Maine’s housing market has been tough for moderate-income buyers since the start of the pandemic, and with scant inventory and rising interest rates on the horizon, it’s only going to get worse.

Home prices continued to rise in the first month of the year, while the number of available homes continued to fall, following a months-long trend of high demand and low inventory that is making it increasingly difficult for middle-class homebuyers in Maine. 

To compound matters, real estate experts say an expected jump in mortgage rates will further squeeze an already tight market as the Federal Reserve attempts to tamp down rising inflation.

The number of Maine homes sold in January fell from 1,256 in 2021 to 1,166 last month, a decrease of 7.2 percent, while the median sales price rose from $255,300 in January 2021 to $292,250 last month, an increase of 14.5 percent. The median indicates that half the homes sold for less than that amount and half sold for more.

During the three-month period ending Jan. 31, Maine home sales fell by nearly 10 percent from a year earlier, and the median price increased by nearly 12 percent to an even $300,000.

Despite the overall dip, January sales remained 10 percent higher than before the coronavirus pandemic in January 2020, according to the Maine Association of Realtors. 

Madeleine Hill, president of the association and a broker at Roxanne York Real Estate on Bailey Island, said in a statement that markets remain strong across the state, but the low availability of for-sale inventory remains a problem. 

Nationally, home sales declined by just over 2 percent in January compared with the same month a year ago, and prices rose more than 15 percent to a median sale price of $350,300, the National Association of Realtors said. 

Regionally, sales in the Northeast fell by about 8 percent in January from a year earlier, and the median sales price rose 6 percent to $382,800.

NEXT UP: RATE HIKES

Housing isn’t going to get more affordable any time soon.

Mortgage rates fell to historic lows during the pandemic, making the sky-high home prices somewhat more palatable for some homebuyers, but real estate professionals say that’s starting to change.

The average interest rate on a fixed, 30-year mortgage hit a more than two-year high of 3.92 percent this week, rising more than 25 percent just since Christmas, according to Freddie Mac. Further increases are expected as the Federal Reserve hikes its benchmark rate in an effort to curb inflation, which is at a 40-year high.  

Investors are predicting at least a 1.5-percentage point increase in borrowing costs by the end of the year, Politico reported this week – the equivalent of six quarter-point rate hikes. The last time rates rose that much in a single year was in 2005, just before the peak of the housing boom-and-bust cycle in the mid-to-late 2000s.

The expected mortgage rate increase will further limit housing inventory, especially for entry-level properties. Homeowners, reluctant to give up an older lower-cost mortgage for a higher one in a new place, are more likely to stay put. 

And even if they did want to move, where would they go?

Without options, they’re not likely to start packing, said Cricket Grobe, a realtor with Re/MAX Shoreline in Portland.

 “Is it a great time to sell? Yes,” she said. “But sellers are still a little tentative to put the ‘for sale’ sign out front.”

On the other hand, higher mortgage rates aren’t likely to cool Maine’s hot housing markets anytime soon. 

According to Chris Bedard, a loan officer with Norcom Mortgage in Saco, demand from second-home buyers and investors has never been better. 

“The supply and demand is just masking the issue of rates going up,” he said.

And they will go up. How much remains to be seen, but Bedard said he wouldn’t be surprised to see rates jump to 5 percent this year. 

In theory, when inflation is high, the cost of borrowing needs to rise to slow things down, he said, and in a normal market, that would work. 

“But supply and demand right now is just ridiculous,” he said. “It’s a new market.” 

RICH BUYERS ONLY?

Homes will keep selling like hotcakes, but the demographic of people buying them is what’s likely to change. 

Median-income borrowers, who may have been willing to stretch their budgets when rates were low, may start backing off and waiting until prices go down, he said. 

“This isn’t a gloom-and-doom scenario with how it’s going to affect sales,” Bedard said. “It’s just going to affect affordability.”

Leanne Nichols, a broker with Keller Williams Realty in Portland, agreed that higher rates likely won’t put much of a dent in the current market. 

It’s primarily going to impact people who are already struggling to afford a home in the new real estate market – people Nichols described as “payment-sensitive.”

As interest rates climb, what people can afford will go down, said Leo Bourgeault, a real estate agent with Coldwell Banker in Saco.

“Instead of a $400,000 house, they’re going to have to buy a $300,000 house, which you can’t find,” he said.

Across the board, southern Maine realtors stressed the need for more housing. 

New units are on the way, but inflation has made building more expensive, staffing shortages and high demand are stretching builders thin, and it’s unclear when and where the relief might come. 

“I’m concerned,” Nichols said. “Affordability is a huge factor. Are we going to see a drop in homeownership rates? People just can’t find a house.”