By Thomas Harding

This month I intend to overwhelm you with data . . . so strap on your seatbelts and let’s go for it.

First, let me introduce a new statistic to my loyal readers: the ratio between homes sold (“solds”) and homes on the market (“inventory”). Let’s call this ratio the sold/inventory ratio.

This ratio is often used by economists to determine the health of the real estate market. As you can see from Graph 1, the sold/inventory ratio was incredibly low in the months leading up to spring 2005. For every three homes on the market, one home sold. Those were pretty good odds for sellers and it made for a strong seller’s market.

Graph 1: Inventory/ Sold ratio in Jefferson County

Then Katrina hit in August 2005 and all hell broke loose in the real estate market. The actual moment can be clearly seen on this graph. The sold/inventory ratio spiked suddenly in August 2005, and kept rising through January 2009, when it reached its height: an incredible 25 homes on the market for every one that sold.

The good news is that the sold/inventory ratio fell in 2009, particularly just before the first-time homebuyers federal tax credit deadline in November. By that time the ratio fell below one home sold for every eight on the market. The ratio rose again in January 2010, but this should not cause great concern because the ratio always increases at this time of year.

With the extension of the federal tax credit for first-time homebuyers and a new credit for existing homeowners—properties must be under contract before April 30 and close by 30 June to qualify—combined with the better weather, I anticipate that the sold/ inventory ratio will fall again this spring, creating a chance for a more balanced market between buyers and sellers.

Another piece of good news from the historic data is that the worst is behind us. If we focus only on the number of solds that occurred over the past few years, we can clearly see that the market took a plunge after 2005. We can also see that the real estate market was far better in 2009 than in 2008 (see Graph 2). To me this looks like we are firmly in the upswing of a classic real estate recovery.

Graph 2: Jefferson County “solds” 2003-2008

So how were the sales in January 2010? Again we see more good news: a 50-percent increase in the number of units sold compared to the same period the year before, and a 22-percent drop in the number of days it takes for a house to go under contract.

Pending sales are significantly up, which should result in increased sales in February and March, and there was an increase in the percentage of sold price to list price from 87 percent to 93 percent. All signs of an improving market.

Table 1: Jefferson County real estate information January 2010

The bad news is that at $154,000, the average sold price in Jefferson County is now at its lowest level since January 2002 (see Graph 3). This really is an extraordinarily low figure, considering the average sold price back in January 2006 was $317,000.

Graph 3: Average sale price in Jefferson County

As I have said before, this is not cause for panic. Part of the reason for this dramatic fall in average sold price is that the lower-end home sales continue to dominate the market. But that is not the whole story. Home values have dropped over the past few years, especially because of the downward-price pressure resulting from all the short sales and foreclosures. Even Jefferson County’s typically conservative county assessor has recognized that values have fallen dramatically. She said that home prices in the county came down on average 17 percent in 2009.

So what does this all mean? With the warmer weather soon to be upon us, interest rates continuing at historic low levels, house prices falling, and, for a short time only, the federal government doling out wads of tax credits for home-buyers, the Jefferson County real estate market will be hot and happening in spring 2010.

Thomas Harding is Broker for Greg Didden Associates, Shepherdstown West Virginia: www.Greg Didden.com