This town, which hugs the Potomac River bluff 12 miles upstream from Harper's Ferry, is a country village where competition for restorable houses is keen - largely because of an influx of Washington-area workers willing to commute back to the District.

But those who see Shepherdstown as the perfect place to restore the perfect house are usually in for a disappointment.

The oldest town in the state, Shepherdstown has never known a serious decline and it houses have never been abused or abandoned. Homes that were built a century or two ago have been well maintained, a few in the original families, and never let go to ruin. Early log houses were added to, covered with brick or clapboard and made more grand as fortunes increased. The effects of additions and alterations may be seen everywhere.

Shepherdstown enjoyed its first population peak in the 1830s and 1840s and has yet to surpass its second peak reached after the Civil War. Today the population of the town proper is only 1,250. When residents of areas developed south of town in the 1950s and 1960s are added, the population total more than doubles.

There has been no significant building in Shepherdstown itself for years, according to Gregg Didden, a realtor there for four years.

"We may have a house go up in town once in five years," he said.

There is significant growth outside of town, however, and a soon-to-be-passed zoning ordinance and developments with restrictive covenants are designed to keep it slow. With sewage treatment facilities limited and partially developed land commanding $5,000 an acre in three-acre parcels, new residents will have to start with a $20,000 investment in septic system and land alone before breaking ground for a house. Consequently the pressure on the existing housing is intense and competition for unrestored houses is keen.

"There is virtually no turnover in houses in Shepherdstown," said Didden. "If we advertise a place we can expect 20 serious inquiries. Most houses sell immediately for the full price - with several back-up contracts."

As for real estate values over the past five years, Didden hesitates to quote a percentage increase.

"They may have risen less in real numbers," he said, "but they are in direct proportion to the insanity that has hit the District and Montgomery County. It's crazy what these things are going for."

Many attribute the discovery of Shepherdstown to the rediscovery of the commuter train that provides daily service between Union Station and Harper's Ferry, a 20-minute drive from Shepherdstown. Almost 20 people commute by train each day, including the town's mayor, who works on Capitol Hill. Other residents might take the train to shop in the District or to attend a matinee at the Kennedy Center.

Most who have come here in recent years have done so quietly and hope that those who follow do likewise.

Among them were Keith Knost and his partner David Craig, who opened a fine gifts and interior decorating shop on German Street five years ago.

"When we did that," said Knost, "I'm sure people thought we had lost our minds. It was really quite a gamble. There was nothing like it in the area."

Not at all sure they'd make it, Knost and Craig maintained apartments in Washington for the first 18 months, commuting each day against the tide to their new shop in the country.

"No one moves to Shepherdstown to make a living," said Knost. "You move here to enjoy a lifestyle. There is the feeling among almost all the people here that you have to protect that lifestyle and expend some effort in keeping it going.

While Knost and Craig have fled Georgetown, they have no hope that Georgetown will follow them. "Shepherdstown is and has always been a working village," said Craig. "This is not a tourist attraction. We don't want it to become another Harper's Ferry. If more shops do open up here we do hope they legitimately serve the community and not just the visitors."

The town was founded in 1734 by a miller named Thomas Shepherd. He built one of the world's largest water heels beside what is now called Town Run, a small stream that runs through and under the town.

Most travelers discover Shepherdstown by accident, wandering off the main road that runs from Boonsboro, Md., to Charles Town, W. Va. At first glance Shephderdstown looks like Old Town Alexandria set down in the country and ripe for restoration. These impressions could't be more wrong.

Fronting German Street there is an antique shop, an interior decorator and a dress shop which lend the place an air of upper-crust prosperity. But behind the beautiful exteriors are the shops for everyday living - shoe repair, barber, grocery and drugs.

Those stores that are empty are so for a reason, usually concerning heirs and estates, and are not waiting to be filled by antique dealers looking for branch locations, residents say.

"There has always been substantial limitations on growth in Shepherdstown," said Mayor Charles E. (Chuck) Bosley. "We've had a large turnover in businesses. Many people drive through here and think, 'Hey, this is the perfect place to open a little shop.'

"Two years later they discover they're losing money, close up and move on. That's happened in a regular slow cycle in the eight years I've been here. The simple reason for it is that there is not a market. We're too far out of the way."