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By June Fletcher, The Wall Street Journal Online

RISMEDIA, Oct. 10, 2007-( I’ve been shopping for a home, but notice that many of them have been on the market for many months. Does this mean that there is something wrong with them?

Answer: There could be, but more likely the fault lies with the owners, who are still clinging to the fading fantasy that their house is worth what it was at the peak of the market more than two years ago.

It’s painful to give up dreams like that, especially when you’ve already mentally spent the money — or worse, maxed out the credit card — on a new Lexus, a berth for your heir at Harvard, or an extended tour of Tuscany. That’s why overall existing home sales are dropping sharply, and the supply of homes is growing alarmingly, even while prices remain relatively flat.

In August from a year earlier, existing homes sales dropped 12.8% to 5.5 million, the lowest level in five years; the index of pending home sales plummeted 22%, and the backlog of unsold home reached 10 months, according to the National Association of Realtors. But the trade group projects August median prices at $224,000, a mere .04% lower than a year ago.

See the disconnect? Until prices start to come down more drastically, houses will just sit. They’re still unaffordable to many people: the median-priced home requires a household income of about $56,000, and a mortgage payment that takes up 24% of a family’s income at current interest rates. Meanwhile, the employment picture isn’t strong enough to give buyers confidence to pay top dollar for a home. Jobs were added at a rate of 99,000 a month during the third quarter (except among beleaguered construction workers), but that’s less than is needed to keep unemployment from rising, according to University of Maryland economist Peter Morici. Tighter lending standards are also dampening buying power, and not just among borrowers with poor credit, says Vienna, Va., economist Tom Lawler.

But if you can get a loan and are financially solid, I think it’s a great time to be looking and even buying. Although many economists are predicting that the housing slump will last well into next year, or even the year after, in truth, no one knows when the bottom has been or will be reached. The downturn has lasted long enough that many sellers are tired of holding open houses and madly running around with Swiffers. Those who have already moved on to a new home may well be desperate, since they’re carrying two mortgages. For instance, last weekend I visited a home in Alexandria, Va., that had been listed at about $1.4 million during the boom. The agent said a contract had come in at around $1.2 million shortly after it was listed, but fell apart when the seller balked at doing $20,000 worth of repairs that a home inspector said were needed. Now the house is on the market at a little more than $1 million.

Such shopworn listings can be good buys, especially since as sellers get more worried, they’ll often try to do some last minute facelifts to make their homes more competitive (my local Home Depot says it has a hard time keeping stainless-steel refrigerators in stock). Those upgrades are money in your pocket.

But be aware that the “days on the market” number on a listing sheet isn’t always a reliable indicator of how long a home actually has been for sale. After an agent’s listing has expired, some multiple listing services reset the clock to zero when the house is relisted. Call the multiple listing service in your area and ask what their practice is.

June Fletcher is a staff reporter at The Wall Street Journal and the author of “House Poor” (Harper Collins, 2005). Her “House Talk” column appears most Mondays on