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Friday, March 21

By Richard Montague

Painting a bleak overall picture, the media outlines in a daily drumbeat that unsold housing inventory is at record highs, selling prices are falling, foreclosures are on the rise and Americans are being forced from their homes. Although this may reflect the reality of portions of the national real estate market, it is not representative of the market in Vermont.

Property owners in Vermont, as in the rest of the nation, enjoyed a robust market for the past 10 years as prices of real estate rose appreciably. In the State of Vermont, annual price appreciation averaged close to 10 percent, higher than in some areas but significantly lower than the "boom markets" on the coastlines and new economy cities. This boom in real estate was fueled by a healthy and robust economy, the relatively low cost of money or low mortgage rates, the overall attractiveness of real estate as an asset and favorable demographic trends unique to Vermont, particularly in our corner of southern Vermont.

Today, property prices in the Manchester and the Mountains region have stabilized from the consistent annual increases we have experienced for the past five to 10 years and the average "days on market" for a property has increased. Sellers are no longer testing the market with high prices and buyers are being far more patient and thorough in their contemplation of real estate purchases. Today's market could be characterized as a buyer's market compared to the seller's market of the recent past.


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The once frenetic pace has slowed significantly in the past year or two; however, the market today resembles more of a normal or 'normalizing market' than a bear market or one in which property values decline.

The relatively stable housing market in our area is attributable to several factors: first, our housing stock has grown at a moderate pace as compared to the overdevelopment of houses and condominiums in many markets nationwide; second, the Vermont economy is relatively healthy compared to many markets in the central United States where unemployment is high; third, the modest amount of development and speculation by investors; fourth, Vermont housing appreciation was not exponential; and a high percentage of properties purchased in Vermont were not subject to extensive leverage or sub prime loans.

While Vermont may be statistically isolated from the national real estate market it is not immune to the drum beat of impending doom. A significant portion of the real estate market in southern Vermont is second homes with a large percentage of the owners living in New York, Connecticut, Massachusetts, and Florida. A tendency to assume that what is happening elsewhere must be happening in Vermont translates into buyers being more cautious and slower to act with sellers becoming more anxious and abundant.

Vermont offers its own set of risks to the future health of our housing market. As any Vermont property owner knows, Act 60 and Act 68 have significantly increased property taxes. Quite high by national standards, especially when compared to other second home and tourist-driven markets, the property taxes and in particular the tax structure on second homes have precipitated property owners to reassess the cost of carrying those properties and in some cases have made owning those properties undesirable or unaffordable. Combine property tax obligations that have doubled, tripled, or in some cases quadrupled with the increased cost of utilities and travel due to the rising cost of oil and a second home may become more expensive to carry than a primary home. Multiple vacations may replace a second or third home when owners assess their portfolios.

This rise in the cost of home ownership or "cost of carry" is easy to overlook when property values are rising every year. When prices stop rising second home ownership becomes far less attractive. Given that a high percentage of local property is owned by those with a fixed income, such as retirees, it is no surprise that our market is vulnerable!

This has become increasingly apparent in the resort markets surrounding Stratton, Okemo Mountain and Manchester. Vermont property as an investment has changed as prices have stabilized or declined and taxes and costs have increased.

Property taxes and increased costs of home ownership have slowed our local market and events nationwide have had an effect on our real estate values; however we are insulated from most of the driving forces behind some of the widely publicized national market meltdowns. National trends are dynamic and will change over time, mortgage rates will rise and fall as will property values; however, Vermont's protectionist legislation will ensure that Vermont is and will remain a wonderful place to live and recreate, raise a family, and enjoy a quality of life not achievable in much of the United States. Vermont connotates almost a state of mind to its aficionados and there is a shared belief that what we have here is real and treasured and that mindset alone will go a long way toward the maintenance of a healthy real estate market.

Richard Montague is the president and owner of Vermont Country Properties, Sotheby's International.