For Home Buyers, The Window To Negotiate With Sellers May Be Closing

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If home prices are all about Supply and Demand curves, it looks like the national recovery is well-underway -- the housing inventory is falling in most major markets.

As reported by ZipRealty, the number of single-family homes for sale nationwide declined by 1.6 percent in October.

What's most interesting about the data, though, is that healthy markets like Seattle and Chicago played as much a part in reducing national home supplies as previously hard-hit cities like Miami and San Diego.

There are a few reasons for home supply dip:

1. Home buyers are keenly aware of the negotiation leverage they have over sellers and they know how to use it
2. Banks are getting good at selling foreclosed homes

These two elements combined to help homes sell like hotcakes during what is typically a "slow" month in real estate, boding well for the housing market going forward.  The figures are consistent with the other housing data from last month that showed more homes under contract and more homes selling.

But, wait.  There's more!

Over the past few weeks, Chase Mortgage, CitiMortgage, Bank of America and Fannie Mae have all enacted some form of moratorium on home foreclosures.  This, too, should lead to lower inventory levels because fewer homes will head for the auction block.

In every market, the value of real estate is based on scarcity. 

If the number of homes for sale dwarf the number of active home buyers in that particular market, home prices are going to fall.  They have to.  It's basic economics.  And, that's precisely what we've seen over the past few years -- home supply outpaced home demand for them. 

But, based on the chart above, a series of data points from October, and the political pressure to help homeowners in need, expect for home supplies to fall in 2009, taking home buyer's negotiation leverage with it.