Supply side.

When it comes to L.A.'s housing market, it's all about supply-side economics, said Robert Kleinhenz, a deputy chief economist with the California Association of Realtors.

December's 2.4 percent dip in the L.A. County median price from the previous month, to $463,450, had a lot to do with a slight rise in the number of homes put on the market, Kleinhenz says.

The increased supply eased pressure on buyers in the market and allowed for greater activity to take place. Accordingly, December sales were 7.8 percent higher than November and 1.5 percent higher than the year before.

The supply of homes compared with the level of demand is so tight that even the slightest increase or decrease registers almost immediately, Kleinhenz said.

The association measures the supply by creating a ratio of the number of homes sold in a month compared to the total supply on the market. At the beginning of 2004, there was a 1.2-month supply of homes on the market--not the lowest amount recorded but close. During those early months of the year there was the greatest appreciation in values, and the median priced home in L.A. County topped $425,000.

By August, the inventory of homes swelled to a nearly 6-month supply, allowing prices to hover relatively unchanged for several months. By November, the supply of homes dropped again to 3.4 months and the median priced home surged to $474,720.

"The market really changes to reflect these supply issues," he said. "Increases in supply can ease tensions on price appreciations."

Staff reporter Andy Fixmer can be reached by phone at [phone], ext. 263, or by e-mail at [e-mail].