Sales of existing single-family homes

The sale of existing single-family homes has increased over last year, driven by low interest rates, pent-up demand and improving economic conditions.
Source: Maine Real Estate Information Systems, Inc.

January 2, 2013

Bright spots in Maine's economy mask challenges ahead

The state is poorly positioned in growing industries and needs help from a strong national recovery.

By Jessica Hall jhall@pressherald.com
Staff Writer

There are some bright spots in Maine's economy: Home sales are improving. Unemployment is shrinking. More seafood is moving through the Portland Fish Exchange. By metrics like those, Maine's economic health is starting to show promise.

click image to enlarge

Charles Colgan

Unemployment in Maine

Click on the image of the state below to open an interactive map with unemployment rates by Maine counties from 1990 to 2012.

SOURCE: Center for Workforce Research and Information

But look closer, and Maine has farther to go before any real economic recovery occurs -- and much of the improvement depends on the nation's fiscal health and public policy, according to some economists.

"Until the whole national train gets moving fast enough, we won't get pulled along on the state level," said Charles Colgan, professor of public policy and management at the University of Southern Maine's Muskie School of Public Service. "We're not big enough or leading enough in any service industry to pull the state economy out of problems on our own."

For every potential bright spot in the state's economy, there's a flip side.

Real estate is often a leading indicator of an economic recovery, as buyers take advantage of low interest rates and the glut of available homes on the market, and people who had been living with family during the recession now can afford to move out on their own.

In November, sales of existing single-family homes surged 23.6 percent over the previous year. That increase built on a similar sales jump of 24.6 percent in October and gains seen throughout 2012.

The increase in housing demand hasn't moved the needle much on median home prices. In Maine, the median sale price fell from a high of $201,000 in April 2007 to $152,000 in January 2009. The median sale price increased to $172,250 in November, up 1.9 percent from a year ago but still below the peak.

"Housing sales are up, and there's a slight increase in price," said Joel Johnson, a policy analyst for the Maine Center for Economic Policy. "But dig a little deeper, and it's a mixed bag. Mortgage delinquencies are still high and foreclosures are still high. Overall, I'm not that optimistic."

Meanwhile, construction of new homes in southern Maine jumped 35 percent in the first nine months of 2012, a rebound from last year when housing starts in the region fell to a 20-year low, according to Construction Data New England.

Although builders welcomed the new projects, they cautioned that the figures reflect construction in prime locations in southern coastal towns, and warned that new construction in the rest of the state remains stagnant. Plus, the number of new-home permits in southern Maine is still well below pre-recession levels, and last year's growth could seem healthy only in comparison to the depressed numbers in 2011.

"If you look hard enough, you can find certain economic indicators that show signs of recovery," Johnson said. "But to me, I'm more concerned about if and when a recovery does get going -- who will be left behind and who will be helped? Will it be a broad-based recovery?"

For example, Maine's unemployment rate was 7.2 percent in November, down slightly from 7.4 percent in October and little changed from 7.1 percent a year earlier. The statewide unemployment rate has remained relatively flat since January, when it stood at 7.0 percent, according the state Department of Labor.

Although Maine's unemployment rate is better than the national rate of 7.7 percent, the Maine rate does not take into account those who have dropped out of the work force and given up looking for work. About 51,300 Mainers were unemployed in November, but Johnson estimated at least another 60,000 have part-time jobs and want more work, or have stopped looking.

Maine also still lags the nation in wages. The median household income in Maine rose to $46,933 in 2010, the most recent year for which data was available, from $37,240 in 2000. But the median household income in the state lags the national figure of $50,831 in 2010, according to the U.S. Census Bureau.

(Continued on page 2)

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