Residential market values continue to challenge appraisers
As the real estate market continues a slow recovery, I see several trends affecting the values of properties on the market. Among them:
Lack of comparable properties
Activity within the residential real estate market, which includes single family, two- to four-family units and condominiums, varies from community to community in Maine. This complicates an appraiser's need to view value trends over the last year or two to determine the direction of property values. This can be difficult at times when the sampling of sales and current listings is limited. In some cases, the appraiser may have to expand his market data search to neighboring communities for comparable properties to make a sound comparison. An appraiser should review competing properties, that is, properties that are similar in location, lot size, style, age, living area and other features, but this is not always possible. Current listings of similar properties will set the upper limit of value for the property that is being appraised. The principle of substitution states that when several properties are available, the one with the lowest price will attract the greatest demand and widest distribution.
One area that seems exempt from this is Portland, especially the west and east ends of the city. These areas continue to be in demand. Marketing times can be short, sometimes under 45 days, if the property is priced properly. Many of these homeowners work in downtown Portland and walk or take a bus to work, or to restaurants and theaters, reducing the need for a car — an appealing asset in this market.
Shadow inventory will continue to affect sales
Appraisers should be aware of properties in their market area that are in foreclosure or being offered as short sales. Property values for the most part peaked in 2005-2006 and some homeowners find themselves upside down on their mortgages — owing more than the property is worth. Potential buyers can find a good deal if they are in a position to make an acceptable offer to the lender. Shadow inventories are properties in foreclosure, or will be soon, that are not currently for sale. When the economy declined a few years ago, rising unemployment resulted in homeowners who could not meet their monthly mortgage payments. While experts indicate that California, Florida, Georgia, Illinois and Ohio have the largest shadow inventory, Maine still has a number of foreclosed, or soon-to-be foreclosed, properties that will affect housing values throughout 2012. (Maine's foreclosure rate dropped 11% from 2010 to 2011, and the increase in foreclosures reported in the third quarter of 2011 was the second lowest in the last 10 quarters, according to the Maine Bureau of Financial Institutions.)The Sanford area, and Lewiston-Auburn, had many distressed properties, but for them the worst may be over.
Buyers will be tempted
There's been some good economic news recently: car sales are up and consumers are willing to take on more consumer debt. Mortgage rates are at historic lows. With home prices down from their peak, it seems like now is a great time to buy. Brokers I speak with, though, indicate some potential buyers are not in any hurry — especially if they think mortgage rates will stay low. Buyers are taking longer to look for a house and are willing to view a lot of inventory before they make a decision on which one to buy.
Appraisers need to stay on top of value trends as their clients depend on this information to decide whether to purchase a property and for how much. If a client is a lending institution, it also needs to know value trends in the lending process. Property types — single-family homes, condominiums, multi-unit swellings — can be different in terms of increasing in value, stable or declining, all of which helps form risk assessments around loans and mortgages.
As we start 2012, I feel that sales activity will improve, assuming mortgage rates stay at or near current levels. This, in turn, should help Maine's overall economic rebound. The housing market creates a lot of jobs, including work for plumbers, heating contractors, electricians, painters, flooring installers, window installers, cabinet makers, landscapers, roofers and so on. Consumer confidence is very important in how the real estate market will react. One indicator we are all watching is jobs; if employers start to add jobs, it is a sign that the economy has bottomed out and we have turned a corner. That will reinforce confidence — among buyers, sellers and lenders — which should prompt increased activity in real estate markets across the state.
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