The last several months have shown improvement in homes sales. As reported in our most recent blog post last month, unit sales are up and prices are no longer in free-fall. However, when it comes to “improvement”, the market is what could be considered “layered” and what is true in one category (or layer) can be very different in another.
If you're selling or buying, your strategies should depend on the value of the home you want or own. We have attempted to provide some insight into what is happening across the market for the Greater Portland area.
The Bottom Layer (hot)
The Current Situation: Nationally, a big chunk of the 1.9 million post-boom foreclosures have been among the least expensive 35% of homes. Bargain prices on these foreclosures and a new tax credit of up to $8,000 for first-time buyers have lured investors and would-be homeowners back to the market, and this is also true in Maine.
 Sales of homes in Cumberland County below below $200,000 are up between $100,000 and $250,000 are up 10.7% from a year ago. Meanwhile, many banks halted foreclosures earlier this year while waiting for details on the Obama administration's foreclosure-prevention plan. Greater demand combined with less supply is providing a strong incentive in this market. From personal experience, multiple offers are more common that one would think.
Buyer Strategy: View homes as soon as they are listed and in most cases submit an offer fairly quickly. These homes are not discounted dramatically, provided they were priced competitively to start with. Prices for this group have stabilized. Put down 20% or more, if you can, to compete with investors. If the offer is not accepted, check back with the seller’s agent – many deals due fall through due to financing or other issues.
If you aren't under pressure to move, keep in mind that the supply crunch is probably temporary. The foreclosure rate is expected to remain at record highs for the rest of the year, and if the Federal tax credit is not extended, demand may drop-off somewhat.
Seller Strategy: Don’t try to compete with foreclosures on price. Some buyers will pay more for a home that is in move-in condition, so pay attention to the appearance of your home and all marketing materials.
Many of the other listings are likely to be short sales in which the bank agrees to accept a price below what the owners owe on their mortgage. Since short sales can take months, offering a quick, flexible closing date will give you another advantage. .
The Middle Layer (cool)
The Current Situation: This layer includes homes up to a price of approximately $450,000. Demand is soft. Many buyers are trying to trade up, which is very difficult for people who bought in the past five years, because they have so little equity.
Buyer Strategy: It is extremely important to sell your current home first, so you know what you can afford on the new one. When you find a home you like, offer approximately 10% less than the asking price - a realistic discount for a lukewarm market.
Seller Strategy: If you need to sell, it’s all about standing above the fray. If your home is sitting on the market, go for one big price reduction instead of slowly working downward. A bold move will attract attention and prevent the listing from going stale. Offer to pay closing costs, and since many buyers will be short on cash after the purchase, consider some relatively inexpensive but improvements, such as new carpeting, blinds, or painting.
If your home is in the half-million-dollar range or less, try to set the price at a level that doesn't require a jumbo loan. The difference between conforming loan and a jumbo loan is several hundred dollars a month. Finally, if you can hang in there, be confident that price will begin to recover within the next 12 to 18 months, according to most economists.
The Top Layer (cold)
The Current Situation: The recession and the credit crunch have almost shut down the top 10% to 20% of the market. Fewer people can afford a luxury property, and since banks are hesitant to underwrite supersize loans, it's tough to finance them. In Maine, this has had a dramatic affect on second homes and vacation homes. Year-to-date there have been 47 sales in Cumberland County compared to 70 the previous year with a minimum price of $750,000.
Moreover, foreclosures are rarer at this price level, and homeowners, unlike banks, are reluctant to cut their price. Given all that, the prices on high-end homes will probably continue to fall until the market hits bottom.
Buyer Strategy: Its important to get pre-approved before you begin looking at homes. Jumbo mortgages are tougher to qualify for, require larger down payments (as much as 30% to 40%), and cost nearly a percentage point more than smaller loans. While sellers often balk at low-ball offers, they should be willing to negotiate, including paying closing costs and other extras.
Seller Strategy: There are 246 homes and condos in Cumberland County currently priced at $750,000 – that is a lot of inventory. You will need to seriously undercut the competition. If you are in a position to do so, you may want to finance the deal yourself. Marketing at this level is critical. |
