The sign advertising luxury condominiums seems out of place at the corner of Ninth and M streets NW, on the southern edge of Shaw, where vacant lots dominate the landscape and prostitution and drug trafficking thrive openly.

A few blocks east, David Slonim, president of Chesterbrook Construction Co., has just finished a $2 million renovation of 10 row houses at Fifth and L streets. He converted the long-boarded-up houses into 48 one- and two-bedroom apartments that will rent for $500 to $700 each per month.

The projects signal that Shaw is making a comeback as a desirable neighborhood. Ten years ago, it was touted by real estate agents as the next Dupont Circle. The neighborhood was awash in urban pioneers who bought many of the crumbling, but distinctive, row houses that bore cheap price tags, put up iron bars and renovated the interiors.

But high mortgage rates ended that real estate boom in the early 1980s, and the young professionals who had flocked to Shaw were left in a neighborhood notable for neglected buildings, abandoned houses, vacant lots -- and crime.

Now the southern part of Shaw, around Ninth and M streets, is in the midst of a miniboom, thanks to the expected opening of the Mount Vernon subway station, the proposal to build Techworld -- a combination office building and high-tech mart -- and lower interest rates.

While the opening of the partially completed Metro station at Seventh and M streets is in doubt because of federal budget cuts, the privately financed Techworld project at Ninth and K streets is expected to open by early 1988.

Realtor Steve Mowbray described as "hot" the real estate market in the residential neighborhood that borders on Mount Vernon Square.

"A lot of people are discovering it as a place to live," he said. "It could be an instantaneous neighborhood. People say how wonderful that there are so many vacant houses , because development can move faster because there are no relocation problems."

Mowbray cited the Metro station as a big selling point.

The neighborhood shows few outward signs of activity, but real estate agents said that gentrification is reviving and that increasing sales will result in more renovations in the near future.

City records show that sales in the area bounded by Fifth, 10th, K and O streets NW, including single houses and vacant lots, increased from 29 in 1983 to 49 last year.

"What is important to us is the downtown location," said Slonim, who has named his development Twitchell Square. "I look at the Techworld project as more important to the neighborhood than Metro. That is a major improvement and brings large-scale development two blocks closer to us."

Brian Logan, another real estate agent active in the area, said of southern Shaw: "All of a sudden, I am getting inquiries about shells. I am getting calls on properties that no one was interested in two years ago, or even last year."

The Henrietta at 936 N St., owned by the troubled First Maryland Savings and Loan, which owns two other buildings on the block, is among the few recently renovated buildings in the neighborhood.

The rents in its one-bedroom apartments range from $425 to $625 a month, according to Danny Galkin, the managing agent for the 38-unit structure, who was signing leases for apartments in the newly reopened building last week.

"The bank feels it may have spent too much in the renovation," he said. "It is our opinion that this standard will encourage quality renovations in the area and protect our investment."

The residential area around the Henrietta is a study in contrasts. Run-down row houses selling for as little as $12,000 stand near new condominiums that sold for $89,000 late last year.

Entire square blocks, cleared of hundreds of row houses, sit vacant because large-scale building plans fell through. Unemployed men keep warm around makeshift heaters of oil drums filled with burning trash.

On adjoining blocks, abandoned houses with open doors have become havens for the homeless -- and the business addresses of the scores of transvestite prostitutes who have frequented the area for a decade.

Sprinkled throughout the neighborhood, and typified by the 900 block of M Street, are expensively renovated town houses with colorfully painted trim, iron bars at their windows and carefully tended flower gardens.

In the mid-1970s, Shaw, one of the city's urban renewal areas, was part of the "pioneer" movement as newcomers, largely white, were attracted to its spacious Victorian houses that had reasonable prices and were within walking distance of downtown shops.

At the time, it appeared that all of downtown Washington's neighborhoods would become instant middle-class communities as low-income renters were displaced by the extensive renovation. But the movement was stopped in its tracks by rising mortgage rates, leaving Shaw largely a neighborhood of "haves" and "have-nots.""

Hal Davitt, president of the Blagden Alley Association, bought his four-story brick house in the 900 block of M Street in 1978 but, because of delays in renovations, was unable to move in until 3 1/2 years ago.

Shaw residents see little evidence that their neighborhood is a "hot" real estate area, Davitt said, although he has noticed an increase in the number of "for sale" signs outside vacant houses.

"When you are in the middle of it, you see it from day to day, and it almost seems like it isn't moving," he said. "We still have drugs and the transvestite prostitutes. For us, progress is one less prostitute and one more renovated house."

Davitt's association, named for the alley occupied by auto mechanics behind the 900 block of M Street, has been carefully monitoring the progress of a 250-unit town house and apartment complex planned for the block across M Street.

After successfully defeating a plan to turn the mostly vacant square into a parking garage for the Washington Convention Center, neighborhood residents decided to support the housing project, which will be built by a private developer with some government financing.

Housing department spokeswoman Marilyn Crawford said that the project, called Mount Vernon Plaza, is a joint venture by the city and Mount Vernon Plaza Associates. She said that at least 20 percent of the units will be reserved for low-income residents. Construction of the project is to start in late spring, she said.