With a tip of the hat to the old commercial for Certs (It's a breath mint...no, it's a candy mint!), there really are at least two very different markets in Northern Virginia. Cert-ainly (sorry about that), a home's location and condition still matter enormously, yet we have never seen markets that differ so dramatically depending on price range. So, when someone refers to "the market," dig a little deeper.

The chart below compares the active inventory (the red line) to the number of ratified contracts (the blue line) each month since January 2005 for homes priced less than $500,000. It is clear that, in the first half of 2005, demand significantly outpaced supply, and in general, homes were getting snapped up just as soon as they came on the market. Home prices soared as a consequence. But as we have all seen, there were limits to how long prices could continue to rise at a pace that greatly exceeded the growth in real income, and in mid-2005, things started to change - and change rapidly. By mid-2006, there was a significant imbalance in the lower end of the market. With a huge increase in inventory and a 40% drop in the number of contracts, the supply of homes priced under $500,000 jumped from just 2 weeks to more than 5 months in the space of just one year. And, with that big drop in demand, came downward pressure on prices. Yet, the real estate markets in Northern Virginia and Washington, DC as a whole are remarkably resilient. Inventory of under-$500,000 homes peaked in April 2008 and has been on a steady decline since then. Falling home prices and incredibly low interest rates combined to make entry-level housing attractive once again. Amazingly, contract activity has returned to Spring 2005 levels, and one could plausibly argue that we are now looking at a sellers' market at the lower end of the market. For homes that are priced right, we have even seen the return of multiple offers and escalation clauses, pushing sales prices above list prices.

However, and as the charts on the following page show, the further up the home price ladder one climbs, the more different the markets become. For homes priced between $500,000 and $999,999, the market looks almost evenly balanced between supply and demand. And for homes priced at more than $1,000,000, there's no question that it is a buyers' market. So whether you're a buyer or a seller, your negotiation strategies are going to vary significantly, depending on the price of the home you are looking to buy or sell.