Some say that markets like real estate can be greatly affected by psychology. If that is true then the real estate market is in trouble. I was watching CNBC recently when they announced that 83% of their viewers - the investor class - believe that housing will slow in 2006.

While housing inventories are slowing more than price depreciation, eventually, prices will have to drop. It is a common trend in real estate that price decreases lag behind increases in inventory. As housing inventories continue to climb, sellers will not be able to demand top prices - at least not if they want to sell.

With many economists predicting that there could be a huge drop in the housing market next year that will push America into a recession, sellers could be about to lose a lot of power. In fact recession could exacerbate the problem for many home sellers, especially in hot markets such as California.

Of course, this could be good news for home buyers. While many real estate analysts don't expect a crash, almost all analysts predict, minimally, that some air will be let of the real estate 'bubble', especially in hot markets like Southern California.

The economy; ultimately, will be a huge factor. If the stock market does well next year, most economists believe that the real estate market will remain healthy, only dropping from double digit appreciation gains to just single digit appreciation gains.

So, if you are looking for a home in Los Angeles, or the greater Southern California area, it might not hurt to wait about 3 months. Minimally, the growing inventory of homes will push some sellers to discount their price if they are serious about selling.