A Reuters article this week suggests that Gainesville is a dying community.

I think the article gets some things right and others wrong.

Gainesville home sales are jumping. And in the lower prices we're seeing bidding wars and/or multiple offers. That doesn't signal to me that the entire community is dying. And, yes, there are still a lot more foreclosures to come. If they come at a measured pace the market will quickly absorb them.

On the other hand, I continue to see buyers less willing to do the long commute. So, unless the pool of jobs within a reasonable driving distance of Gainesville increases, the community has some tough times ahead.

And, the further out you go (think Fauquier County) the more commuters have opted out.

Are new, good jobs going to be created in these communities? Or, are we simply going to be smaller?

In the tough seller's market of the last few years a lot of sellers have tested the waters by putting their house up for sale, and, in the end, retreated. All those houses that will theoretically come back on the market when the market improves are called shadow inventory.

We're looking at two basic kinds of shadow inventory. The first is individual owners. They want to sell, maybe even already tried and are just waiting for the right moment to put their home on the market.

The second kind of shadow inventory is foreclosure inventory. The banks are reportedly sitting on 600,000 homes nationwide that they've already foreclosed on, but aren't yet putting on the market.

Both of these categories have the potential to dramatically increase inventory, which has been steadily dropping for at least a year now.

The thing is, I'm not overly worried and I think the danger has been exaggerated.

Yes, there are a lot of homeowners who still want to sell. But it's not just the low number of sales that keep them from trying. They also don't want to sell at these prices. And, if they're going to wait for prices to recover even a quarter of what they've lost, I think they're looking at waiting several years. Some of those homeowners will have changed their mind by then. They'll remodel the house to suit their needs and they'll stay. Those that do still sell will not do so in one huge mass. Some will have a higher tolerance for lower prices and will sell sooner. Others will likely wait a year or two or three. I don't believe there will be some magical month where all this "shadow" inventory pops onto the market at once.

The foreclosure properties are a bigger concern. But I'm still not convinced it will be a huge problem. A lot of those 600,000 homes will be in CA, FL, NV and MI, places hit harder than we were. So, the numbers will likely be smaller than people anticipate. Secondly, the bulk of these are likely to be at the lower price ranges. We've actually got a shortage of inventory at those price levels. In places like Prince William County and even Culpeper County, a lot of inventory would be absorbed very quickly by first time buyers. And, I believe the banks are deliberate spreading out the foreclosures in order to manage their losses. It's not in their interests to dump everything on the market at once.

So when someone tries to scare you with all the shadow inventory waiting to hit the market, take it with a grain of salt. It may not be all that bad!

Despite what you read in the news media and hear from banks, in Culpeper County, at least, there does not appear to be much slowing down of foreclosures.

There were 78 new listings in Culpeper last month. 38 of those were foreclosures. Another 17 were short sales, meaning the house is worth less than it will sell for. That's 55 listings or just over 70% of new listings being bank owned or influenced.

It's going to be tough to get to a stabilized market as long as that's true. While Prince William county appears well on its way to a more normal real estate market; Culpeper county clearly still has  way to go.

So, what hapened to all the banks who were supposed to be holding off on any more foreclosures?

In general, we're seeing a long lag time between a foreclosure happening and that particular home being put up for sale. So, most of these homes that came on the market in February probably actually went into foreclosure some time in 2008.

If the banks really are following a moratorium on new foreclosures, I'd expect to see the impact of that in the April/May time frame. Will owner occupied homes then start to come back on the market to fill that void? I suspect that most will hold off waiting to see some evidence of appreciation in values.

That may mean the tightest inventory we've seen in Culpeper during the spring and summer for at least three years. And, if that happens, there may, finally be some good news for sellers.

Good news in this case simply means a stabilization of prices. I think we're still a long way from much in the way of seeing rising prices!

The rental market is soft, whether you're talking residential or commercial the story isn't pretty.

I spend more of my time looking at residential and I've been thinking about this change. Over the last few years more and more fees and special clauses have been piled on tenants.

There are lease clauses that say you have to have the chimney cleaned before you leave. There are clauses that say you have to have the carpets professionally steam cleaned before moving out. There are deductibles charged any time a service call is made. There are clauses that state that tenants will make repairs on anything under $200 with their own money.

And, now there are lots and lots of empty rental properties. So will the pendulum swing the other way?

My hunch is it will to some extent. You're already seeing apartment complexes running all kinds of specials to lure tenants in.

We've had a buyer's market for several years now.

Welcome to the tenants' market?!

Here's a blog post on Jetson Green with information on a new survey by NAHB (National Association of Home Builders) and Better Homes & Gardens magazine.

I'll let you read the details, which I think are quite interesting. But the bottom line is that people are interested in smaller, more fuel efficient homes.

That's got me thinking and wondering? Has the current economic turbulence got people thinking differently about what they want in their next home? If you've got a very large home now, do you think you'd like to downsize and is that desire related to our current economic situation? Have your thoughts changed about where you live, city vs. country? Are you craving more land to grow more of your own food?

I'm curious whether people are deciding to make major changes in what they want in housing because of our current situation.

So tell me what you're thinking? How has how you think about your home, about buying or selling real estate, changed as a result of what's happening in the overall economy or in your own little economic corner?

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.

The economic analysts have been talking a lot lately about deflation and the dangers it poses for our economy. I'd like to suggest we've been seeing deflation at work in the real estate market for a long time.

Deflation is when prices decrease. Economists are currently worried about a deflationary spiral where prices continue to decrease, consumers, knowing prices will decrease, wait for a better price, and so those with goods to sell are forced to discount their prices in an ever deepening loop. Of course, as goods are sold for less, the people who make those goods must decrease their costs, lay off people and creating more deflationary pressure.

We seem to be in this cycle in real estate and have been for some time. Buyers are waiting to see how much more home prices are going to drop. After all, no one wants to get a bad deal on one of the largest financial transactions they'll ever make!

And, so, sellers are forced to continue to drop prices. That reinforces buyers opinion that they should wait as prices are still dropping.

But, of course, ultimately this path leads to ruin, whether you're talking about real estate or the overall economy. If real estate assets continue to plummet in value, all of us are poorer. Even if you're not selling your house, you're impacted. Local governments are impacted as tax revenues fall. If you've got kids you know the schools are impacted.

So, how do deflationary spirals end? The problem is no one seems to have a good answer for that. Wars have ended them as the government created massive spending and hiring programs, as in World War II. Japan's tried everything you can imagine to end their deflation problem, without all that much luck.

President-elect Obama is about to get his crack at it. Let me say that one reason we're here is that we've had a government who did not believe that a deflationary spiral in real estate was possible. And, when they did, belatedly wake up, they still didn't believe that the effects of that would spill over into the rest of the economy.

The good news is that I believe that even the government now gets it. In one way or another I believe addressing this problem will be one of the first priorities for the new administration. I've got my fingers crossed that they get it right!

It can be difficult to figure out what the market is doing in Rappahannock. With 2-3 sales a month, most months, it's difficult to discern trends. And, given the enormous price ranges found in properties in the county, any snapshot is sure to lead to incorrect conclusions.

But I've had a couple of conversations this week with property owners in Rappahannock County that had me wondering about pricing overall. In several instances property owners said they knew their properties were overpriced but they had no intention of lowering the price. They said they weren't "desperate" and could wait out any temporary market downturn.

And, of course, they're no doubt correct. While most homes are both a home and an asset for most families. There are a lot of property owners in Rappahannock for whom the property is more heavily weighted towards asset. It's easier to wait this out if you don't have to sell your property here in order to move on somewhere else.

And, the dollar value of sales stayed relatively consistent this year. A total of almost $16 million sold in 2007. In 2008 that total was almost $14.5 million. What was down significantly were the number of transactions. There were 42 in 2007. It looks like we'll finish with about 30 total sales in 2008.

Meanwhile, inventory has risen pretty dramatically. There were 67 properties on the market at the end of 2007. Today there are about 98, an increase of about 30%. We hit a high at the end of October with 103 properties for sale.

Rappahannock took longer to feel the effects of this downturn. And, in a normal economy with a normal real estate slump, there may not have been much of an impact at all here. But the economic fiasco we find ourselves in nationally has not spared the residents of Rappahannock. There have been foreclosures here as well, with more likely to come. And there's an increasingly long list of people who really do want to sell their properties but can't (at least at their current price).

So, how long does the stalemate last? How long are sellers willing or able to wait for the market to recover. In the region overall I believe it could be 5-10 years before we see property values anywhere near what we saw, say, in 2005. Even if you're not "desperate" how long do you want to hold on?

2009 promises to be an interesting year in Rappahannock real estate! What do you think lies ahead?

There's a change coming.

The local REALTOR associations have negotiated new lockbox agreements with various suppliers.

If you're not familiar with what lockboxes are, it's what a real estate agent puts on your front door to allow other agents access for showing your home when it's for sale. There are a variety of these devices out there and, of course, they're completely incompatible.

For the last few years, all associations have used the same equipment. So, if I was based in Warrenton and had clients who wanted to see a home in Leesburg, there was no problem showing them that house.

All that changes in the next few months. The association I belong to GPAAR (Greater Piedmont Area Association of REALTORS) has chosen one system. The Prince William Area association and the Northern Virginia area will be on the same system. The Dulles Area and Blue Ridge Area associations have gone in a different direction.

It's not that agents won't be able to show homes in both areas. They can buy both sets of equipment and still be able to show anything, anywhere. But in a tough market where every cost is scrutinized, not every agent can or will foot that bill.

And, so, on behalf of my fellow REALTORS, I apologize to you our clients. This is clearly a disservice to all of you. I believe we need to keep out clients in mind as we make decisions and clearly you all were not our primary focus here. In a market where it's already hard enough for the average seller to get a buyer to come and look at their home, we've just added another obstacle.

I'm not pointing fingers at anyone association or at any group of individuals. We all share the blame here and should have found a way to get this right.

So, a big "I'm Sorry" and a promise to my clients that I'll do everything I can do to protect you from this mess!

I was fortunate enough to hear Glenn Tecker give a speech about leadership last week. It was a terrific speech, but one piece in particular has stuck with me.

He talked about how we are moving from a Carbon Economy to a Green Economy. The path looks like this:

He views the end state here as about a decade away.

And, of course, I got to thinking about what this means for real estate.

First of all, if you're a buyer, you should be looking for energy efficient/green homes. That's not just for your own short term financial/health well being. It's because when you sell that home down the road it's likely to net you significantly more money.

What that rules out, of course, is a McMansion. I'm not saying no one will ever buy a McMansion again. I'm saying the market for those monstrosities is going to be so small, and the existing supply is so large, that you need to seriously consider the financial implications of such a purchase.

If you recently bought a home and are thinking about doing some upgrading/updating, every item you think about improving, add a green filter to that decision making. Ask yourself if what you're doing will make the house more appealing in that future green economy.

And, if you're contemplating selling any time soon, start thinking about what energy efficient qualities your home has already. Talk to your agent about how those can become part of the marketing plan. And, if you're doing any upgrades before selling, factor this into your plans.

One word of caution here. If you're selling in the short term, do NOT invest a lot of money in "green" or any other kind of upgrades. You will not get a good dollar return.

The pain in the diagram above will be unavoidable for the economy as a whole. But some smart planning may help you avoid it in terms of buying and selling real estate.

The evidence suggests that we're testing a bottom in the Culpeper market, or at least in one segment of it.

If you look at homes with these characteristics:

• Single family home
• Less than five years old
• In one of new subdivisions in town of Culpeper
• Colonial
• 3-4 bedrooms, 2 1/2 baths
• Basement

What you're seeing are multiple offers on anything around $200K. So we're back to bidding wars with most of these then selling for more than list price. I'd say generally these are under contract within 14 days. Although it's hard to tell since the contracting process on a foreclosure can drag on for awhile.

And, yes, all of these are foreclosures. There are short sales out there in this price range as well and they're moving more slowly. Most short sales are long, painful processes and most buyers don't want the hassle. But if foreclosures really do begin to dry up, short sales will be the next ones people look to for a deal.

And, then, finally, we can move on to Joe Homeowner's house. The question is, will buyers then move up to his price? Will Joe Homeowner come down to where the banks are selling houses like hotcakes? Or will we be back to the stalemate?

Allison Brophy has another great article  in the Culpeper Star Exponent taking a closer look at the real estate market and the state of foreclosures in Culpeper county. Culpeper's been one of the hardest hit counties in this part of Virginia.

And a timely article in Slate on why the argument that the sub prime mess is because lenders were forced to do sub prime mortgages by the government is hogwash.

There are some signs that lenders are anticipating President-Elect Obama's 90 day moratorium on foreclosures and voluntarily beginning to comply in advance. If your a seller this will be good news, at least in the short term! Prices may stabilize sooner than anyone anticipated. And, if these properties stay off the market, that stabilization may last.

While it would seem that at the end of that time you'd get a bunch of foreclosures hitting the market and driving prices down once again, I'm not sure that will be true. I suspect that during the 90 days plans will be made to permanently reduce the foreclosures to a trickle.

If you're a buyer, it means the number of great deals may be shrinking quickly. If you've been waiting for the bottom of this market, waiting any longer could get expensive.

Henry Paulson was back in front of the TV cameras today. The financial markets didn't seem all that impressed.

But perhaps we shoudn't be blaming the Treasury Secretary. The tools he has available for dealing with our current financial crisis seem ill suited to the task.

I've been thinking a lot lately about how complex a world we live in. The financial systems are the most recent example. Surely these systems are more complex and more interrelated than anyone in government would have dreamed even a few short years ago. In fact, both Ben Bernanke and Hank Paulson were telling us less than 18 months ago that the real estate downturn would be confined to the real estate market and would not affect the larger economy.  I'd argue that this is proof that the top officials in the financial sector of our government didn't truly realize the extent of the complexities and interconnectedness of these systems.

So on the one hand you've got increasingly complex and interconnected financial systems. To add to the complexity, the interconnectedness of all financial systems and markets is increasingly global.

On the other hand, you have government supposedly minding the store, regulating these systems and stepping in to "fix" things when there's a crisis. Government is poorly equipped to do this, I'd argue. If complex systems require detailed analysis to determine the unintended consequences of any solution, government is definitely not my first choice for this job. Government is largely incapable of finesse and subtlety. When a scalpel is required, government is more likely to wield a club. While 200 years ago our government may have been perfectly able to manage the financial affairs of the nation, I'd argue that events have overtaken them. Complexities have outstripped their ability to keep up. The government's repeated, inept attempts to stem the tide of foreclosures is one example. (By the way, this week's attempt will fare no better.)

But if not government, who's going to mind the store? Clearly the players in these systems can not be trusted to regulate or police themselves. Else we wouldn't find ourselves in our current mess. "Fox in the hen house" comes to mind when contemplating that solution.

I don't know that I have the answers for this, but I'm dismayed that I'm not seeing more discussion of these questions. There was some initial discussion of a new Bretton Woods when the $700 billion bailout package was passed. But that seems to have subsided.

What we would seem to need is some kind of an early warning system. Think of the sensors that are in place to monitor the ocean floor and give us early warning of potential tsunamis. Surely the technology exists to create similar warnings that could alert governments and the financial sector to major problems ahead.

With the cold war a lot less frigid maybe instead of that hotline to the Kremlin we need a new hotline that rings when the financial early warning system detects a problem.

This may not seem to be directly related to real estate. But, then again, some people thought that the real estate market stood apart from the rest of our economy not that long ago. Think again.

I couldn't have said this better myself! Here, in the Culpeper Star Exponent is a framework for Culpeper's future.

I'd add that we should look at the transportation issues and work on better rail connections with these technology centers.

And, I'd add to his rationale for attracting high tech jobs that they tend to pay well enough for people to afford to buy homes, as opposed to service industry jobs.

The local real estate market could use that shot in the arm!

September's numbers are the kind to make you "ooooh" and "aaaah". They're that good!

In Culpeper, Fauquier and Prince William counties, inventory continues to fall and sales continue to rise.

In Culpeper inventory is down from 823 at this time last year to a measley 632 this year. Sales doubled year over year, 27 last year and 54 this September. And the trend looks to continue with 72 new contracts written in September!

There's good news for those of you in Fauquier as well. Inventory has declined from 832 last year to 696 at the end of September. While sales didn't quite double here they did a very respectable increase from 38 a year ago to 53 now. And new contracts soared to 83.

In Prince William things have changed so much that you've got to feel sorry for the buyers. Total inventory has declined from 5674 to 4489. Meanwhile sales have almost tripled from 327 to 934. 1059 new contracts have been written in Prince William. Multiple offers on foreclosures are now routine there. And bidding wars are back, if the house is in good enough condition and priced cheaply enough.

Rappahannock County is the rain cloud amidst all this sunshine. Inventory continues to rise there with 93 homes on the market now compared to 83 a year ago. There was one sale last month compared to 4 a year ago. And there are three new contracts. In general, sellers in Rappahannock County have been slower to lower prices, believing that the counties unique circumstances protect them from the economic forces at work. And, to some extent that's true. But clearly not to the extent many sellers believe! The other factor at work here are a large number of very expensive properties, owned by very wealthy people, who are perfectly willing and able to wait a year or two for market conditions to change.

Overall, sellers should be singing hallelujahs. But, here's why I suspect many of you aren't. What we continue to see are lots of sales of foreclosures and short sales at very low prices. Many sellers are not willing or able to compete at those prices.

While inventory levels have fallen to around a 12 month supply, it's still not low enough to stop the price declines. If you're a seller in this market, desparate to sell, you're probably thinking that there's not much comfort in this if the only thing selling is foreclosures. But sooner or later, surely, we're going to run out of foreclosures. Here's the question, if that's a year from now, or longer, can you wait?

Robert Bruner, the Dean of Darden School of Business at UVA has a blog that I often find interesting. His latest entry is based on a quote by the famed investor Bernard Baruch "If you have made a mistake, cut your losses as quickly as possible."

He talks about the difficulties of doing that in the business world, specifically using the AOL/Time Warner merger as an example. But one of the points he makes about why it's so difficult seems applicable in real estate as well.

He talks about "sunk cost" thinking. In other words, a seller says "I bought this place for $400,000. I'm not selling it for less than that."

The problem becomes that if you really do need to sell there's no guarantee you can hold out long enough for prices to go back up, or even to stabilize. If you're a seller who's moved on and you're paying two mortgages, how long can you continue doing that?

If you refuse to lower the price or let an offer get away for $10,000 difference, what happens when it's still on the market six months from now and you've paid that much more out in mortgage payments and prices have continued to fall?

Sometimes, cutting your losses is the best advice, in business and in real estate!

It's always interesting to find someone who isn't caught up in the crowd and parroting whatever the conventional wisdom is. Ben Stein, I think, has it about right in this Yahoo column.

Ben says he's a buyer in this real estate market! (Although I'm betting a thoughtful, selective buyer!)

Maybe this will become the new conventional wisdom?!

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 know! You think I drank the kool-aid, finally! Or, you're worried that my brain has finally shorted out! (Or, maybe THEY got to me!)

I assure you none of the above is true!

Ignore all the hype from the real estate industry about now being a great time to buy. That's not what this is about. It may or may not be a great time for any specific individual or family to buy any specific house!

But, historically, a buyer has never had more power than they do today! And, I believe that's news. That's a good news story that we should all be able to get behind.

With the internet-based tools available to buyers today, they've never had the opportunity to be more well-informed. They have access to tax records and GIS from localities. They have access to maps from Google that make map fanatics like me drool! There are places like Zillow where you can get a "Zestimate" which, although flawed, is still a pretty amazing development. There are new sites such as FranklyMLS.com that are marrying Wiki functionality with MLS capabilities.

There's even more information available to help you choose an agent, whether that's reading their blog or checking out their ratings on sites such as QSC.

In fact, the buyer has so many tools these days that I suspect a lot of them are suffering from data overload. Data without thoughtful analysis can be more of a burden than a help!

Still, the tools are amazing! Regardless what prices do in the local market, a real estate buyer anywhere in Virginia has never before had the opportunity to negotiate from a stronger position!