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!