This entry is brought to you by Terry Sortwell and Shannon Thompson, who assist and advise real estate owners and buyers of fine homes and estates throughout Midcoast Maine.
We at LandVest
have seen increased activity this year,
with a number of encouraging sales. The statistics—and other characteristics of the
market—suggest that values and sales activity
are in a holding pattern at the bottom. Statistics from the Multiple Listing Service (MLS) show that
in the coastal towns from Boothbay to Blue Hill there have been twenty sales of properties priced
over a million so far this year, with one sale pending. Of these, seven are LandVest listings.
Statewide, there have been 119 sales and 12 sales are pending. This is consistent with the number of
sales in 2010 (27 in the midcoast region, 140 statewide.)
Indian Head, Northeast Harbor, Story Litchfield's LandVest listing, was the highest recorded residential sale in the state of Maine
Statewide at the very top of the market, above $3 million, there have
been nine sales statewide, and four sales are pending. Of these thirteen sales, eight were LandVest
listings, and four of the five sales above $4 million were LandVest listings. There were twelve
sales above $3 million in 2010.
A recent white paper by Edward
Chancellor from the global investment management firm GMO examined the stages of the real estate
cycle. Typically the peak is characterized by high valuations, high levels of private sector credit
growth, new forms of lending, high levels of construction, speculative purchasing, and rising
interest rates. A credit crunch and defaults on existing property loans generally signal the turn,
and then the market begins the long, slow slide into “the trough,” where the market tends to linger
due to the lack of liquidity in real estate. We are clearly in this trough, which is characterized
by low valuations, lower leverage, low housing turnover, pent-up demographic demand, and continuing
pessimism toward real estate. Since markets tend to move more slowly on a decline or when moving
laterally, they usually spend several years in the trough.
The Real Estate Cycle in Five Stages, source: GMO
The real estate market is moving through its paces, and there are
reasons for optimism, especially on the coast of Maine. On average, it has taken real estate markets
five years to hit the trough after a bubble, and it’s been five years since housing prices peaked.
And Chancellor believes there are other indications that the worst is over: valuations are
reasonable. Mortgages are available, and at lower rates than we’ve seen in decades. Supply remains
elevated relative to demand, but sales have fallen to an extent that if demand recovers to normal
levels, excess supply would disappear—and in some markets, be replaced by a shortage.
Caldwell Island, a record sale for Muscongus Bay, by Terry Sortwell, regional manager and principal with LandVest in Camden, Maine
Here in Maine, as in elsewhere in the country, buyers are holding back.
The vacation home market has many defining characteristics, and these days perhaps none is more
definitive than the fact that no one has to buy a second- or third- home. So the majority of buyers
are still waiting, and while they wait, demand builds, which bodes well for the future. Chancellor
believes, and we agree wholeheartedly, that the long-term fundamentals of the real estate market are
sound. When the economy recovers and unemployment declines, home prices and construction will both
pick up, and a real estate boom will follow. The new buyer, who is younger (ages 30-50) and more
mobile, is increasingly attracted to Maine,
its quality of life, and the relatively reasonable real estate values to be found here. We’re seeing
more and more buyers from this growing demographic, many with young children, deciding that it’s
time to fulfill their dream of a vacation home here.
Though we’re
in the trough, we’re not without hope, nor without sales activity. We can say with some confidence
that the stalemate between buyers and sellers that we’ve been talking about for the last couple of
years has broken. There have been enough sales of waterfront and other exceptional properties
to allow buyers, sellers, appraisers, and brokers to draw educated conclusions about valuation. With these sales we’re starting to have enough hard data to
begin to gauge real value in the current market. When sales offer more concrete rationale for
pricing, they also generate more confidence among buyers to move forward.
Lilyhaven, Isleboro, sold by Terry Sortwell and William Davisson
While we are beginning to have a better grasp on valuation and pricing,
it’s very difficult to predict what’s going to sell or in what period of time. At the top of the
market, most properties are experiencing slight decreases in value, though the very best among them
are holding value well. The sale (by our Northeast Harbor broker Story Litchfield) of a property on
Somes Sound for $12.25 million was the highest residential sale
ever in the state of Maine. In our own area, our February sale of Caldwell Island in St. George for $4.7 million is another
example of an exceptional property holding its value well, as is the sale of a property on Deep Cove inn Port Clyde for $1.9 million, and the sale of land parcels on
North Haven for $1.7 million. A property on Bremen Long Island that sold in early October for
$635,000 was one of several that attracted multiple offers.
Another peculiarity of this market has been dramatic bursts of activity in
very small markets. Islesboro, for instance, only had one sale over a million in 2006 and 2007. Then
in the three years between 2008 and 2011, sales activity jumped, with eight sales in this range.
There have been two sales this year. Similarly, the market on North Haven was dead quiet for years,
with only three sales above a million in the five years leading up to 2011. This summer and fall
there were six sales.
It remains to be seen whether these flurries
are isolated bubbles of activity or something of greater significance—pointing, perhaps, to renewed
confidence in Maine real estate. We certainly hope it’s the latter and
have many reasons to believe so.
