Have we a buyers’ market?

Home sales in the Charlottesville area in May continued to point to a market that favors buyers, as housing inventory remains high while prices dropped compared with the previous year.

The number of homes for sale in Charlottesville and the counties of Albemarle, Fluvanna, Greene and Nelson in May was 2,600.

That’s up from 2,507 last May, and 1,236 in May 2005, when the local market was near its peak.

May sales, meanwhile, were down 35 percent compared with the same month a year ago, dropping from 342 to 221 homes sold.

The median sales price in the market dropped from $287,000 in May 2007 to $274,000 this year.

Charlottesville Realtor Jim Duncan, who crunched the numbers as part of his monthly analysis of market trends, said houses will continue to sell if they are priced appropriately.

Homeowners who set high prices will have difficulty because buyers are looking for the best deal in a market that is flooded with supply, said Duncan, who maintains a blog on local real estate trends at http://www.realcentralva.com.

But the “appropriate” price may be much lower than homeowners were hoping for, possibly even lower than the value of their mortgages. That could mean selling at a loss.

“These sellers are in danger of being upside-down,” Duncan said.

Dave Phillips, who heads up the Charlottesville Area Association of Realtors, said it will take up to a year for the supply of houses to come down to a level at which the number of people buying and selling is balanced.

Nationally, the wave of foreclosures in 2007 shook the confidence of investors and caused banks to tighten lending standards. Phillips said foreclosure hasn’t affected the Charlottesville area as badly as other markets, but it is now harder to qualify for a mortgage and that might be limiting the number of buyers in the market, especially on the low end.

Phillips said buyers are afraid of being stuck with a house and no way to sell it, as some homeowners are now.

“The consumer confidence right now is not really high and when that happens a lot of people are reluctant to pull the trigger on something expensive like a house,” he said.

He also said investors are staying out of the slow housing market because it is not growing very quickly.

“I think there’s a lot of people sitting on the sidelines right now who have been scared by the national financial news and scared by the overall economy,” he said.

But for homeowners who are interested in buying houses as a long-term investment, Phillips thinks this is the time to do it.

Phillips said banks are lowering interest rates to encourage investment. This could be especially attractive to first-time buyers who don’t have to sell a house to buy one.

Charlottesville Realtor Ray Caddell believes the strong local economy will help moderate the desultory effects of low home prices and high inventory. The University of Virginia, which is Charlottesville’s biggest employer, helped dampen the effects of the subprime crisis by providing steady employment, Caddell said.

But sellers have to be “reasonable and realistic about the price we’re going to be getting,” Caddell said.

“It’s just a question of educating the sellers and the buyers what the right price is,” he said. “Were going to be fine. It’s still a great place to live.”