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Greater Portland 2011 Year in Review

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By Kate Hodgson
So how did we fare in 2011? And where are we going in 2012?

The Greater Portland real estate market recorded the lowest number of sales in over 14 years in 2011. But the news is not all bad. The market continues to stabilize and as sales have declined so too has inventory. The ratio of new listings to properties sold has steadily decreased to 1.85 since a peak of 2.10 in 2008.  Despite the sluggish sales, 2011 ended in a strong position with noticeable improvement in the fourth quarter both locally and nationally.

The Greater Portland market saw an 8% increase in the number of single family homes and Portland condos sold in the fourth quarter from the same quarter last year.

This reflected the positive news being reported nationally.  According to a WSJ online 12/21/11 report, residential construction “surged in November, pushing housing starts to… the highest level in 19 months”. Additionally, the National Association of Realtors, reported that existing home sales rose in November.

As for 2012, the predictions swing in every direction.

Nationally:

Franklin American, in their electronic newsletter, summed up the outlook for 2012:

The New Year is here. Of course, now we are inundated with predictions regarding what will happen in the coming year. If you read 100 predictions, you would get 100 different scenarios. For example, in October Fannie Mae predicted that rates on home loans would fall in the first half of next year, while Freddie Mac forecasted an increase in rates. In addition, Fannie Mae Chief Economist Doug Duncan rated the chance of a recession at 40% next year while Freddie Mac predicts that economic growth will likely strengthen to about 2.5% in 2012. More recently, a survey of 20 top economists conducted by CNN/Money predicted the risk of a recession next year at only 20% next year. This survey expected the fourth quarter growth rate to be the strongest of the year with over a 3.0% growth rate, but grow to slow to an annual rate of 2.4% next year.

 

Slow growth next year but no new recession? Sounds like a replay of this year. Our advice? Don’t get lost in predictions. Most of the time they are a reflection of what already has happened. Right now we have very positive trends with increased consumer confidence confirmed by the Conference Board’s survey released last week… The real question is, will these trends continue into next year or do we fall back into our ‘starts and stops’ pattern of economic recovery? If you want a clue to that question, watch the employment trends.

 

Rising rents are forcing renters to outspend home owners on housing costs, according to a recent study. Since 2005, home owners’ housing expenses have climbed from 31.9 percent of their household budget to 33.2 percent. On the other hand, in that same time period, renters’ expenses have jumped from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing Trends.  Source: RISMedia

 

The Greater Portland market:

Last year, Housingpredictor.com, an independent real estate news website, touted Portland as one of the top 3 markets for growth nationwide. Sadly, it doesn’t even make the top 25 this year. Their reasons:

“Extraordinarily sluggish home sales and slowly declining home prices are preventing Maine housing markets from making a full-fledged recovery, but cities and towns throughout the state are hardly experiencing a major drop in home values either.

Maine is turning out to be one of the safest bets so far in the fallout of the U.S. real estate collapse. A slim volume of sales is hand-cuffing the markets and are expected to chill the region’s home sales at a slow pace through 2012.

National headlines over the foreclosure crisis and falling home values have hurt Maine housing markets more than anything else. Housing sales in most of the state have been sluggish but have remained consistent through the U.S. downturn – just not many sales compared to most other regions of the country. Less than 1,000 homes sell in an average month statewide.

While sales move at a snails pace, the number of homes being sold monthly are creeping up as prices decline only marginally. However, home sales are projected to increase in Portland as new home buyers take advantage of record low mortgage interest rates. The influx of retirees to the region is also helping to boost the market. But home values are forecast to drop slight during the year averaging 2.6% less.”

On the other hand, CNN Money, which tracks 384 markets throughout the US, predicts a 4.5% increase in home prices for the Greater Portland market.

My own opinion is that 2012 will be much like 2011. Sales will continue to be sluggish until the end of the year. Distress sales will keep prices from gaining real traction although I predict they will appreciate slightly as buyers seize the opportunity of low interest rates and sense an end to the bottom of the market. Low interest rates will continue to fuel buyer interest although mortgages will remain bridled by strict lending practices.

Unless we hit a snag (i.e. consumer confidence lags, employment rate stalls, or we experience an environmental disaster), 2012 will remain slow but steady. However, with continued stabilization, we will start to see appreciable change in late 2012 or 2013.

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