Don’t Always Believe the Headlines

by | Dec 15, 2022

The famous writer and satirist, Mark Twain, once responded to a rumor published in the press that he had succumbed to a serious illness with the famous quip, “Rumors of my death are greatly exaggerated.” The real estate market has faced similar reports over the last few months. There is hardly a day that goes by in which one or many periodicals (local, regional, and national) predict the imminent demise of the residential real estate market. Of course, there are selective examples in which certain cities in certain states are struggling while others are moving along with little sign of collapse.

I am pleased to say that Maine real estate is not exhibiting signs of collapse and continues to have a strong underpinning characterized by a deep buyer pool, stabilizing prices at all-time highs, limited inventory, and a growing number of people from all over the world adding Maine to their list of places to visit and possibly relocate. Maine is a small real estate market, and it does not take too many Maine lifestyle converts to keep the supply and demand dynamics at a healthy level.

As you will see in the accompanying chart, median list prices in Maine enjoyed a significant increase early in the year and have remained stable or have slightly improved through November.

Historically, rapidly rising interest rates have slowed the pace of buyer demand, but Maine continues to benefit from a steady stream of buyers. Mortgage rates have risen from lows of 2.75% to recent highs at or above 7.25%. At the moment, conventional mortgage rates are hovering around 6.50%, with jumbo loans available at or below 6%. We are hearing a sigh of relief from buyers and sellers alike as rates move into a more approachable range for many.

There were many would-be sellers who did not enter the market during the pandemic for multiple reasons, including an inability to find a place to move and/or an unwillingness to allow strangers into their homes for personal safety reasons. We then quickly transitioned from the foregoing to a sudden and dramatic change in mortgage rates, which has discouraged sellers from giving up the low rate on their existing mortgage. As a result, we do not see a scenario in which Maine will experience a large inflow of new listing inventory. This coming year, we will have our usual seasonal slowdown, which generally lasts until the early spring, followed by a steadily increasing number of homes for sale.

The pandemic moving frenzy undoubtedly had a major impact on our market conditions. We witnessed many who were part of a 20-plus-year-long widespread movement toward urbanization start to unwind in a matter of months. I do not have the data to say that such a change was unprecedented, but I can say it was beyond anything I could have anticipated. It has been a very tough time for buyers to secure the home of their dreams when competing with anywhere from five to thirty-five other buyers for the same home on the same day. The unhealthy froth that has engulfed our markets for the past two years has clearly subsided. As a result, we are in a much more manageable and healthy housing environment. You will see that the ratio of sold price to list price has moved from an unsustainable 104% back to a more normal 96%. As a result, we are hearing that buyers have a bit more time and have been able to return to more normal terms and conditions as part of a purchase and sale agreement. Buyers who, last year, would have elected to forego inspections and financing contingencies have more options and opportunities in the current market.

In summary, the general conditions of the Maine market are quite healthy, with a moderate supply and demand imbalance. That said, the current weakness in new listing inventory due to cyclical and seasonal pressures will make it nearly impossible for the technical aspects to deteriorate too much from current conditions. It is our opinion that 2023 will be a very good year for our Maine markets. Opportunities will exist for sellers to achieve solid, near-record-high prices while enabling more buyers to get into their dream homes with less competition and on mutually agreeable terms.

We appreciate your support throughout the market turbulence. You, our friends, customers, and clients, have been there for us, just as we have been there for you as we navigate these uncharted real estate waters.