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Jeanne, Home Buyer in Massachusetts

What is the current absorbtion rate for Wells, Maine, and how does this effect home prices?

Asked by Jeanne, Massachusetts Tue Apr 7, 2009

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Hi Jeanne - You are right that you can’t apply national statistics to Wells, Maine. National statistics include markets such as Florida and California, which are the hardest hit.
The actual statistics on Wells condos might surprise you. There was a softening in 2008 prices vs. 2007, but not as much as you might think. One change: smaller, more affordable condos sold better than larger more expensive. That is, the size of the average condo sold went down. Here’s the actual MLS numbers:

In 2007, a total of 72 condos sold in Wells, Maine. Average size was 1007 square feet (SF) and average price was $215,046. This gives a price per SF of $234. Average sales price was 96% of list price, and average days on market was 188 days.

In 2008, a total of 74 condos (surprise!) sold in Wells, Maine. Average size was 898 square feet (SF) and average price was $199,426. This gives a price per SF of $229. Average sales price was 95% of list price, and average days on market was 156 days.

That’s right - more condos sold and they were on the market for a shorter period of time. The price per SF was down about 2%.

It doesn’t surprise me that some condo owners don’t take a price cut. Not all need to sell and not all really want to sell at today’s reduced prices. Moreover, the rental market still provides a significant source of income for some condo owners. However, there are some very motivated Sellers out there and some great deals on some units. You need to do a bit of sifting to find them.

Condo rentals, and sales, are very weather driven. If we have good weather this summer, it will help the market. If the weather is bad, well much fewer people drive up. You can gauge the market for yourself by driving up one weekend, especially a major weekend like Memorial Day.

Hope this helps but do let me know if you want further info.
0 votes Thank Flag Link Thu Apr 9, 2009
Thank you both for your answers....in answer to your question, Margaret, I am really not sure. Its hard to use national models to predict the bottom, since, "all real estate is local". I have been watching both the condo market and the lower end of the housing market in Wells for a few years. Some condos/homes have been sitting on the market for over a year, with very little price reduction. I have used the assesors data base to see what some of the owners paid for their units. A few owners who bought at the peak of the bubble seem to have "set" pricing for the rest; obviously, no one wants to drop their price if the unit next door sells for three times what they paid. If I applied national predictions....that real estate levels will roll back to 2000-2001 prices, adjusted for inflation, then I would be right in the ballpark to purchase a condo at the complex I am interested in. But again, this may not be the case for Wells.

I do think other things will effect the housing market in Wells, in particular the seasonal/vacation home market; unemployment rates, consumer confidence, the ability of investors to rent their units if consumers cut back on discretionary spending. For someone like myself...interested in purchasing a vacation property for my own use.....waiting could mean the difference between buying something smaller and less comfortable now, or waiting and, hopefully, being able to purchase a unit that is a bit larger, with more amentities, in a complex I like.

It is puzzling, though, to see properties listed for years, still not sold.
0 votes Thank Flag Link Wed Apr 8, 2009
Jeanne - What a great question! Are you sure that you are not a Realtor? :)

The conventional method to calculate absorption rate: Take the current number of homes for sale, and divide by the number of homes that sold last month. The result tells you, in theory, how many months it would take to absorb the current inventory.
Part of the difficulty with attempting to answer this question is:

1) The number of homes available, a big part of the equation, has a large seasonal factor. Many people take homes off the market in winter and put them back on in spring. So the calculation of “absorption rate” will vary by month.

2) There is also a large seasonal factor to sales. March sales resulted from January and February contracts. Sales are much slower in these months then April through June, for example. This is particularly true for coastal towns like Wells that has a large seasonal population.

So absorption rate is going to vary by month. It is true that we have had a lengthening of Days on Market and this has contributed to a softening of prices.

How big is the seasonal distortion? It’s big. For example, there are 133 condos currently for sale in Wells. Many of these condos are seasonal. None sold in March 2009. That would imply an infinite absorption rate, where condos never sell. But that’s not true. In actuality, 74 condos were sold in 2008.

There are 144 single family homes for sale in Wells. Total of 5 sold in March 2009. This implies a 29 month absorption rate. Again, not accurate because 84 sold in 2008.

Also, calculation of absorption rate using prior sales to attempt to predict the rate of future sales - not a reliable predictor. Few predict sales to remain flat.

My opinion? If the stock market holds, and there no new financial crises, we will see sales rise in Wells, Maine. What is your opinion?
0 votes Thank Flag Link Tue Apr 7, 2009
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