We feel very fortunate to have shared in the collective real estate success experienced by many buyers and sellers in our beautiful state in recent years. This success has been predicated on a constant review of local, regional, and national real estate market trends, the overall economic climate, and legal and monetary policy changes. Our review now indicates that the Maine real estate market has experienced a sudden and dramatic shift in recent months, signifying the early stages of a reversal in the robust conditions that have been in place since May 2020. In fact, the Maine real estate market has been strengthening annually since 2010 and there are several elements feeding this moderation in both tone and trend. The most significant among the many influential factors are:
- Rapidly rising mortgage rates to nearly 7%, which reduce buying power
- High inflationary pressures on food, consumer staples, and energy, which are now competing with dollars that might have gone toward a down payment or monthly mortgage payment
- Record-high prices of homes for sale that preceded the rise in interest rates and were largely driven by demand and record-low borrowing costs
- Reduction of personal wealth from stock market declines that has negatively impacted liquidity and consumer confidence
- Buyer fatigue from searching for homes in low-inventory markets over extended periods of time
It is interesting to note that any one of the above factors has negatively impacted the markets in the past. However, it is still unclear how the confluence of challenges will affect the property markets nationwide and in Maine specifically.
As many of you know, I am a “glass half full” person. I could argue that a dose of inflation is historically beneficial to hard assets such as real estate and it seems reasonable to think that homeowners may take the opportunity to sell real estate to shore up personal balance sheets. This increased supply would be welcomed by what continues to be a deep buyer pool for Maine real estate, and fatigued buyers would now have a greater opportunity in terms of increased time and available inventory to make a more slow-paced decision on their next purchase.
Our typical market metrics are showing some early signs of a slowdown. Inventory is growing, the number of days on market is increasing, and the selling price to list price ratio is moving back toward more normal ranges. Homes that were selling at nearly 104% of the list price just a few months ago are now averaging 99% of the list price. However, I want to emphasize that all of the above metrics are still quite strong by historical standards.
As long as the Federal Reserve is committed to raising interest rates to slow the economy and inflation, the real estate market will struggle to hold its current values. The Maine real estate market lags behind much of the rest of the country, but we are braced for a deepening of the negative trends coming from the larger cities and states. Unlike many other states which are experiencing net outmigration, Maine has become one of the most desirable states for many people, so it is hard to imagine that we will see a wholesale reduction in demand. With inventory remaining relatively tight and a continued influx of new and returning buyers, Maine will be among the strongest states in retaining its current prices and value proposition.
We have enjoyed a strong and uninterrupted market since 2011 in Maine, but there is little doubt that there will be a pause and, more likely, a further weakening across all market segments. That weakness will be moderated by locally strong demand and limited inventory into 2023 as there continue to be excellent buying and selling opportunities throughout the state. Should you be considering a repositioning of your real estate in Maine or New Hampshire, have any questions, or need assistance, please do not hesitate to reach out to me or one of our highly qualified agents. We are here to help!
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