by: Dava Davin, Founder + CEO, Portside Real Estate Group
The residential home market in Maine (single family and condo sales) in 2022 was almost $8 billion, a decrease from the peak of $8.7 billion in 2021. The decrease in the market is reflected in the sale of approximately 4,000 fewer units, resulting in a 9% decrease in overall volume. The prices of homes in Maine reached a record high in June of 2021, with a median price of $360,825. Despite the drop in overall volume and sales, the median price in 2022 remained strong, reaching $335,000. Throughout the year, the median price continued to increase each month, surpassing the prices seen in 2021. This indicates that while the number of sales may have decreased, the demand for homes in Maine remains high and is reflected in the prices. The overall increase in median prices for the single family home market in Maine was 12% in 2022.
Nationally, the current state of the US housing market is a topic of much debate, with headlines suggesting a potential crash and pricing plunging by 20%. However, the latest data from the National Association of Realtors tells a different story. Despite 10 consecutive months of declining home sales, the median price in the US actually rose 3.5% to $370K in November 2022 and has seen 129 months of price increases, which equates to over a decade. Regional differences also play a role, as the West Coast is starting to see prices level off and decline in some markets, while the Northeast is not seeing a decrease in prices.
The past few years, particularly 2021, have been unique due to the pandemic, leading to a rise in house prices as everyone bought Pelotons, adopted dogs, and moved. Comparing 2022 to 2021 may not provide an accurate picture, as 2021 was far from normal. However, a deeper analysis reveals that compared to the historical average of the previous eight years (2012-2019), transaction volumes in 2022 are down only about 1%, which is much more reasonable than the 16% drop from 2021. In 2020 and 2021, transaction volumes were up 9% and 18%, respectively, compared to the historical average, making these years outliers. Overall, the nation is returning to a more normal state, which is why it is important to keep this in mind when examining the housing market in Maine.
Mortgage Rates Stall Sales
It’s worth noting that in 2021, mortgage rates remained relatively stable, hovering around 3% for the entire year. This stability allowed for a steady flow of homebuyers and sellers in the market, and it wasn’t until the following year that rates began to rise, causing some fluctuations in sales.
The rising mortgage rates in 2022 have been a hot topic among real estate professionals and homebuyers alike. In April, rates took a jump to 5%, but it wasn’t until the leap to 6% in Maine that the effect on sales was seen. This lag time between under contracts and closings typically ranges from 45 to 60 days, and as rates continued to increase in August, the drop in sales was observed in October. This trend can be directly linked to the rise in rates and the number of units trading. However, there is some good news as we see some leveling off from the peak, which has helped ease buyers’ minds and get them accustomed to the new level of rates.
During the second half of the summer, we started to see a shifting market, which became slightly more buyer-friendly compared to the extreme COVID market of multiple offers, no contingencies, and cash offers. This shift has resulted in a cooling off of the market, which is still largely favorable to sellers. However, we are now seeing only 2 to 3 offers on average, with building inspection and financing contingencies becoming more common. There is also a second showing of homes, and sellers are starting to stage their homes again, reducing prices, and withdrawing from the market after testing high prices. Overall, the pace of the market has slowed, and with building inspections and financing contingencies, we are seeing more 45-day closings.
Maine’s housing supply is currently at near-historic lows, which will help sustain high home prices compared to other downturns. Although prices may level off, they are not expected to decline in 2023. Mortgage interest rates have moderated from their peak, and there will likely be fewer transactions due to the lack of inventory, which has made it difficult for many Mainers to afford a home. However, the market will remain less frenzied, giving buyers and sellers more time to make thoughtful moves. Hot locations will continue to have a more robust market than other areas, and the seasonality of the market will return, with a hot spring season expected. As always, there will be cream puff listings that cause bidding wars, but overall, the market is expected to ease up for a better 2024.