Dear Friends,

We have experienced a very healthy surge of buyer confidence in recent weeks.  It is more notable in that it comes during a traditionally quiet seasonal  time for the Maine real estate market.  Our showing activity and “Under Contract” activity is running well ahead of pace for last year and 2-years ago.  Although the rally is broad based, the improvement is not being enjoyed by all market sellers.  Not surprisingly, the two key issues holding back sales are “money” and “time”.  I am hopeful a discussion of market conditions can help shed some light on the friction that prevails.

The seller’s refrain,  “I think my home is already priced below the market and I am just going to wait until the market comes back to sell my home”, can be heard on a daily basis at virtually every real estate office in the country.  And Maine is no exception!  ”We are not in any hurry to sell our home” is also a common notion among home sellers.  And yet, we wonder why buyers aren’t stepping up in droves to buy all of the real estate they can.  It is at this point, the markets disconnect.

For buyers who have been looking at multiple properties over multiple months or years are commonly thought of by sellers as “tire kickers.”  The “tire kickers” often refer to the home seller’s game plan as “unrealistic, uninformed and unmotivated.”  When in fact, it seems the buyers are simply looking for homes which are reflective of current market pricing and seller who are ready to sell on a timely basis.  We have found that when a home is priced at a level supported by market data, they tend to sell more quickly and much closer to the asking price than others.

The concept of “the market” holds a different meaning for each buyer and seller in pursuit of their competing goals.  As is most always the case, the “Real Market” is somewhere in the middle of these competing concepts.  Local market statistics, which are widely available, actually do quite a good job of defining that middle ground, but it is also not without challenges.

The Maine Real Estate market, like any market, is affected by a number of factors complicating the analysis of even the most well equipped statistician.  It is a relatively small market with 900+/- single family homes selling each month.  The small sample set increases the month-to-month volatility of the statistics.  There were only 3 months in 2011 in which total sales volume exceeded 1,000 homes (June, July and August).  Maine is also sensitive to seasonality, cyclicality, microeconomics and macroeconomics.   Suffice to say that Maine real estate, although significantly less volatile, than many of the nations markets, is clearly and directly tied to the fortunes of the country as a whole.

A significant number of Maine home sales are driven by the sale of a property somewhere else in the country.  It is important to factor broad economic conditions into your thought process.  If there is one good thing to come from our current economic malaise, it is that the Federal Reserve Board of Governor’s has decided to break from its opaque  communication history and actually release clear, concise, forward looking information.  If you have never read a Federal Reserve Open Market Committee press release, click the hyperlink to have a look.

I spent many years reading the detail of the FOMC minutes back to the days of Alan Greenspan.  He had a gift for talking at great length without ever really getting to a clear point.  You were never quite sure where is was coming from or where he was going to end up.  The most recent minutes released last week were crystal clear in terms of the Fed’s view of the economy and their plans to get it on a track and keep it there.  The Fed press release covers a couple of important points:

US “economy has been expanding moderately” despite “slowing in global growth”

“the housing sector remains depressed”

“Strains in the global financial markets continue to pose significant downside risks”

“subdued outlook for inflation over the medium term”

“the Committee decided today to keep the target rate for the federal funds at 0 to 1/4 percent” likely warranting “exceptionally low levels for the federal funds rate at least through late 2014″

It seems the Federal Reserve Board has given us all of the information we need to make our plans.  When they speak of “inflation”, home prices would be part of that discussion.  There are very few lines to read between, but my interpretation of the Fed action pronouncement is that home buyers and sellers can expect the real estate market pricing to stay at or near current pricing levels for as long as 2 1/2 years.  We are  now 5-years into the housing downturn and more than 3 year since the market  meltdown in the January of 2009.  If we have learned one thing, the passage of time has not changed the final pricing result.  Maine real estate prices have been relatively stable for more than 2-years (-4% vs. Dec 2009) and extrapolating from the above report, the passage of time is not likely to change the result for the foreseeable future.

While we have not seen any price improvement in recent years, we have enjoyed a considerable upsurge in market activity in all price points this winter.  November, December and January are typically very quiet real estate months in Maine, but improving consumer confidence and a mild winter have kept us all on our toes.  Maine “Under Contract” volume for December has rallied nearly 35% from 2 years ago and 20+% ahead of last years’ pace.  I think it is safe to assume that Sold volume will be improving in early 2012 which brings us into the new year with a positive feeling about the market conditions.  Improvement in Pricing will come with increasing unit sales volumes as both sellers and buyers come to terms with the “Real Market” conditions.