(MONEY Magazine) – ''I just don't understand this market,'' says Susan Todd, 45, who with her husband Bill, 60, has been trying to sell their dream house for the past 18 months. ''Everyone tells us how beautiful it is, but nobody has made us a serious offer.'' To the Todds, who moved to Memphis three years ago from Long Island after they sold a smaller house for $400,000, their current 4,000-square-foot, four- bedroom contemporary seemed an astounding bargain at its purchase price of $240,000. Located in the prestigious suburb of Germantown, it features a grand, two-story entrance hall and a master bathroom that seems bigger than many New York City condos. The couple are asking $259,000 -- not quite enough for them to break even after closing costs and broker's fees. Yet even at that price, they are unable to sell, which has forced them to postpone their goal of seaside retirement in the South. ''We're stuck here until the house moves,'' says Bill. Stories like this may be commonplace in recession-ravaged Houston or in unaffordable Boston. But if such a thing can happen in even-keeled Memphis, it can happen anywhere. This rejuvenated Mississippi River city boasts a steady, diversified economy. Unfortunately, the region's relative prosperity actually couldn't prevent a bad case of overbuilding. ''We have been putting up more than 4,000 new houses a year,'' says Terry Dan, president of the Home Builders Association of Memphis, ''but the market absorbed only 3,700 last year.'' As in other American metropolitan areas, Memphis' overbuilding is a hangover from the housing party of the mid-1980s. From the middle of 1985 to early 1988, the average Memphis residence appreciated at a respectable 7.1% annual rate. (That still left the price of the median existing Memphis house at $77,500, compared with around $88,000 nationwide.) With unemployment down to 4.5% and executives from newly transplanted businesses such as International Paper and Sharp moving into the area, the future of real estate seemed assured -- especially for houses priced above $125,000. ''All the builders were looking at the same optimistic data,'' explains Gaylon Greer, Fogelman professor of real estate at Memphis State University, ''and collectively they overshot.'' The result: in the first three months of 1989, prices for existing homes fell 2.4% compared with the same period last year. And Memphis homeowners have had to question their assumptions about prices. ''I think sellers have been unrealistic,'' says Jerry Sowards, president of the Memphis Board of Realtors. ''They were counting on a pattern of appreciation that's just not there anymore.'' Of course, some Memphis neighborhoods are bucking the trend. As in most large metropolitan areas, the Memphis real estate market is actually a patchwork of submarkets, each with its own balance of supply and demand. For example, because there are few new single-family houses in the $50,000-to- $75,000 range, buyers have been bidding up existing houses in middle-class neighborhoods such as those south of Memphis State University. There the volume of sales increased 13% in the first quarter of 1989 and the price of the average house sold actually rose 15%, to $64,800. Overbuilding is a major problem for the Todds, though. In and around Germantown, where the average house sells for $170,000, the market is burdened with almost 17 months' worth of unsold new houses. And yet building continues at a rate of 170 houses a year. With some exasperation, the Todds note that since they put their house on the market in late 1987, several dozen new homes have been built in their subdivision alone. Memphis real estate agents say that it is difficult for sellers of existing houses to compete. Home builders -- especially those spurred by an excess inventory -- can generally afford to market more aggressively than individual owners. For example, Faxon Gillis, the area's largest home builder, has a ''buy down'' agreement with a local lender -- allowing the builder to offer buyers exclusive 9.87% fixed-rate mortgages with no points. In fact, of the four buyers who expressed an interest in the Todds' house, three eventually purchased new houses at comparable prices instead; the other bought an existing house for which the seller offered below-market financing. The Todds probably also hurt their chances by pricing their house too high originally -- at $276,000 -- on the advice of their first broker. ''In a soft market, you have to price it right from the beginning,'' says their current broker, Voline Conlee. ''If a house stays on the market too long, brokers just get tired of showing it.'' To date, the Todds have cut their asking price twice, by a total of $17,000, and are prepared to go even lower. ''The price is negotiable,'' says Bill, ''but we can't dicker if no one makes an offer.''