Tax Credit Spurs Maine Real Estate Demand

Dear Friends,

If you have not been able to find a great real estate value, don't give up now! There are some terrific buying opportunities at all prices ranges and in most locations in Maine. While many are still waiting for another "down draft" in real estate prices, the data suggests that more and more buyers have come to the closing table in recent months. Unit sales volume in Maine for single family homes has increased nearly 40% from a year ago, October. In scrutinizing the sales statistics, we can learn even more about what is really happening in Maine. And, for what it is worth, it is not materially different than other parts of the country in terms of direction. While unit sales volume has risen dramatically, the number of days on market has increased for sold properties reflecting a pattern of longer periods of price discovery by home sellers. Despite a recovery from the very dark days of early 2009, the median sold prices remain materially lower than 2006 to 2008 by 15% to 30%.

This resurgence in sales volume has been turbo charged by the US Government incentive programs aimed at "First Time" home buyers. In fact 86% of all Maine single family home sales in October were below $300,000. We experienced a burst of activity in September and October as the "First Time" home buyer credit was set to expire for qualifying properties which had not closed by the end of November.

On November 6, the President signed into law an expansion and an extension of home buyer tax credits. "First Time" home buyers received an extension of the $8,000 tax credit until April 30, 2010 and had the qualifying income limits increased to $125,000 for singles and $225,000 for joint tax filers. This represents a very significant increase from the $75,000 and $150,000 (respectively) earning limits previously in force. As with any time sensitive incentive program, the initial impact has been to dampen demand by "First Time" home buyers as they can take more time to close on a home. It is our belief that the expansion of the income limits will bring more new buyers into the market during this period.

With little fanfare, the US Government also provided a new $6,500 Tax Credit incentive for "Repeat" home buyers. This program is designed to bring more buyers into the middle market. The basic qualifications are as follows:

Income Limits: $125,000 (single); $225,000 (joint)
Primary Residence: The buyer must have lived in the prior residence for 5 consecutive years of the last 8-years. The new residence must be the primary residence for at least three years prior to selling it again.
Home Price Limitation: The home purchased must be $800,000 or lower in price.
Deadline: The home purchase agreement must be in ESCROW before April 30, 2010 and close by June 30, 2010.

The intention seems to be two-fold. One of the problems with the "First Time" buyer credit is that many of the homes purchased were in foreclosure. As a result the money did not actually go to a home seller looking to make a new purchase; the money went to the banks holding the mortgage. The second problem was with unemployment levels increasing, the middle market buyers and sellers received no relief from the difficult real estate market conditions. We are hopeful that the $6,500 incentive in sufficient to help break the inertia in middle market real estate.

Incentives aside, there are great buying opportunities. It is important to make sure one does a very thorough job in performing due diligence on a particular property. The valuation process is also quite complex as some of the government programs have buoyed lower priced properties while the middle market remains unchanged or even weaker from a pricing perspective. The beautiful Maine Oceanfront properties also offer great value at this time.

With Thanksgiving just around the corner, the market continues to improve. Historically we are entering a seasonally slow period for real estate sales, but we have not seen signs of the slowdown quite yet. With pent up demand, generous government incentive programs, great home values and plentiful inventory, we expect a more robust holiday period than history would suggest. If our predictions are correct, we will be set for solid demand and stable to improving home prices in 2010 and beyond.