Dear Friends,

Each month I review hundreds of pages of data, charts, articles, real estate listings, pendings and sales statistics in search of an emerging trend to share with our colleagues, friends and clients.  There is always an "Aha" moment or two as the data, when finely combed, reveals a genuine story that needs to be told.  During my days on Wall Street, I was trained to look at all markets in a multi-dimensional way in terms of "cause and effect" variables, momentum, and sentiment.   In researching all types of assets, we were taught to look for opportunities from both the buyer and seller perspectives.  In short, if it was a terrible time for a seller to sell an asset, it was, by definition, an excellent time for a buyer to buy that asset and vice versa.  The corollary to this definition was "watchful waiting"  characterized by a lack of conviction.  Inaction was defined as a conscious  activity and not a passive one.  While there were clearly occasions for actively waiting, they were very few, very short lived and far between.  Enough said...I am sure you know where I am going with this.

With all the volatility, mixed economic signals, and global unease gobbling up the headlines, maybe "sitting on one's hands" is the appropriate posture while we watch and wait for the volatility to abate.  But over a longer horizon than this afternoons' market blog or tomorrow's newspaper headlines,  I find it very interesting that many of the indicators I follow on a regular basis have not really changed much since the beginning of the year, the past twelve months or, in a few cases, the past 2 years.  Possibly the most striking example is the EURO, which has endured a daily near-death event,  currently trading at $1.34US.  This exchange rate was $1.33 in January and $1.36 a year ago.  Despite its many problems, the Euro has only declined 10% from its mark 2-years ago.  Despite its seeming comfort around $1.35, a stable EURO is a critical element to global economic stability.

The Dow Jones Industrial is racking up big losses as I write this article.  Yet like the EURO, the DOW (currently at 11, 235) was only a bit more than 2% higher on the first trading day of the year.  In fact, until last week, the DOW had a positive return for the year.  When looking back 12 months to November 2010, the DOW has actually returned a positive 1.5%.  This relative longer term stability in unstable times provides some comfort.

In October of 2009, the median home sales price in Maine was $165,000, then $167,000 in October of 2010 and back to $165,000 for October 2011 according to the Maine Association of Realtors.    Influenced by federal incentives and programs which increased the volatility, Maine recorded a 2-year  high median price of $175,000  in June of 2010 and a low of $158,000 in February 2010.  In general, the percent change in  price performance evidenced by the median sales statistics is reflective of housing price performance in most all Maine real estate categories.   Our experience has been that in the coastal communities serviced by Legacy Properties Sotheby's International Realty, home prices have declined 15% to 20% from the highs.  Moving inland to lakes and mountains, tepid sales volume has left prices down 20% to 25% from the market highs.  Be mindful, each market and location is unique and your analysis should involve more specific considerations when buying or selling a specific home. 

According to the Maine Association of Realtors, Maine unit volume statistics have been relatively stable to improving compared to last year as well.  The most current data shows a 6.78% improvement versus October 2010.  Again I caution, Unit Volume statistics can be volatile given the relatively small sample size with just under 1,000 homes selling in Maine last month.  Stable to improving  market conditions should be interesting to both buyers and sellers.  The buyers need to be concerned about growing volume as a leading indicator of price improvement as every buyers wants to buy at the bottom.   Sellers who have been sidelined waiting for price stability and signs of demand will likely be more confident in listing their home for sale with respect to pricing and timing.  This is a healthy underpinning for the winter/spring market (YES...there is a winter real estate market in Maine!).

As we endure the lasting hangover of the asset bubble bursting, the flight to quality and safety on the part of investors has intensified.  While there are many examples, Gold and Interest Rates are two relatively extreme cases of capital flows in times of fear.  Gold has long been considered a non-denominational safe haven in the worst of times.  Interest bearing investments, particularly in the form of US Government Treasury notes, have been the place of choice when we seek to preserve capital while we wait for better alternatives.  Gold is currently $1,719 per ounce and the 10-year year T-note yields a breathtaking 1.95%.  Gold has risen more than 30% in the past year alone.  The 10-year note was yielding 3.33% at this time last year.  I am very concerned that the safe haven assets are fast becoming the riskiest assets with respect to capital preservation and long term returns.  The pervading fear in the marketplace has created a new bubble which may burst like any other when signs of recovery or stability creep back into the financial system.  We are thinking real estate shares qualities with Bonds and Gold, yet  real estate is at the bottom of its price cycle while the others are at or near all time highs.

What does all this mean for Maine Real Estate?  In our opinion, Maine real estate is a "safe haven" asset.  It has not had the wild volatility experienced in many other real estate markets. Although it is a financial asset, like gold it is a hard asset that will not disappear one day with the swipe of an accountants' pen.   Prices are stable and have been for an extended period of time as the market builds a base with the benefit of steadily improving unit volume sales. Historically, Maine has not had the volatile swings commonly associated with overdevelopment in the good times.  The Maine lifestyle continues to grow in popularity creating a broader pool of potential buyers from more states and countries.  We do not see a time in the foreseeable future that Maine will not be able to keep up with demand from home buyers, but we are experiencing a very strong autumn market. With Thanksgiving close behind us, one would expect the markets to quiet into the December holiday season.  I am pleased to say that it looks like real estate activity in Maine will continue to be robust well into December while creating a nice base for a greatly improved market in 2012.   

If you have been "watchfully waiting " as either a buyer or a seller, there are excellent opportunities in the market on both sides of the aisle.  It might just be time to get back in!

All the best from Legacy Properties Sotheby's International Realty for a Happy and Healthy Holiday Season!!