A special advertising feature by Julie Bennett

Newlyweds Melissa and Todd Gottschall just bought a 1947 bungalow in Redwood City, Calif. it has 930 square feet of living space and, at the moment, no bathroom, because termite and water damage required that room to be gutted. The house went on the market for $625,000, but so many people wanted it that the Gottschalls ended up paying $661,000.

However, in the upscale Marin County town of Tiburon, the median selling price of homes dropped 2% from the second quarter of 2005 to the same period this year, to $2 million. And in the East Bay community of Arinda, houses that used to sell in a day now take about a week to secure buyers.

The softening of California's real-estate market is, obviously, a relative term. According to Prudential California Realty, in the housing resale market in the nine counties that make up the San Francisco Bay Area, 25% fewer purchases were completed in the second quarter of this year than in the same period last year. This year, 13,624 single-family homes changed hands in the second quarter, compared with 18,164 during the same period last year. But the median of those homes that did sell rose 7%, to $789,914.

In the Bay Area, there are one-third more houses and twice as many condominiums on the market this year, however, and homes are staying on the market longer. Scott Kucirek, general manager of Prudential's offices in Northern California and Nevada, blames the higher inventory on sellers who still expect to get amazingly high prices. "There's a homeowner in Piedmont," he says, "who just turned down a $2.7 million cash offer for the house she bought in 1966 for a few thousand dollars. She says her neighbor got $2.9 million, and she should too."

The backlog of homes will clear, Mr. Kucirek says, when sellers realize the pendulum has shifted to a buyers' market. "Homes in good shape, in the right neighborhoods with good schools may no longer be getting 100 offers in a day," Mr. Kucirek says, "but they are selling quickly." The houses that are staying on the market for two to three months, or not selling at all, belong to owners who can't believe the superheated market -- in some parts of the Bay Area, home values have gone up at least 20% annually for the past decade -- has finally slowed.

Last year, Mr. Kucirek says, demand was so high that owners could sell houses that weren't updated. "Now buyers will walk away from a deal if the homeowner won't make repairs that are normal in the rest of the country."

Some sellers are dropping prices. Melissa Link and her husband, Wayne, travel frequently to the Bay Area from their home near Asheville, N.C. "We've been looking at houses casually in Sonoma County for a couple of years," says Mrs. Link. "This year, there must have been five times as many on the market and some had price reductions. We just bought a second home in Santa Rosa from a couple who had moved out and were ready to sell. The softening market was a nice bonus, because I think we got more house than we could have when we started looking."

San Francisco itself yields no such bonuses. According to a Prudential California Realty survey, demand -- and prices -- remain high for the seven-square-mile City on the Bay. The median price of houses sold in the Lower Pacific Heights neighborhood increased 63% during last year, to $1.5 million. And in Pacific Heights itself, the median price of a single-family home, with views of the Golden Gate Bridge and the water, is $3.5 million. Mitchell Laufer, director of marketing for Vanguard Properties, San Francisco-based realtors, developers and marketers, says: "Beautiful new houses here can still command bidding wars. We had a new house go on the market in mid-August for $2.4 million. It finally sold for $2.6 million."

Condominium prices, however, have stayed flat and could soften when 6,000 more units under construction come on the market in 2007, says Sherry Chris, Prudential California's COO. Resale condos in desirable buildings, which sell for about $800,000 for a one-bedroom and $1 million for a two-bedroom, can still attract multiple offers, she says. Buyers include investors from Hong Kong and other Asian cities who buy condos to rent out, or for their children to use while in California for college.

The softer real-estate market is already impacting the sale of new condo units. According to Demetrius James, sales manager for The Palms, a 300-unit condo building in the hot South of Market area: "We appeal to Baby Boomers who are downsizing from their big suburban homes, but we've lost some potential buyers because they're having trouble selling their houses in this market."

But for other projects, it seems like old times. Vanguard has a new condo building, Frank Norris Place, designed for people age 55 and over, that's coming on the market this fall. "We have 40 one-bedroom units that will sell from $399,000 to $750,000," says Mr. Laufer, "and 150 people waiting to get in and see them."

And for people moving to the Bay Area from other parts of the country, real-estate prices are still high. Michael Coady, supply chain manager for a large consumer products company, and his wife Rhonda are moving from East Haven, Conn., to the East Bay town of Dublin. "What we paid was crazy," Mr. Coady says, "and that was after the seller reduced the price by $70,000."