The recent market trends continued in December without much significant change. Prices and inventories continue to fall, this month even in Rappahannock.

Prince William county stands out as inventory there is now down to four months' supply. That's astonishing given the state of the overall real estate market, the economy and how many foreclosures there have been. With only four months of inventory it's hard to see prices falling much more in Prince William. But there are probably still some owner occupied properties there that are overpriced.

Leaving Rappahannock aside for the moment, Fauquier has the biggest inventory problem at the moment. They're still sitting with 12 months of inventory. There have been fewer foreclosures there and sellers of non-foreclosures have been unwilling to make the necessary price cuts to compete with what's going on in surrounding counties. But prices in Fauquier are unsustainable, even at current levels. If you can buy a townhouse in Manassas or Gainesville for the same price, or cheaper, than one in Warrenton, you're likely to choose the shorter commute.

Culpeper's inventory continues to drop, slowly but surely. Inventory there is down to nine months. While we continued to see bidding wars on foreclosures in lower price ranges in early December, there's some anecdotal evidence that traffic has slowed in the last two weeks. It'll be interesting to see if January's numbers show any change to current trends.

It's also interesting to note that banks have a lot of additional foreclosures sitting, waiting to be put on the market. I suspect they're still trying to spread those losses over multiple quarters. But it's hard to determine how bad the foreclosure problem still is when you know there's another shoe out there, waiting to drop.

Rappahannock's inventory declined spectacularly in December. Some of that may be people taking their homes off the market during the holidays. And, there were 6 properties that went under contract in December. So, January's numbers may give us a better feel for what to expect going forward in Rappahannock.

The other thing to watch in the next month is what steps the government takes, if any, to intervene in the real estate market. Check this space next month to see what those impacts were.

I know you've been hearing nothing but doom and gloom from the financial markets for the last week. And, it does feel like the sky is falling some days.

But the August numbers actually show lots of reasons for optimism. Almost across the board, by any measure of activity, the numbers look much, much better than they did a year ago.

In Culpeper, the inventory is at 676, down from 814 homes for sale at this time a year ago. Meanwhile, closed sales jumped from 32 to 64. Even new listings coming on the market has fallen from 154 to 121.

In Fauquier the story is much the same. Inventory is at 730 now vs. 823 a year ago. While the sales are still relatively flat, they have increased from 57 to 60.

Prince William has seen dramatic improvements, year over year. Inventory levels right now are at 4835. A year ago there were 5654 homes for sale. Sales have doubled from 419 to 838. The only negative indicator here is that new listings continue to come on the market at a fast clip.  There were 1300 new listings in August. But a year ago there were 1530.

Rappahannock even showed some dramatic results with 5 sales last month compared to 2 a year ago. Inventory, however, remains close to it's highest point (August of last year) at 82 homes for sale.

While activity is very good, prices show no signs of recovery right now. And, I believe you'll continue to see prices flat or falling for at least the next six months. But banks are getting their listings sold. They're not doing it by getting them in great shape. They're doing it by dramatically discounting price.

If you're a seller, that's your dilemna. Do you drop your price to compete with the banks? Can you afford to wait until all the foreclosures work their way through the system, potentially at least another year? Do you rent it out and hope for a better market at the end of the lease?

Whatever you decide, whatever your situation, it's good to hear a little good news this week!

There's a constant refrain here. And, I know I sound like a record stuck in a groove. But May numbers continue to reinforce that we've still got too much inventory.

Culpeper County shows we're only eight units off where we were last year at this time. The good news is that sales jumped substantially this month. And, I'm not using month over month comparisons, but year over year. Both new contracts and closed sales took a big jump. But that pace is going to need to continue for months in order to start to see the reduction in inventory we need in order to stabilize prices.

In Fauquier County last year at this point in time we hit our highest number ever for inventory. Unlike Culpeper, we've come down substantially. A year ago there were 867 homes for sale and now it's only 764. The contracts written and the sales closed are both also up, if not quite as much as in Culpeper.

Prince William County actually has a large increase in inventory. While contracts and sales are up, the increase in inventory means no firming up of prices there any time soon. Since Prince William County is one of the hardest hit counties in Virginia for foreclosures, this will likely take some time to resolve itself. But bargain hunters are out there.

Rappahannock County remains a place apart. The market is almost exactly where it was a year ago. Days on market are longer there as well, inventory is higher than it was several years ago. But it's a very different market than what we're seeing in the other three counties.

Our numbers reflect the national numbers pretty well. New contracts are up across the nation. The numbers you hear from NAR and from most of the national media are primarily comparing May, 2008 to April, 2008 and of course the numbers are going to go up. The more meaningful number is always year over year.

We've got some good signs out there. There are buyers out there. They're looking for bargains. They've got the right market for it.

I ran across this interesting article on when the real estate market is likely to turn around.

I believe he gets it mostly right. One thing I don't believe he adequately factors in is the likelihood of intervention by the government. That could help significantly help reduce the number of foreclosures. That, of course, would push this whole cycle forward a little faster.

Is the government really going to intervene? Well, now that they've bailed out the banks there is certainly increased pressure for them to intervene on the behalf of individual home owners. Clearly that whole moral danger they were worried about was much less of a factor once push came to shove. But at the heart of this crisis is the individual home owner and the banks will continue to be in trouble as long as the foreclosures continue to rise.

The above article gives you some key benchmarks to keep an eye on. The benchmark I'll be watching most closely here is the inventory levels.

It's been a little while since we've peeked in on the South Wales community and so I thought we'd take a look at what's happening there. Big picture numbers are interesting, but really, even at a county level they can be pretty meaningless.

When I originally pulled up the active listings for South Wales I got a pleasant surprise. The inventory volume is the lowest it's been in well over a year. There are currently 13 homes for sale.

The number of active listings here has been hovering around 18-20 pretty consistently for the past year. So 13 is definitely good news.

The next question is, what happened to the other listings?

Well, I'd like to tell you the reduction in inventory is due to all the sales happening in South Wales. But that is clearly not the case. In the last three and a half months only four homes have sold.

Interestingly, given the discussion on pricing in yesterday's blog, one sold for a net (after giving closing costs to buyers) of $365,000. Consider that the lowest sale price in there during the last quarter of 2005 was $530,000. That's a price drop of 31%! By any measure, that's substantial!

Six homes have been withdrawn from the market in the last few months and not relisted. If you add those six back in the total actives go right back to 19, about where they've stood all year.

So the real question is, have those sellers truly given up? Will they be back on the market in 2008?

The really good news for South Wales is that none of the current listings appear to be bank-owned or short sales.

There's always a silver lining!

I've spent a lot of time the last couple of weeks on previewing homes for sale in the area. I've looked mostly at homes priced in the mid and upper-ranges. And I've come to one inescapable conclusion. Homes are still seriously overpriced in our area.

No seller wants to hear this. And I don't want to be the one to break it to you all. But the vast majority of homes I toured have absolutely no chance of selling for anything near their asking price.

Mind you, this is only my opinion! And I'll no doubt be proven wrong on at least one! I saw a property today in Amissville, listed for $575K where the house would need to be bulldozed so you could start over! I'm entirely serious here! Granted there was also a barn (in rough shape!) and it was on 12 acres, but seriously! I was nervous going upstairs as the ceilings on the lower level were clearly compromised and I wasn't sure how extensive the damage was!

You're thinking that's only one property and that I exaggerate the nature of the problem. Unfortunately, that was just one example among many of truly overpriced properties.

If you're a buyer looking for a real fixxer upper, I'd be turning in seriously lowball offers on some of these places. I don't know that the sellers are mentally and emotionally ready yet to accept the deal, but I'd sure be trying right now!

On the flip side of this, what is selling are the properties that show beautifully and are very aggressively priced.

Strangely enough, I'm also seeing good movement on rentals all of a sudden! It's got me wondering if a lot of potential first time buyers have given up on the idea given the current credit crunch in the mortgage markets.

July numbers should be available to me in the next day or so and we'll see if inventory's deceasing substantially.