Maine Lakefront Real Estate Market – Nationally, the Picture is Challenging

Maine Lakefront Real Estate Market – Bouncing Off the Bottom?
May 23, 2008
Maine Waterfront Property – Local Paper Says the Time to Buy is Now
May 29, 2008

Maine Lakefront Real Estate Market – Nationally, the Picture is Challenging


In my last blog I passed along some information about the current real estate market that I hoped might shed some light on things here in Maine. Historically, we don’t suffer the severe swings in the market that some other places in the country do. That’s a good thing.
 But from the sounds of what the writer below thinks, we still have a ways to go to get back to a more even keel in the national market. It would look like we’re staying in this buyer’s market for another year – at least until there’s some reduction in the inventory.
Remember, though, in the Maine lakefront property market one of the reasons it’s resistant to more national trends is that there is a finite supply, i.e. there’s only so much lakefront real estate. So, my advice, through good times and bad, is to find something you like, negotiate the best price you can get, and go for it.
Use our Lakefront Locator to find just the right lakefront property for you.
Here is the article I promised – not for the faint of heart, but, if you’re a buyer, the real estate world is your oyster.
Do Sharp Cuts In Home Prices Spell Buyer’s Dream Or A Trap?
The latest housing headlines look bleak. The supply of unsold homes hit a 23-year peak last month, the National Association of Realtors said Friday.
Builders have slashed construction, but still-falling sales and a flood of foreclosed homes mean a recovery in prices might be far off.
“We’ve dug ourselves a hole. We just have too many units hanging out there,” said William Wheaton, director of research at MIT’s Center for Real Estate.But there is a bottom somewhere to the housing hole.
Past slumps, especially in hard-hit regional markets, seemed desperate at the time. Still, areas such as California and Texas eventually soared again.
What should prospective real estate investors be watching to catch the inevitable upturn?
Sales and home construction have to stop falling, but that’s only a first step, analysts say. The glut of unsold housing has to come down sharply before prices can bottom. And like the stock market, price is often your best indicator about real estate’s direction.
Real estate slumps are usually local affairs, reflecting natural disasters or regional economic troubles. But the subprime lending crisis has resulted in the first nationwide home-price decline since the Depression by some measures.
States where sales, construction and prices rose most during the lax lending era will take longest to recover, analysts say. Many are located in the West, such as Arizona, Nevada and California. The last time Western states suffered a real estate slump was in the late ’80s and early ’90s after the savings and loan crisis and Federal Reserve rate hikes choked off credit.
In the West, existing-home sales peaked in late 1988 and bottomed in December 1990, with a sluggish, uneven recovery. New housing starts peaked in January 1990 and bottomed in March 1991.
Prices Last To Rise
Prices took far longer to recover. Los Angeles home values didn’t rise year over year until October 1996, according to the widely respected S&P/Case-Shiller index. But they stayed positive for the next decade.
L.A.’s housing revival was slowed by a series of setbacks that included race riots, big aerospace layoffs and the Northridge earthquake.
In the latest boom and bust, U.S. home sales peaked in mid- to late 2005. Unsold homes, after a slow rise, started swelling in mid-2006. That’s when national prices topped, according to the Case-Shiller’s 20-city index.
As of February 2008, home values had fallen 12.7% vs. a year earlier. Monthly price declines have accelerated for the past several months.
Builders have slashed housing starts by 55% from their January 2006 top. Total unsold new properties have fallen. But that’s been overwhelmed by weaker sales and foreclosed homes flooding the market.
Unsold existing homes soared to 11.2 months’ worth at the April sales pace, NAR said. The inventory ratio for single-family homes was the highest since 1985.
“You need to get that down to a five-month range for prices to stabilize,” Wheaton said.
Right now home values, though falling rapidly, are still rich in many markets after their huge run-ups.
Banks are slamming the door after handing out loans like candy on Halloween for most of the decade.
A net 60% of banks tightened standards on prime mortgages, according to the Federal Reserve’s latest loan officer survey. Subprime loans have virtually disappeared.
With prices falling sharply, many credit-worthy borrowers are holding off for a better deal.
Soaring foreclosures are putting downward pressure on prices. That leads to more foreclosures, as borrowers who owe more than their homes are worth walk away.
“Foreclosures aren’t the problem; they’re the symptom. The issue is falling house prices that lead to foreclosure,” said Morris Davis, assistant professor of Real Estate and Urban Land Economics at the University of Wisconsin.
Halting housing’s slide is key to reviving the economy, which has grown at an anemic 0.6% annual rate in each of the last two quarters.
“The fundamental problem for the economy and the financial system is declining home prices. Until prices hit bottom, the economy and financial system will be very unsettled,” said Mark Zandi, chief economist at Moody’s Economy.com.
Prices in some markets have started to stabilize or even pick up a bit. The markets include parts of North Carolina, Texas, Oklahoma, Kansas and New York. But those areas didn’t experience huge gains in the boom.
Southern California sales shot up 22% in April vs. March as prices fell, according to DataQuick. Gains were strongest in hard-hit Riverside County, where overbuilding led to soaring foreclosures and a glut of homes.
But the overall picture is gloomy. MIT’s Wheaton sees prices falling 20% nationally from the peak and maybe 30%-40% in boom areas such as Arizona, Florida and California.
Economy.com sees U.S. prices falling 25% peak to trough.
Both say prices are only halfway to their lows. So many are looking for government help to speed recovery.
“It is critical to stimulate housing demand by inducing fence-sitters back into the market,” said Lawrence Yun, chief economist for the National Association of Realtors.
Regulators have eased capital requirements on government-backed mortgage finance giants Freddie Mac
and Fannie Mae. They responded in April with their biggest loan-buying binge in years.
The Senate Banking Committee last week OK’d a bill to guarantee refinanced loans when current loan holders agree to lower the principal.The legislation still needs to clear the House and Senate. It’s also not clear if President Bush will sign it.But supporters say that by giving owners equity in their homes again, they’ll be less likely to default.“Government action to encourage homebuying will do a lot to ease the pain and speed up the recovery process,” said Bernard Markstein, senior economist and director of forecasting at the National Association of Home Builders.
Economy.com’s Zandi agrees.
“If policymakers get a bit more aggressive and help with loan modifications, I think that foreclosures could top out by the end of this year and the market could bottom by the spring of ’09,” he said.
Yet calling a bottom is difficult. The NAR has had to lower its forecasts virtually ever month.
“This boom is not like the previous two or three that we have on record, so the risk is that the correction period will look different,” Davis said.
BY SCOTT STODDARD
INVESTOR’S BUSINESS DAILY
Posted 5/23/2008

Stay Informed

Get the latest lake news delivered direct from Maine’s lake expert, Tom Ferent