Fellow agent and blogger Danilo Bogdanovic just wrote a post on Agent Genius suggesting that perhaps the lack of inventory is actually a plot by the banks to all withhold their foreclosure inventory and thus drive up prices.

Danilo uses the word "Collusion". If you're a buyer right now you may find this persuasive. But I'm not convinced it's all an evil plot.

If the banks are fans of "Buy Low, Sell High" it makes sense for them to hold on to assets until prices improve. And, as inventory has gotten scarce prices are starting to improve.

A banker friend has also suggested that any publicly traded company would logically spread out losses so that they don't all show up on the balance sheet in the same quarter.

And, given what I've seen dealing up close and personal with banks on short sales and foreclosures for a couple of years now, I doubt most of them are capable of the planning that would be necessary for this level of collusion!

If you're a homeowner you're probably thinking this sounds like the best idea ever. If the banks put one or two foreclosures up for sale each year, your home might actually begin to appreciate again!

Either way, I suspect we're giving the banks way too much credit in thinking collusion is responsible for what we're seeing right now.

May proved to be mostly a month where the numbers went sideways.

Whether you're looking at Culpeper, Fauquier, Prince William or Rappahannock County, there are no dramatic changes.

There were some subtle signals that things have slowed down a tad in Culpeper county. Both new contracts and sales actually fell last month.

In Fauquier county inventory actually rose, ever so slightly (3 houses). But sales jumped month over month from 54 to 70, well above last year's pace at this time.

Prince William continued to shed inventory with only 3.7 months of inventory now available. I continue to see buyers discouraged with what they're finding available under $400K in Prince William.

Rappahannock County had the biggest jump in sales with 7 units selling last month. This being Rappahannock and the universe being so small, it appears to be a big jump (SALES TRIPLED!). But inventory is exactly where it was a month ago and we're unlikely to see any sudden movements in this quiet corner of the market.

Overall, signs would still seem to indicate we're at or very close to a bottom. Prince William still looks to be on its way back up with price appreciation. And, with a tiny amount of inventory available, prices there will likely continue to rise throughout the summer months.

Prince William county continues on its headlong pace towards a seller's market. There's now only a four month supply of inventory in Prince William county. And, that's not because there's no inventory coming on the market. 1116 new listings were added last month. Meanwhile, 1200 went under contract. We are seeing many fewer new listings added than a year ago at this time. 1631 new listings were added in March of 2008. Meanwhile, closed sales were at 750 in March of 2009 compared to 502 a year ago. Meanwhile, the average sold price crept up from last month's $204K to $210K this month.

I'm not expecting big leaps in pricing in Prince William county. But given the short supply and the increasing demand I think we'll likely continue to see small gains in prices throughout the spring/summer season.

I'm thrilled at the progress we're making in Culpeper. We're down to 8 months of inventory there. Last year at this time there were over 800 homes for sale. This month there are only 464. Last year in March we sold 42 homes, this year 58. There is a March jump in new listings in Culpeper and the other counties, but nothing like the jump we've seen in recent years. And, as long as the net result is still declining inventory, the indicators seem pointed in the right direction.

Prices are still falling in Culpeper County, but I predict we'll see some stabilization by the end of the season. There are already signs of that in the bidding wars on properties priced under $300K.

Fauquier is moving in the right direction, but more slowly than Culpeper or Prince William. We've still got almost 13 months of inventory in Fauquier County. As in the other counties, the lower priced tier of homes is moving pretty quickly. But there's an awful lot of inventory above $350K that's just sitting. There are fewer foreclosures in Fauquier and, in some sense, that's hurting the market. Many of the buyers out there are bargain hunters. And, the bargains are harder to find in Fauquier County.

Still, the inventory is down to 556 as compared to 734 at this time last year. But unlike Culpeper and Prince William County, Fauquier's inventory actually rose this month compared to last month. That's not unusual for March, but is unusual compared to what's going on around us. Last March 35 homes sold in Fauquier County. This year in March it was 43. Again, we're headed in the right direction, but slowly.

Prices are still falling in Fauquier. The average sales price is $224K now as opposed to $318K a year ago. Fauquier is the hardest county to make a case for price stabilization this year. I don't anticipate stabilization in prices until we get a lot closer to six months of inventory. We may hit that level if we have an extraordinary spring/summer season. For now, my bet is that Fauquier prices remain the most likely to continue to fall.

Rappahannock County shows inventory rising slightly (76 compared to 71 a year ago). New listings were 17 in March of this year compared to 11 a year ago. There was 1 new contract in March and 3 closed sales. Those are typical Rappahannock numbers. This is the county that tends to be more sheltered from the real estate trends in the rest of the area. Prices do seem to still be falling in Rappahannock, although it's hard to identify by looking at the overall trends. And, Rappahannock residents continue to take their properties off the market rather than suffer the loss in value.

It's not only the Days on Market and number of offers and volume of sales that are improving in Prince William. I'm also seeing some strength in pricing there.

The sale price as a percentage of list price has risen year over year from 87.64% to 90.97%. While it's true that much of this strength is in the lower price ranges, the fact remains that inventory is selling and prices are firming up. And, in the under $350K inventory, the pricing strength is even more apparent with very little selling much below asking price.

And since we're still not seeing the typical early spring flood of new inventory, prices, so far, seem likely to continue strong.

There's some indication of firming of prices in Fauquier, although it's too small to assume there's anything in the way of a trend here yet.

And Culpeper prices remain soft at best, probably still declining.

The question continues to be whether higher prices and lower inventory in Prince William and east will push people further out as the peak sales season approaches.

There are a lot of potential buyers out there, sitting on the sidelines, waiting for the RIGHT TIME, the "perfect time", to buy.

But one person's perfect is another's missed opportunity.

If you want the most inventory to choose from because your requirements are very, very specific, your perfect time was fall of 2007 if you were buying in Culpeper. But if you were in Fauquier County you'd have waited too long by then. Inventory there peaked in May of 2007. Inventory has continued to decline since then.

If you wanted the lowest interest rates odds are this is your magic moment.

If you want the lowest prices and don't care as much about the inventory or the interest rates, anytime in the next year will probably work just fine.

But, if, like most people, you want it all, it's a little tougher to figure out.

I suspect your best combination of all three was probably mid year 2008. Inventory remained high enough that there was a great selection. Interest rates had gotten much lower, but even at the lower end of the market there wasn't yet a huge upsurge in buyers yet.

I believe a lot of buyers are waiting for the "right time" without defining what that means for them in their situation. The answer can be different for different families in different situations.

What's your perfect combination?

The November numbers are out and there are a few interesting things to note.

Across the board, the number of new listings coming on the market is down, inventory is down and sales and new contracts are down. It's not unusual to see a little drop in new inventory coming on the market in November. But I believe that part of this is that we're seeing fewer foreclosures hitting the market. We do not necessarily see a similar drop in contracts and sales in November. So, there are probably non-seasonal reasons for this. One possibility is that fewer foreclosures on the market means fewer properties of interest to the buyers out there. Another possibility is that all the bad economic news out there has some buyers waiting to feel better about their own financial future. A combination of these is the most likely culprit. And, while you may have heard about the recent surge in mortgage apps, most of those are refinancing applications and may not affect sales here in the next month or two.

Culpeper is showing a further drop in inventory to 592 units. That's the lowest number we've seen in over 2 1/2 years. Only 75 new properties came on the market and only 40 were sold. 42 new contracts were ratified. It's interesting to note that the last time inventory was at this level in April of 2006, there were 67 properties sold and 70 new contracts ratified. The inventory in Culpeper is actually a little overstated. There are two new condominium developments in Culpeper that are showing a lot of individual units listed in the MLS. But since there aren't any actual units built yet, the housing units actually in existence is a little smaller. You don't see this in most of the other counties.

Fauquier County shows an inventory decline as well, down to 631. Sales dropped from 49 to 35, but contracts written stayed steady. In Fauquier as well, it's the lowest inventory number in 2 1/2 years.

In Prince William County we're back where we were, in terms of inventory, in early 2007. There are currently 3919 properties on the market. As in Culpeper, all numbers dropped this month, new listings, new contracts and solds. Since Prince William had also been seeing large numbers of foreclosure sales I suspect the decline in those listings is having an effect.

Rappahannock County, having weathered much of the real estate downturn without dramatic changes, is still seeing stubbornly high inventory. It's edged down from its peak of 103 last month to 98 this month. But I expect that we may be stuck around 100 for a few months, at least. Since sales in Rappahannock remain slow, it will take a very long time to get down to a more rational inventory level.

I read a piece in Seeking Alpha this weekend about the inventory situation in the real estate market.  The author's theory is that the improvement we've seen in inventory levels in the last few months is an illusion. And, he gives formulas for computing what the current inventory really is.

His thinking is that the people who pulled their homes off the market, really still do want to sell. In addition, there are many people who have not put their homes up for sale, but would like to sell. His conclusion is that prices will continue to fall for much longer than most people are anticipating because of the huge amount of unseen inventory.

He makes some good points. Certainly there is some unseen inventory out there. There are a substantial number of people just waiting for the market to "turn around" and then they'll list their homes for sale.

But I think he overestimates the size of that universe. Some of the people who have decided not to see in this market will give up the idea all together. Some of them didn't have a pressing reason to sell in the first place. They'll make improvements to the home they are in and stay another five years.

Some people wanted to sell their homes because they had attractive job offers elsewhere. But, in light of the current market, they passed up those job offers.

There's a growing number of owners who have rented out their homes rather than sell them and take a big loss.  Some of those owners will decide they like being landlords and will hold onto that asset. Others will at least hold onto the house as long as they've got good tenants and they can continue to pay their mortgage.

As with so many things, none of us know what the real inventory number is. But the blog post did get it right that the number is higher than what you'll see in October's report due out this week.

The Culpeper numbers showed a healthy jump in sales year over year. I've been wondering what made up those numbers and so decided to do some additional analysis.

38 out of those 57 sales were foreclosures. That's two thirds of those sales.

While an increase in sales and a decrease in inventory always qualifies as good news, this probably doesn't warrant throwing a party to celebrate the end of the real estate downturn.

What this means is that two thirds of those homes sold at very steeply discounted prices. Here are a couple of examples:

This home was purchased brand new in October of 2005 for $345,000. It sold in June as a foreclosure for $149,000.

This home was purchased new in November of 2006 for $448,000. It sold in June as a foreclosure for $230,100.

Those are discounts of 57% and 48%. I analyzed 10 of these foreclosure sales. The average discount from the original sales price was 48.8%.

If your the guy who lives next door and you want to sell your home, how do you compete? Most homeowners can't or won't sell their home for half of what they bought it.

So, yes, it's good news that more homes are selling and inventory is shrinking. If they sell all the foreclosures, there's less downward pressure on pricing.

But right now, if you have to sell, be prepared to price your home very, very aggressively. The competition is based on price and it's vicious!

One quick note, I'll be in the Wildwood Forest subdivision in Amissville this Saturday afternoon from 1 to 3 p.m. If you've got a question on the real estate market in general, your home in particular or just want me to look into my crystal ball, let me know. I'm bringing free cloth shopping bags for everyone I talk to. Give me a call at 540-270-2742 if you'd like to chat while I'm in the neighborhood!

Every month in this space I give you the statistics on what the market is doing in Culpeper, Fauquier, Rappahannock and Prince William counties. (With Warren thrown in occasionally!)

What I haven't really talked about is where this data comes from and what inherent flaws there might be in this data. It now seems like I'm overdue for that discussion.

Each month the data I use as the basis for my analysis comes from the Multiple Listing Service (MLS). The MLS that serves our area is called MRIS. The data in this system comes from what the agents input. They input their listings and they input the information when it gets sold.

So, here's the first weakness in the system, the human factor. People forget, get lazy, get busy, etc. It's the same problem with every system, anywhere, run by people!

There are brokerages that still don't list properties in the MLS. They are few and far between, but a few of them still exist. (By the way, if you really don't want your house to get sold, just keep it out of the MLS!)

Builders generally don't list every house they have for sale in the MLS. They'll list, perhaps, one of each model they have. So the MLS always understates the total inventory and seriously understates new construction inventory.

While many For Sale By Owner (FSBO) properties are now in the MLS, many more are still not, relying on the handwritten sign in the yard. Again, this understates inventory.

But for whatever flaws there are, the MLS is the best system we've got. It's as close as I can get to getting a total snapshot of the market at any given time.

In an office meeting today we talked about the fact that new household formation is down 70%. What that means is that young people who would typically be leaving the nest and getting their own place, aren't. They're staying with Mom & Dad for a much longer period of time than would normally be expected.

Some part of this is due to the still unaffordable pricing on most area homes. Wage increases haven't come anywhere near keeping up with increased housing costs. My personal opinion is also that there's also less pressure on young people to go out on their own.

Regardless of the reasons, first time home buyers are sitting on the sidelines. As long as that's true, it's going to remain tough to sell the homes that typically appeal to first time home buyers, such as condos and townhouses. And, if no one is buying those, it's tough for those owners to sell and move up to their next home.

Even with the tighter credit guidelines, there are still programs out there that can get first time buyers in a home with very little cash. That's one way to break the logjam.

And, Mom & Dad might want to consider real estate investing as a way of securing some assets for retirement and moving the kids out of the house. Rent it out to your kids and at least it's the first step on the way to independence.

Whatever the solution, until we find it and get these new homeowners to start clearing off some of this inventory, it's going to continue to be a tough market for the sellers!