Maine’s housing market broke records in 2023 – and not in a good way.

High buyer demand, limited inventory and climbing interest rates continued to squeeze a market that has been tightening for years.

The annual median home sales price hit $360,000 last year, up from $315,000 in 2022, according to data released Friday by the Maine Association of Realtors. Only about 13,600 homes changed hands in 2023, making for the fewest transactions since 2013.

Paul McKee, president of the Maine Association of Realtors, said the housing inventory needs to more than double for the market to be balanced. Real estate professionals consider a “balanced” market one that has a six-month supply of houses. Right now, Maine has less than three months of supply.

“Throughout Maine, real estate markets continued to be impacted by increased interest rates and sellers’ ongoing reluctance to list due to the supply/demand issues the industry is experiencing. This, in turn, prolongs the shortage of homes available for sale,” said McKee, who is a Portland-based broker with Keller Williams Realty.

Buyer demand remains strong, and turnkey, appropriately priced properties continue to receive multiple offers in most parts of the state, McKee said.

Many buyers have had to get creative.

When Catalina Mehler moved back to Maine in 2019, she asked her daughter if she could stay in her daughter’s Cape Elizabeth condo for a few months while looking for a house of her own. At the time, there were plenty of nice homes, reasonably priced for a single woman. She figured she’d be out of her daughter’s place in no time – six months, tops. But then the pandemic hit and the housing market went haywire.

Nearly five years later, Catalina Mehler, 65, and Kelly Mehler, 36, are finally ready to move out of the two-bedroom condo, but they aren’t going their separate ways.

Faced with an increasingly challenging housing market, the mother-daughter duo decided to combine their resources and look for a place together. After a year of “doomscrolling Zillow” and going to open houses, they closed on their new Scarborough home last week.

“It’s been hard and difficult and discouraging,” Kelly Mehler said.

With their combined incomes, the two set a $600,000 budget and concentrated their search in Cape Elizabeth, Scarborough and South Portland. But everything they looked at was either out of their price range or needed too much work.

Finally, they found their “diamond in the rough,” Kelly Mehler said, and put everything on the table. Kelly Mehler exhausted her savings and Catalina Mehler dug into her retirement so they could offer cash. They didn’t want to be saddled with a 7% interest rate and a $3,700 monthly mortgage payment. Plus, if they made the sale contingent on the sale of the condo, they worried they’d lose their chance.

“We knew going into the offer that we needed a leg up,” Kelly Mehler said.

They put in an offer the same day they looked at the house and they were under contract the next morning.

They’ll list the condo soon and hope to be living in the Scarborough house full time a few weeks after that.

Kelly Mehler never thought she’d be living with her mom in her mid-30s, but it works for them.

“It’s really impossible to be a single person and try to do this on your own,” she said.

MAINE NEEDS MORE HOUSES, FAST

There are positive signs that the market may relax a little in 2024 – more homes are on the market now than this time last year. But the state needs a lot more housing, fast.

“The key to solving some of the issues regarding supply and demand is development of affordable and accessible homes throughout our state,” McKee said.

A report by the state’s housing authority in October found that Maine needs 84,000 more houses in the next seven years to accommodate its existing population and the people expected to move here.

The total number of homes in Maine – not just the number of new homes being built – needs to increase by about 11%.

Officials estimate Maine needs approximately 38,500 homes to remedy historic underproduction and will need an additional 37,900 to 45,800 homes to meet expected population growth and household change by 2030. A new law, L.D. 2003, that’s designed to increase density and boost the number of houses by allowing accessory dwelling units went into effect in July, but the actual requirements won’t kick in until next year.

Maine home prices rose every month through June last year, capping the first half of the year with a record-high median home price of $385,000.

Sale prices swung between extremes across Maine’s 16 counties. In Aroostook and Piscataquis counties, home prices stayed below $200,000 in 2023, while Cumberland County crested $500,000 for the first time, with an annual median sale price of $531,000. Piscataquis was the only Maine county to see an overall price decrease in 2023, a modest 0.47%.

Maine’s housing market mirrors national trends. U.S. home sales declined by almost 19% last year compared to 2022, according to the National Association of Realtors. About 4.1 million homes were sold across the country last year, making 2023 the weakest year for home sales since 1995.

Simultaneously, the median national home price for 2023 reached a record high of $389,800.

Lawrence Yun, chief economist for the national association, said the rapid three-year rise in home prices is unsustainable.

“If price increases continue at the current pace, the country could accelerate into haves and have-nots,” he said. “Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”

HOPING FOR MORE INVENTORY

Yun said more inventory is expected to hit the market in the coming months and lower interest rates should help spur more market turnover.

In late October, the average rate on a 30-year mortgage hit 7.79%, the highest level since late 2000. Since then, the rate has come down. According to mortgage buyer Freddie Mac, the 30-year fixed-rate mortgage averaged 6.60% as of Jan. 18.

Derrick Buckspan, a broker with Re/Max Shoreline in Portland, said 2023 was characterized by peaks and valleys, and he expects the same for 2024.

Inventory is always lower in the first part of the year but last year the first quarter was “particularly painful,” he said.

Maine real estate agents sold fewer than 1,000 homes per month in January, February, March and April. Many people feared another recession, and interest rates were climbing, so homeowners and buyers decided to sit tight rather than try to sell their houses or wade into the marketplace. Inventory remained tight throughout the year, with 1,024 houses changing hands in December, a 6.4% decrease from December 2022.

Buckspan said 2023 was particularly hard for first-time homebuyers, who lacked equity and struggled to compete against more experienced buyers with equity. He expects to see even more buyer demand as interest rates continue to go downward.

However, “that will push prices upward,” he said. “I don’t think it’s going to be a straight line. It’ll be peaks and valleys.”

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