Susan and David Galler recently moved from Boston to Miami. But rather than buy a condo or house, they are renting, and they won't start thinking about a purchase until the spring.
"Maybe there will be some leaking of the bubble," says Ms. Galler. "We will start looking, but we're prepared to rent longer if we think the prices are too inflated."
Around the nation, as people like the Gallers hold off making new investments, inventories of unsold homes are rising and new mortgage applications are declining. Thursday, the Commerce Department reported that yet one more piece of the housing market, new home and apartment construction, fell in December nearly 9 percent, the sharpest drop since last spring.
These are signs that the real estate market - one of the bulwarks of the economy last year - may be starting a long-forecast slowdown.
"So far, it's weakening, not caving," says Mark Zandi, chief economist at Moody's Economy.com. "But it's been a tricky policy to deflate housing, not crater it."
Economists say the housing market peaked in June, when total sales of new and existing homes hit 7.7 million units on an annualized basis. Since then it has declined to about 7.35 million units.
Other measures, such as home-buyer traffic, have also slid. This week, the National Association of Home Builders released data showing that traffic and sales have dropped to some of their lowest readings since March 2003.
Still, economists point out that housing is one of the economy's more volatile sectors. On the basis of a single month, it's difficult to draw conclusions. For example, December started out very cold in the Midwest and Northeast. This could have made it harder for builders to start new homes and for people to look for them.
"It's early in the game, but based on what we have seen, this is beginning to play out as a soft landing," says Richard DeKaser, chief economist for National City Corp. in Cleveland.
A driving factor in the slowdown is the sharp rise in housing prices at a time when incomes are increasing only moderately.
Last week, for example, the California Association of Realtors said only 14 percent of California residents earned the $133,390 income necessary to afford a mortgage on a $548,400 property, the median price in the state in November. This is down from 19 percent in 2004.
The problem is the same on the East Coast where Andrew Schiff, a Brooklyn resident, feels he's been "priced out" of the New York market.
Mr. Schiff and his wife and two children now live in a rental apartment that is starting to feel too small. Schiff has budgeted $600,000 for a new home. But in his neighborhood, prices are closer to $800,000 or $900,000. To find something at a lower price, he would have to move "to an area I would never live in."
Another reason for the slowdown, at least in some markets, is the soaring cost of construction. In Miami, Inigo Ardid, vice president of Key International, a real estate development company, says he is now paying $75 per cubic yard for concrete, up from $50 in 2004. In addition, prices have soared for drywall and concrete reinforcing bar, he says.
"For some developers, all of a sudden the numbers don't work anymore," says Mr. Ardid, whose company is just breaking ground on a 45-story condo tower and selling units in a companion 56-story tower on the Miami River. "There are over 400 projects that have been canceled."
A growing inventory of houses is indeed starting to affect the real estate market, says David Kelly, chief economist at Putnam Investments in Boston. "Over the last year, the stock of unsold new and existing homes is up by 448,000 [nationally]," he says. "If you have an excess supply, it's hard to get rid of. If a stock is overpriced, you can fix that in a day, but if housing gets overpriced, it can take years to fix."
However, real estate conditions can vary from region to region. One of the suburban Washington markets, the area around Shepherdstown, W.Va., remains vibrant, says Greg Didden of Greg Didden & Associates. His company is involved in sales of Cress Creek, a golf-course community. Of 120 lots that were for sale, only two remain.
"There's a ton of cash out there," says Mr. Didden. "We saw a little slowdown in December, but as soon as we got past Christmas, people started thinking real estate."