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In the Housing Market, Signs of a Thaw

April 15, 2009 - PORTLAND -- Three signs of spring in southern Maine: crocuses, potholes and first-time homebuyers.

Hardy blooms and rutted roads are perennial, but the recession and tighter lending terms have kept overall home sales in the deep freeze.

Now, real estate agents are seeing the start of a thaw. It's being sparked by first-time homebuyers, who are responding in force to a new $8,000 federal tax credit, government-backed mortgage programs, historic low interest rates and falling home prices.

Their return is noteworthy because first-time buyers typically lead struggling housing markets out of the doldrums. Their purchase of more affordable houses sets the stage for additional sales, by allowing sellers to move up.

"First-time buyers are the key," said John Herrigel, an agent affiliated with Green Tree Realty in Portland. "They need to start buying so the supply will diminish."

This early movement doesn't signal a quick end to Maine's real estate slump. Sales volume and median prices have been falling since last year, and continued double-digit slides in February, according to the latest statewide data collected by the Maine Real Estate Information System. In Cumberland County, sales were off 21 percent in February, and prices were down 10 percent from the same time last year.

But those macro figures gloss over the activity taking place in the $200,000 range of the price spectrum in southern Maine, where most first-time buyers are looking. Figures gathered by Herrigel and culled from the Realtor data system hint at what may be the beginning of a transition.

For instance: Homes in the $170,000 range in Portland during the first quarter of this year were being sold after roughly 57 days on the market, compared with 91 days for the same period last year. And this snapshot misses homes that are under contract today but waiting to close, which Portland-area agents say are keeping them busy.

First-timers make up three of four clients today for Linda Flynn, a buyer's agent at Flynn & Co. in South Portland. Many of the properties she's showing them are short sales, meaning that the asking price is less than the seller owes on the mortgage.

Foreclosures and short sales have been dragging down median sales prices nationwide to levels not seen since 2003. That's a disaster for sellers who bought two years ago at the peak of the market. But it has created an inventory that Flynn and other agents can present to first-time buyers. For them, it's an opportunity.

GOOD TIME FOR BUYERS

Consider the three-bedroom cape under contract to Kristin Reed and Stephen Foley. She's in grad school and he's a computer engineer. After looking around for a while, they found an older home in a quiet South Portland neighborhood. It's a short sale, with an asking price of $139,500. They now have it under contract.

"Two years ago, we never could have bought a house in Greater Portland for under $150,000," Reed said.

The couple also is benefiting from three other factors that are breathing new life into the market.

• The first is an $8,000 tax credit for qualified first-time buyers, part of the federal government's economic stimulus package. This credit is refundable, meaning buyers get the full amount, even if they owe less on their income taxes. The credit expires Dec. 1, so there's urgency to act.

• The second is attractive terms on government-backed mortgages, from players including the Maine State Housing Authority, USDA Rural Development and the Federal Housing Administration. Reed and Foley are getting a 30-year fixed mortgage backed by FHA, which has a 3.5 percent down payment.

FHA-backed mortgages are the biggest program now at First Financial Mortgage Corp. in Portland.

This isn't a return to subprime standards. Lenders are verifying work histories and checking backgrounds and credit scores to make sure borrowers can afford the loans, according to Philip Laughlin, vice president and senior loan officer.

But FHA can be a good fit for first-time buyers, and Laughlin is seeing plenty of two-income couples, newlyweds and people who were renting because they couldn't get financing after the collapse of the subprime market. Half the firm's business now is first-timers, Laughlin said.

"There has been pent-up demand," he said.

• The third factor is mortgage rates. Thirty-year fixed rates are well below 5 percent. They slid to 4.6 percent late last month, a record low. Rates have been driven down in part by the Federal Reserve's move to buy more home-loan securities.

Reed and Foley were waiting last week to hear whether the short sale price was acceptable to the lender. Reed said they love the house, but if this deal falls through, they'll start shopping again.

"We feel extremely lucky there are so many great opportunities," she said.

Jennifer Villacci and her boyfriend are also first-time homebuyers. They've been looking for a house since last fall and recently made an offer on one in the Portland area. Villacci said she didn't want to say where the house is or provide any details on prices because there are still issues that need to be resolved before she finds out if the couple will get the house.

But seven months of shopping have convinced her that while there are a lot of houses to choose from, there aren't really many "killer deals."

"I think Maine prices are still too high and there aren't deals like you see where you can get a house for $100,000 in Florida," Villacci said. "This isn't Florida."

Still Villacci added, the government's first-time homebuyer tax credit and low interest rates make it a good time to be a buyer and help make it feasible for her to move from renting to owning.

TOUGH TREND FOR SELLERS

First-time buyers are even finding opportunities in new construction. Building permits fell last year in southern Maine to 1991 levels, and some builders hungry for work now are offering affordable packages aimed at first-time buyers.

One caught the eye of Erica St. Laurent. She and her husband, a carpenter, recently moved into a colonial in New Gloucester. The upstairs is unfinished; her husband can do that over time. But the newlyweds got a new house for $183,000, with the help of a 5.25 percent loan from the Maine State Housing Authority.

"The timing couldn't have been better," St. Laurent said.

But as first-time buyers stream into the market, real estate agents are starting to worry about supply.

"You've got backed-up demand and very low inventory," said Leonard Scott, owner of Assist2Sell Buyers & Sellers Realty in Falmouth.

Falling prices and mounting layoffs have sellers holding back in southern Maine. In Cumberland County, Scott calculated using Realtor system data, total listings had fallen below 2,400 homes early this month, before starting to edge up last week. That rebound typically happens in early March, as spring approaches.

"It's late, but it's starting to come," he said. "It may show the market starting to come out of its fall."

Scott and other agents say their outlook for spring is positive, but they need more inventory to satisfy first-time buyers.

Even in Gray and Windham, suburbs that are more affordable than those surrounding Portland, homes under $200,000 are hard to find, said Cathy Manchester, a Realtor affiliated with Keller Williams Realty.

Some potential sellers still haven't come to grips with market realities, she said. Her firm's average selling price in 2007 was $250,000; last year it was $180,000, a tough trend for sellers, but good news for first-time buyers.

"We're not in a dip, we're in a changed market," Manchester said. "For people waiting for prices to come back, that's not going to happen anytime soon."

By TUX TURKEL, Staff Writer, Portland Press Herald, April 12, 2009


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