Will the Cape housing market recover this year?
by Glenn Ritt“Who wouldn’t want to buy a house on Cape Cod today? Most homes are reasonable priced to sell, the inventory is plentiful and mortgage interest rates are favorable.”
Is this quote from a recent Kinlin-Grover/GMAC newsletter a case of rose-colored glasses amid a nearly three-year housing downturn? Or do the numbers paint a more optimistic picture for Cape Cod – despite seemingly endless headlines nationwide about a gloomy housing market?
Bett McCarthy, who manages Kinlin-Grover’s operations on the Cape – the largest of any real estate company here, believes it’s the latter, and the facts increasingly back her up. But it comes with caveats:
• The Cape surely has felt a slide in both sales volume and prices, but substantially less than in many parts of the state and country. While sales volume here is down about 10 percent in the last year, parts of Boston’s MetroWest, for example, have experienced a 25 percent decline.
• Many lenders and real estate brokers continue to believe the Cape is unique because of its high-income demographics, pent-up demand by retirees and second-home buyers, and limited impact from foreclosures. Thus, they see a near-term bottom – and certainly one sooner than will be reached in places like California and Florida.
• There are three unique housing stories on Cape Cod: the $1 million-and-above price range; the $500,000 to $900,000 price range; and the $200,000 to $400,000 price range.
• The highest-end market is more than holding up, and while it takes longer to sell, owners are holding out for their price. Over the first four months of 2008, $1 million-plus home sales were up by more than 9 percent, with prices rising year to year by 7.4 percent. Realtors reported a total of 162 $1 million-plus sales with an average price of $1,962,000 from January through April.
• The lowest-end market is experiencing substantial activity, and this is the best opportunity in the last decade for first-time homebuyers. The challenge is negotiating a drastically altered mortgage market that requires higher down-payments and good credit scores. But rates are extremely attractive and prices may never be this low again. So far this year, prices and sales volume in this category are down about 7 percent.
• It’s the medium-end market that is feeling the greatest pain. That’s because many buyers in this range require jumbo mortgages of $500,000 or more – and the nationwide market for these loans has become very restrictive due to the liquidity crisis facing Wall Street. Even when buyers can obtain such financing, they can be frustrated because they cannot sell their homes elsewhere to move here. Homes in this range saw sales drop by 18 percent through April. But the price of those that did sell held steady.
“Homes priced right will sell quickly,” said McCarthy, whose company sells the largest number of $1 million-plus homes on the Cape. “There is a whole group of homes selling at almost full price because they are appropriately priced.”
John Terrio of First Horizon Home Mortgage in Hyannis added: “There may be no better time than now to buy. Many people are sitting on the fence right now, but when the market turns, it is going to turn quickly.”
“I really do feel we are close to the bottom of the downturn,” said McCarthy. She pointed to a recent analysis by Lawrence Yun, chief economist of the National Association of Realtors, who said a recovery for the Northeast could begin as early as the third quarter.
Cathleen McAbee of Joly, McAbee & Weinert Realty in Dennis also sees improvement by the third quarter.
Here’s what the numbers tell us about the Cape Cod residential market, including single-family homes and condominiums:
• Homes that sell within 30 days get slightly more than the asking price.
• Homes on the market for 31-60 days sell at 95 percent of asking price.
• Homes on the market for 61-90 days sell for 92.6 percent of asking price.
• Homes on the market 91-120 days sell for 93.2 percent of asking price.
• Homes on the market for 120 days or more sell for 91.5 percent of asking price.
But these numbers may be deceptive – they may be based on successive drops in the asking price.
Consider these January-April sales trends as well:
• The average price of homes in Provincetown, Truro, Orleans, Brewster, Harwich, Sandwich, Cotuit, Hyannis proper and Centerville rose.
• The average price of homes in Chatham, Falmouth, Wellfleet, Osterville, Marstons Mills and Eastham experienced very modest declines, some nearly indiscernible.
• The greatest price decreases have occurred in Bourne, Yarmouth and Dennis, probably because these towns are experiencing the highest foreclosure rates.
We asked McCarthy, Terrio and McAbee for their overall observations about the housing market as it affects both sellers and buyers – based on their long history on the Cape and previous experience with downturns. Here are some of their thoughts:
Bett McCarthy:
• It is more important than ever for home sellers to consider ‘curb appeal.’ “A lot of buyers – especially second-home owners (who currently represent half of the market) are not willing to do a lot of work on the property. They want things in really good condition. Consider staging your property and cleaning up the landscaping. The first impression by a potential buyer has never been more important given the market.”
• It is critical to price homes correctly. Consider your opportunity cost – time – as much as price. Those who were reluctant to lower their price two years ago very likely will eventually sell their home at an even lower price. “It is not throwing a dart at the board. We constantly look at prices and see what is moving, looking at the condition of those houses.” She said Kinlin-Grover is reluctant to take on a property if the buyer has unrealistic price expectations. “We try only to accept homes that are reasonably priced. It is a waste of money advertising something that won’t sell. Sellers should price their home right in the very beginning; otherwise they are chasing the market and always missing out.”
• Consider all offers. Sellers should not be offended but should consider all offers in this market. Often the first offer is rejected, but subsequent offers may never be as good as the first.
• Buyers have the leverage, and this sometimes leads to sales falling through at the last minute. In many cases, it is after home inspections. In the past, buyers only focused on major structural issues, but in a buyer’s market, they are inclined to ask for improvements and future repair allowances.
• Sellers may want to consider alternative financing to grease the wheels of a sale. This could include taking on a second mortgage if the buyer can’t get a full loan commitment – especially a jumbo loan. With a volatile stock market and very low interest rates for CDs and money market funds, a second mortgage may be a smart investment option.
• Realtors are marketing more overseas. Because the euro is the equivalent of nearly $1.60, U.S. real estate is a historic bargain. That has kept sales and prices high in New York City and Boston. On Cape Cod, international buyers are increasing – especially from Britain, Ireland and Germany – for more expensive homes in towns like Chatham. The number of these buyers may be double that of two years ago, although that increase is built off of a low base, said McCarthy.
John Terrio
• “The $1 million-plus market has not been terribly affected by the subprime crisis and subsequent liquidity shortage. The gap is in the $500,000 to $900,000 range. Money is not as readily available in the jumbo category as in the conventional market below half a million dollars. More importantly, people who want to buy a Cape home in this range often have to first sell a similar home elsewhere. Until Wall Street recovers, jumbo lenders and borrowers will continue to suffer.”
• “The beauty of Cape Cod is that they are not building more land. Over time, values will not only hold up, but continue to grow. Problems felt at the low end of the market do not necessarily affect higher-end homes here.”
• “If a buyer cannot obtain jumbo financing on a 30-year fixed rate mortgage at 6 percent, consider five-year, adjustable-rate mortgages that currently are available at 5.5 percent to 6.5 percent. In four or five years, this will be a different market; values will go up and you will be able to lock in a fixed-rate mortgage because the value of your house in relation to the loan will be higher.”
• “The buyer today is much more savvy and educated as a result of the Internet. There is so much information out there – maybe too much – for people to educate themselves. It simply adds to the challenge for the seller.”
Cathleen McAbee:
• She is encouraging clients to stay ahead of the market. “If you are behind, buyers will ignore you. If you need to sell, bite the bullet to secure a sale. If you wait six months, it’s highly likely in this environment that you will not get a higher price.”
• She also sees buyers who think they qualify for mortgages, only to learn that with stiffer requirements in the wake of the subprime crisis, they cannot secure a loan. “In previous years, financial institutions were able to be more creative, but most of these programs have disappeared. Some off-Cape lenders also are identifying Barnstable County as a market with declining values, which is leading in some cases to very tough appraisals.” She points out, however, that the Cape is really many markets, broken up not only among towns but even within towns. Dennis Village and East Dennis, where she focuses much of her attention, have retained value more than the southern side of town.
• She notes that prices at the higher levels have remained stable, even if sales have slowed. “Sellers on Cape Cod do not have the same motivation” as those elsewhere, or in the lower-price ranges. “Their decision to sell often is reflected more in lifestyle change as opposed to the financial need to sell,” she said. “If they cannot get a certain price, most don’t have to sell.”
Published in Cape Business July/August 2008
Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey. 
