FRESNO, Calif. — Home-builder's can look forward to a more normal year in 2007 as they dispose of excess inventory and build houses only when they have sure sales, analysts say.

"Price stabilization has already started to take place," Alan Nevin, chief economist of the California Building Industry Association, said in a conference call earlier this month. "By the end of the first quarter, (excess supply) should be down to what builders consider reasonable."

That means the huge incentives and bargain prices that characterized 2006 will go away in 2007. That will have the effect of helping stabilize prices, which in turn will draw in more buyers because they will realize that values are no longer falling, analysts said.

After five years of solid gains, the real estate market cooled considerably last year. And it cooled fast — unlike previous years when the downturn was more protracted.

"It happened in August and September of 2005. The world changed somehow, but we don't know why. It was like a memo went out," Nevin said.

Wes Keusder, an Orange County, Calif., builder and CBIA association president, said prices simply reached their zenith.

In 2006, builders were faced with customers who canceled orders because they thought prices might fall even more. "Consumer confidence will build back up," Keusder said.

Fresno builder Mitch Covington said developers there should eat away most of their excess inventory by spring or summer.

"The rate of cancellations has dropped off. The investors are gone, and the people who didn't really have to buy canceled months ago," he said. "That will lead to a more normal market, and builders will be selling homes at a regular monthly pace and not have to give away the farm."

Production will be down, but builders can expect some stability, analysts said.

Covington predicted that some companies will start rehiring workers who were laid off when developers focused on selling what they had already built. Still, prices are not expected to rise appreciably this year, Nevin said.

Nevin said the rash of condominium conversions that marked the past few years has run its course. With prices leveling off, the demand for apartments converted to for-purchase condominiums has dwindled.

"The biggest drop in excess inventory will be in condominium conversions. That will be another drop in inventory worth watching," Nevin said.

Real estate consultant Robin Kane said conversions are the first victim of a slowing market.

"They are the product of last choice," he said. "In a hot market, they are the last thing people can afford to buy. And when the market slows, they are the first to feel the pinch," he said.

They also are a favorite of investors and speculators — and those investors are quick to bail out when a region starts to slow.

Covington said he is optimistic heading into a new year.