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By TUX TURKEL
Blethen Maine Newspapers 01/17/2008

Blethen Maine Newspapers

Nationally, home sales are falling and so are prices.

It's a one-two punch that has staggered the U.S. housing market. Hardly a day passes without a gloomy headline about real estate on the ropes.

But that's not been happening in Maine, where the sale price of most homes has been rising.

The trend highlights a disconnect in Maine: Over the past year, the number of homes sold has declined by double digits nearly every month. Despite that, median prices continued to edge up, or remain flat.

In November, home sales statewide were off more than 10 percent compared to a year earlier, but the median price -- the point at which half the homes sold for more and half for less -- rose more than 1 percent, to $188,000.

"I always ask myself if this is going to be the month that I see values take a nose dive," said Lou Demers, a broker at Maine Coast Properties in Scarborough. He tracks price changes for Portland, based on information from the Maine Real Estate Information System.

Several factors have been supporting prices in Maine, including the fact that this market isn't as prone to the speculative building and boom-and-bust economic growth of some other states.

The question today, though, is whether Maine can keep its head above water and what implications any future decline might have.

Rising home values are vitally important to the broader economy.

A house represents the biggest investment for many families, and Maine's rate of home ownership is especially high.

Retail spending, which helps drive the U.S. economy, also is tied to housing values, both in the form of equity loans and consumer psychology.

Now the economic stimulus is at risk.

Home prices peaked nationally in the second quarter of 2005, government data show. The rate of appreciation began slowly dropping, until it turned negative last summer for the first time in 13 years.

That downturn didn't register much in Maine.

On a statewide basis, Maine homes appreciated by 2.9 percent during the period, according to government data.

More specifically, home prices in the state's largest urban areas continued to rise during the first nine months of 2007. Portland-region prices were up more than 2 percent. Lewiston-Auburn and Bangor prices rose more than 5 percent.

In December, the number of Portland homes sold was down 50 percent from last year, but the median sale price was up nearly 6 percent, to $242,000, according to Demers, who tallies the listing and selling prices of single-family homes and condos.

He has noticed a similar disparity between volume and value every month since last summer.

"Two big questions emerge from this," he said. "Why haven't prices fallen, when the activity has fallen so drastically? And how much longer will we be able to sustain values, when there are far fewer buyers in the market?"

One reason Maine has been spared is that the worst of the real estate crisis has been confined to a handful of locations nationally. "Real estate markets are very localized," said Andrew Leventis, senior economist at the Office of Federal Housing Enterprise Oversight in Washington D.C., which issues a quarterly housing price index on changes in the value of single family homes.

Of the 287 cities tracked by the office, only 83 saw prices decline in the third quarter of 2007.

Seventeen of the 20 cities with the most depreciation were in Florida and California. The others were in Michigan.

These and other major markets, plagued by price speculation, overbuilding and high job losses, helped drag down average home values nationwide. They also are the areas most likely to generate national headlines.

Even regionally, Maine is doing better than the New England locations -- such as Boston -- that are most likely to make the national news.

Data for the last three months of 2007 won't be released until late February.

But the available figures, taken together, indicate that the slide in home sales across Maine hasn't eroded prices to the same degree as much of New England.

At the end of 2006, homes in the Portland metro area, which covers towns from Alfred and Kennebunk to Naples and Freeport, appreciated by 3 percent.

Lewiston was up more than 4 percent; Bangor was up nearly 8 percent.

By contrast, prices in the Manchester-Nashua, N.H., metropolitan area were up just 2 percent for the year. Boston home prices were essentially flat.

This relationship continued through the third quarter of 2007, the latest period for which figures are available.

The Portland, Lewiston and Bangor areas remained positive, but less so than in previous quarters. Meanwhile, Manchester, N.H., turned negative. Boston was worse.

Another reason Maine is holding up is because the statewide economy is in better shape than that of some other states. Maine's unemployment rate is 4.8 percent, on par with the national average and much healthier than in hard-hit locales.

That translates into fewer homeowners who are desperate to sell because of job losses or credit problems.

Demers, the broker at Maine Coast Properties, and other experts have other explanations for what has buoyed Maine:

n Prices didn't soar as high here during the boom, so they don't have as far to drop.

n Maine saw comparatively little overbuilding and speculative buying, so there isn't a glut of unsold homes going at bargain prices.

n The area hasn't been as hard hit by foreclosures.

Anne Weigel, a broker at Coldwell Banker Residential Brokerage in Portland, has been crunching numbers from the Maine Real Estate Information System, which tracks sales and median prices by county. She is looking at how long it's taking to sell a home in southern Maine these days.

One conclusion: Time on market hasn't changed much since last year in Cumberland County; it's roughly six months. But selling time can vary greatly by price and location. It takes roughly two months to sell a $200,000 home in South Portland, but a $500,000 house in Gorham could sit for three years.

Weigel will draw on these and other figures next week, when she presents the outlook for southern Maine's home market at the Maine Real Estate & Development Association's annual forecast conference.

Trying to guess where Maine home prices are headed has become more complicated in recent weeks, as the national economy continues to slow.

Charles Colgan, a former state economist who chairs Maine's economic forecasting committee, said he expects Maine to follow the nation into a recession. But Colgan, who regularly studies federal data and other home price indexes, said the national decline appears to be bottoming out. Unless the country enters a deep recession, Maine home values may not have much farther to slide.

"We may have escaped the worst of it," he said, "but we're going to have a long period of stagnation."

Forecasts have proven tricky, however. In 2006, experts including the Realtor's group and former Federal Reserve Chairman Alan Greenspan anticipated a housing recovery in 2007. Their optimism was soon dashed by the subprime mortgage crisis, rising foreclosures and evaporating credit. All these troubles have carried over into 2008.

Those factors concern Valerie Lamont, executive director of the Center for Real Estate Education at the University of Southern Maine.

"I'm waiting for the other shoe to drop," she said.

National media focus on the most distressed housing markets has, by association, created a false impression about Maine, she said.

"But Maine is not insulated from the rest of the country," she said. "We may be fortunate by not seeing such a deep effect on housing prices. It would be wonderful if we came out of this neutral."

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