When sailing a boat, touching bottom is not a good sign. When the real estate market is plagued by a seemingly endless decline, touching bottom comes as a welcome indicator that things are soon to get better.

In an article last fall the New York Times asked economists to share the data and models they use to figure out how much the housing market was overvalued in different regions and what they use to determine where the bottom might be.

The relationship of inventory to sales was deemed to be an indicator, and it seems in our local market that statistic suggests the bottom has been reached. In Napa County, the months of inventory of homes on the market has declined from 11.8 months in April 2008 to eight months in April of this year. In the category of homes sold there has been a significant increase in activity with 67 sales in April of 2008 and 117 sales in April of 2009.

These statistics, combined with the decrease of homes on the market from 851 to 672, indicates a narrowing of supply-demand ratio. Market prices may have reached a bottom.

A second economic flag of a turning market is an increase in the ratio of home prices to per-capita income, more commonly referred to as the “affordability index.” Last Thursday the California Association of Realtors stated an increase in affordability for would-be homeowners from 46 percent in 2008 to 69 percent in the first quarter of 2009.

Further refined to the northern wine country, the same index of affordability increased from 42 percent to 60 percent, with the entry level price in our region dropping to $277,270 — requiring a monthly home payment of $1,650 and annual income of $49,570. It is this reflection of declining prices and interest rates combined with a stable income that increases the number of potential home owners.

A third indicator is the “price-to-rent” ratio. When the cost of owning a home lowers to the point where it is equal to or less than the cost to rent that home, a market turnaround is likely. In Napa, American Canyon and Vallejo, sales are being made where the effective cost of ownership is nearing the rental value.

By similar logic, low interest rates and low market prices are providing opportunities where investors are able to obtain a positive cash flow after expenses and debt service.

The release of additional foreclosed homes for sale by lenders and the effect of mortgage modifications are currently being factored into the market. Provided interest rates remain below 5 percent, and there is not a wave of new foreclosed properties on the market, it appears a balance has been achieved and a bottom has been reached.

As we weather the storm, only a view into the past will identify the true bottom. In the meantime, indications are that we are already there; even in the sailboat, touching bottom is much preferred to running aground.

Charles Bogue is a broker with Coldwell Banker Brokers of the Valley in Napa. He can be reached at 258-5221 or e-mail: cbogue@cbnapavalley.com.