time. "It's just unthinkable they would go back to the 2004-2006 period when speculation fueled the price rise," says Dennis Hoffman, a professor of economics at the W.P. Carey School of Business at Arizona State University in Tempe.

Getting sellers to lower their price is one of the biggest challenges, says Katy Curtis, a Realtor with RE/MAX Fine Properties in Scottsdale, Ariz. When prices dip near 2005 prices, "we get a lot of activity," she says.

However, there is a massive overhang of houses for sale in the Phoenix area, says Ms. Curtis. In 2005, there were 5,500 homes on the market; today, there are 46,000 listings.

But lowering the price hasn't helped the Krols. They reduced their price from $481,000 to $380,000. Not selling the Arizona house has kept them from buying in Puerto Rico. "We don't want to get stuck with two homes," says Krol. But, she adds, "If we can't sell the house we might have to move back at some point, since it's the only house we own."