...blocking out the scenery, breaking my mind. Do this, don't do that. Can't you read the sign?" The Five Man Electrical Band's 70's hit "Signs" could apply to any effort to read the "signs" in Northern Virginia's real estate market because there are so many conflicting indicators out there. As we have noted in this space on many occasions, market conditions vary widely depending on price and geography, and no one should feel confident saying that the "bottom" has been hit. Yet, there are now more positive "signs" than negative.

A September 2nd piece in the Wall Street Journal written by James B. Stewart opined that, "overall...I can't imagine a better time to buy than now." The generally downbeat Case-Shiller Home Price Index has turned positive for the DC Metro area for the last four consecutive months. The number of homes on the market in Northern Virginia is considerably less than this time last year, and contract activity is considerably higher across most price ranges. The vitality at the lower end of the price spectrum has helped moved a lot of "troubled" inventory - foreclosures and short sales - off the market. That inventory had to be diminished for there to be any prospect of a broader recovery. To be sure, there are some negative signs as well. There is still downward pressure on home prices, particularly in the upper brackets. Since most transactions involve mortgage financing and appraisals, and those appraisals by definition look backwards in time for recent comparable sales, it is going to take some time for appraised prices to move upward. That contributes mightily to a slow-to-recover market. We remain concerned about the likelihood of rising mortgage interest rates in the long term. And looking a bit farther down the road, there is no way to accurately judge the impact of the next major wave of mortgage interest rate resets that will start in late 2010 and 2011. Overall though, we're more optimistic about the direction of the market than we've been at any time in the past three years.

Specifically, one of the signs we look at to tell us which direction the market is headed is "supply," which is simply a measure of the available inventory divided by contract activity in any given month. And as the chart to the right indicates, every price category looks better than this time last year - and that is especially true for homes priced less than $500,000. There's less than a 45-day supply of such homes on the market, and we are actually seeing multiple offers on some of these properties. And while it's true that there is plenty of supply of upper bracket homes, it is equally true that it's less than this time last year.