On May 20, Joe Dasco, Principal at Reger Dasco Properties, was a commentator for the Maine Real Estate & Development Association’s (MEREDA’s) 2021 MEREDA Index. Joe’s comments on the Residential Sector follow Economist Charles Colgan’s analysis for 2020.
The MEREDA Index is a measure of real estate activity designed to track changes in Maine’s real estate markets. The Index is a composite of nine seasonally adjusted measures reflecting both new development and transactions involving existing properties and it covers both the commercial and residential markets statewide. The most recent edition covers the year 2020 and provides commentary on the Commercial, Residential, and Construction sectors. The MEREDA Index for 2020 is 113.3
THE RESIDENTIAL COMPONENT: 113.3
[Charles Colgan Analysis] “The driving force in the growth of the MEREDA Index in 2020 was the sharp growth in the residential Index, particularly in both the number of units sold in the second half of the year, and a sharp rise in the median sales price. The Index for the number of units sold in 2020 was up 9.5% in 2020 over 2019 on an annual average basis and 28.9% comparing 4th quarters. The median sales price rose 13% on an annual average basis, while the permits for new construction grew by 16%. 4th quarter permits grew by 58% in 2020 compared with the same quarter in 2019 on a seasonally adjusted basis.
The only part of the residential Index that fell in 2020 was mortgage originations (by 13.6%). The divergence between units sold and mortgage originations is unusual and may be related to anecdotal evidence of a large number of out-of-state buyers entering the Maine housing market in response to the pandemic and these buyers may have financed their purchases with equity taken out of their other homes.”
[Joe Dasco, Principal at Reger Dasco Properties] “2020 with all of its challenges, has seen a continuation of a strong residential market that many had predicted would end in 2019. While Reger Dasco Properties is focused on residential condominiums in urban markets, the theme is the same as in the suburbs: low inventory and strong demand. Many have heard of the on-going bidding wars and multiple offers above asking price for single family houses, trends we feel are not healthy or sustainable. However, this is not the case with condominiums in our sector. Urban condominiums serve a different demographic: empty nesters looking to down-size and live in a walkable and safe community, as well as young professionals realizing that with the low interest rate environment, they can own a highly appointed condominium with amenities for the same monthly payment as they shell out for rent. Due to the pandemic, we are also starting to see increased demand from young professionals who are working remotely and looking to escape the high-cost larger cities, such as San Francisco, New York, and Boston, and choosing Maine as their new home base.
There also has been a continuation of the same challenges that we have faced for the past several years: higher construction costs, higher material costs, and a shortage of skilled labor. Exasperating these challenges in the Portland market are the political winds as they relate to the new referendums. Simply put, while the intentions were good, more housing cannot be built under the new ordinances passed in November 2020. The inclusionary zoning is simply too burdensome! In our most recently completed project (Hobson’s Landing Phase 1), we were able to build off-site units to meet the 10 % requirement. The new requirement is 25% and the affordability calculation was brought down from 120% of AMI to 80% of AMI. In addition, under the new ordinance, developers cannot build off-site units and if you want to pay the fee in lieu, your cost goes from $100K per unit to $150K per unit. Under the new ordinances that would add $4.1 million in costs to that same project when fully built out. Therefore, longer term, we expect you will see legacy grandfathered projects get worked off and eventually new residential multifamily construction come to a halt.”
Click here to view the 2021 MEREDA Index video and access the full report.