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Frederick County's housing market may be reviving, with foreclosure rates down, sales of new homes up and inventory shrinking.

"I like to believe we're starting to come out of the woods, but it's going to be a slow process," said Larry Riggs, president of the Frederick County Realtors Association.

Foreclosure rates dropped 15 percent in September but were still the second highest in Maryland, according to new data from RealtyTrac of Irvine, Calif.

With 122 homes in various stages of foreclosure — or one out of every 696 households — the county was second only to Prince George's.

The rate declined 15 percent from both August and September 2007, while Maryland's declined by 30 percent and 20 percent, respectively. The statewide rate was one foreclosure filing per 1,024 households.

However, the number of houses on the market has declined sharply since July, as sales of new single-family homes have picked up. September listings fell 11.6 percent to 389 homes, compared with 440 homes on the market in September 2007, according to the Frederick County Association of Realtors.

While there were 50 percent more contracts in September compared with August, year-over-year contracts declined 11 percent. The number of settlements on single-family homes increased 51.2 percent from 123 in September 2007 to 186 settlements last month, with the largest increase in homes under $150,000.

Riggs said he expects the local housing market to improve in 2009 as "foreclosures are clearing out."

"November and December will be spotty [for sales] with the holidays, but in January we should see things start to turn around and we can gradually get back to a normal market," Riggs said. "We hit an unusual situation with this subprime mess. Those were impossible loans."

Tom McLister, a Bank of America mortgage broker in Frederick, said the small bits of good news, combined with cuts in interest rates, have triggered an influx of loans.

"Definitely the activity is up a lot," McLister said. "Consumer confidence in the market is really what drives it. Any bit of good news and you'll see a response. It's a very easy trend to follow."

Improved year-over-year foreclosure numbers, combined with improved sales, have been Maryland's first indication of an improving housing market in several years, said Kenneth R.C. Wenhold, Washington regional director for Metrostudy, a Houston market data company.

Wenhold said Maryland's housing trends often follow those of Northern Virginia, which has reduced its inventory by nearly half in the past five months in some counties.

"Now it's not a matter of whether Maryland's housing market will recover, it's a matter of how fast," Wenhold said. "Northern Virginia has tightened up much faster than we expected. We're hopeful Maryland will do the same."