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Real Estate in Recovery? Not All Are Convinced

August 04, 2009 - PORTLAND -- Signs are emerging in Maine that home sales, which peaked in 2005, may finally be hitting bottom. That's generating cautious optimism in the real estate industry, but also some skepticism.

Behind the headlines, figures suggest that much of the activity is being driven by government stimulus programs that – along with falling prices – are bringing out first-time home buyers. And that's a concern because the dominant program, an $8,000 federal tax credit, is set to expire Dec. 1.

"It's kind of a one-pony circus," said Leonard Scott, owner of Assist-2-Sell in Falmouth. "And the pony is going to die on Dec. 1, unless they come up with a new pony."

That could happen. The National Association of Realtors is lobbying Congress to extend and expand the tax credit.

But, as the clock ticks for first-time buyers to get homes under contract, Scott and some other real estate experts wonder whether stimulus money is creating a false bottom under a market still struggling with distress sales, foreclosures and job insecurity.

Maine Realtors had reason to smile last month when they saw statewide home sales up nearly 14 percent in June, compared with the same period a year ago. It was the first monthly sales bump since July 2007.

The increase also reflected national trends. New home sales are up and prices of existing homes are rising in many markets, leading some analysts to predict the beginnings of a real estate recovery.

But what the Maine sales figures didn't show, Scott said, is in what price range the action is taking place in York and Cumberland counties, which account for nearly half of all sales.

Look at Cumberland County in late July, for instance, at listings under $200,000. There were 776 current listings in the Maine Real Estate Information System files, and 262 sales pending. That's a roughly 3-1 ratio, signaling a strong seller's market and healthy activity in a price segment that attracts first-time buyers.

Homes selling for more than $200,000 were another story. There were 2,360 listings in late July, and only 356 pending sales, a ratio of 7-1. That's an unusually wide spread, Scott said, and indicates a continued buyer's market characterized by bloated inventory and sluggish sales.

The median selling price in Cumberland County in June was $220,000, a 7 percent drop from last year at that time.

The split was even more pronounced in York County, the data show. The ratio of current listings to pending sales in the under $200,000 range was similar to Cumberland County's. But the difference in higher-priced homes was more striking – 2,059 current listings and only 161 pending sales, a 14-1 ratio.

"It indicates two different markets," Scott said.

The median selling price in York County in June was $194,000, a 14 percent drop from a year ago.

The importance of stimulus programs is underscored on the Maine Association of Realtors Web site.

Front and center on the page is a countdown timer that ticks off the days, hours, minutes and seconds until the $8,000 federal tax credit for first-time home buyers ends, Dec. 1. (It's 119 days from today.)

Below the timer is a link to the state housing authority's Gift of Green program, which offers up to $5,500 for qualified first-time buyers. The program is financed through mortgage revenue bonds. The loans are given on a first-come, first-served basis, and MaineHousing expects the money to run out by year's end.

MARKET MOMENTUM

Encouraging entry level sales is crucial for the industry, according to Alan Peoples, a broker at Coldwell Banker Residential Properties in Portland. Sales to first-time buyers allow the sellers to move up to other homes, creating momentum in the market.

Helping to drive the improving home-sales statistics are buyers like Mattie McQuinn. Peoples recently helped McQuinn, a first-time home buyer, put a condominium in Portland under contract.

McQuinn, who is 20 years old and employed at an event-planning company, said her father tipped her off to the stimulus programs and their time elements. She had planned to wait until she was older to buy a home, but wants to take advantage of the government money while it's available.

"These programs probably won't be around then," she said.

The condo McQuinn is hoping to buy has an asking price of $165,000. She plans to use $8,000 from the federal tax credit, $5,500 from the state program and a special $30,000 down payment offered by the city of Portland for residents who meet certain qualifications and can pay back the money when they sell. That could cut the effective cost of her condo below $122,000.

"It's a pretty good deal," she said.

Buyers like McQuinn may have helped shove June home sales into positive territory, but one month doesn't make a trend. So real estate experts will be closely watching the latest data roll in this summer. If sales stay strong, they could trigger an associated reaction – prices that stabilize and then begin to rise.

Sales always pick up before prices rise, according to Bob King, a senior research analyst at MaineHousing. When the market is heading up, as it was through the early part of the decade, sales peak before prices do. That's because falling supply leads to higher demand, which eventually lets sellers raise their asking prices.

For instance: Sales volume in Maine peaked in 2005, at 14,672 transactions. The median selling price didn't hit a high until 2007, at $194,000.

On an annual basis, the median price fell last year to $180,000. In June, it was $170,000, compared with a year earlier, although the Realtors trade group put a happy face on the number by noting that it's an increase from May's monthly price of $160,000. The suggestion is that prices are starting to firm up.

"But we can't tell from a month's data," King said. "And we can't tell whether this is a false bottom based on the stimulus package."

One thing some agents are reporting: The gap between asking price and selling price is narrowing. That's a sign prices are stabilizing, and may reflect the sense that sellers are becoming more realistic about their asking prices.

But prices may still have a way to fall. The latest foreclosure activity data, as collected by First American CoreLogic, show that foreclosure rates edged up slightly in June, compared with the same time last year. Forecloses and short sales, in which property is sold for less than what's owed on it, drag down overall prices.

The industry also will be closely watching mortgage interest rates and monthly unemployment figures in the coming weeks. If interest rates remain low and unemployment stays under 10 percent, first-time buyers will continue to take advantage of the government programs, according to Mike LePage, a broker at Re/Max Heritage in Yarmouth. But they'll have to hurry.

"At some point in October," LePage said, "time will be getting tight, as the process can take in excess of 45 days. It's time for these buyers to connect to their first home now."

By TUX TURKEL, Staff Writer, Portland Press Herald, August 2, 2009


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