Economic Update Summer 2024
The Maine Market breaks $400,000 on average for a single family for the first time in history.
Graph provided by Ginny Whitney, Legacy Properties Sotheby’s International realty.
by Shannon Richards
It’s a juicy time to be in business… or to be the average Joe.
Mortgage Interest rates holding at over 7% for the average home buyer, which is low looking over 30 years, but feels catastrophic given the last few annual cycles. Rates are even higher if you want to finance a second home or a business.
Despite this fact, the average cost of a Maine home has crested $400,000 for the first time. Ever! The average home in Maine is selling 5% higher than last year at this time. I’m frankly surprised.
Not long ago, and for a long time, it hovered UNDER $300,000 (like $280K) per home state wide. Usually, a spike in interest rate will drive DOWN costs because buyers have to get approved for mortgages based on their income and income doesn’t shift as fast as other marketplaces… but here we are! Lack of inventory still to blame.
You would think that rising interest rates would suppress rising home costs!!! But NO! In addition, and also working against buyers is the fact that we have an aging housing stock and an aging baby boomer generation holding onto single family residences longer than previous generations.
The one thing residential buyers have going for them these days is the fact that a class action lawsuit has commanded that all brokers and agents disclose commision fees on the front of a negotiation with representation and not with sellers through the listing services. This puts buyers in control a bit more. We’ll see how it plays out long term. True improvement or hassel? Unknown at this point. Trust is key to all business relationships.
Other market cycles, such as presidential election years, tend to affect the real estate market by making people hold onto their real estate - unsure if assets will be taxed differently by a new administration.
We are seeing the economy stabilize faster and stronger than in historic cycles. Which is great. The treasury is able to read the inflationary tea leaves more accurately and respond more responsibly. Keeping interest rates up cools the inflation market and we can see the job market starting to calm down. Businesses can’t keep paying for the costs of inflation. It hits consumers in the long run.
Good news - There are a lot of smart people and smart machines working together to prevent discomfort and assist with decision making at the highest levels. We are also seeing younger leadership get more involved - which we need. The mortgage rates will start to come down if inflation has cooled, which seems to be happening. The confusion caused by transition in presidential leadership will settle after the election, and help ease the general unrest in the markets.
The conditions for this exact scenario of population meets tech is causing new and unfamiliar problems to solve (lack of skilled trades people for example) which models predicted - but again, here we are. Real estate investing is a tried and true way to grow wealth. Buy the worst house in the best neighborhood you can afford, and pick away at improving it.
And we need housing - for how we live today. We have the means and methods to solve these problems. It will take intelligence, commitment and ethical leadership to get there.