At this time last year, real estate went into a tailspin and the financial sector of the American economy was coming apart.

With no mortgage money available, the real estate market was frozen in place. Doom and gloom talk out of Washington D.C. was adding fuel to the fire, and the election was right around the corner. Most of America was tensely waiting for the other shoe to drop.

The chart below shows the hesitancy of the real estate market in the first three months of 2009. 2008 had not been a year to write home about, but 2009 was tanking. At the end of March 2009, year-to-date home sales in the area were off by 55 percent vs. the same period in 2008.

In the second quarter of 2009, mortgage money was more readily available and real estate activity began picking up. Sales were off 30 percent at the end of June 2009 compared to 2008, but that was much better than the 55 percent decrease posted at the end of March. By the end of September, the decline faded to a 17 percent decrease. Things were improving. The market had stabilized. Recovery had begun.

Part of the recovery can be attributed to the $8,000 first time homebuyer tax credit offered as part of the stimulus package. It gave a shot to the housing market for homes under $200,000. In 2008, 67 homes under $200,000 had been sold in the area by the end of September, while 72 were sold through September 2009. The conclusion can be drawn that the moderate price market in the area has fully recovered… under the influence of an $8,000 tax credit.

The high end market is another story. No incentive was offered by the stimulus package for mid to high end homes. Since 2003, sales of homes over $500,000 represented 12 percent to 17 percent of total home sales in the area. In 2009, only 9 percent of homes sold were valued at higher than $500,000. In fact, only 11 homes above $500,000 have been sold in the Wiscasset-Boothbay area through September 2009.

Through September 2008, 18 were sold, but in 2007 there were 28 sales, and 31 were sold through September in 2005, the peak year for real estate in the area. Sales of homes over $500,000 are down 39 percent vs. 2008, and 60 percent vs. 2007. There are 95 area homes above $500,000 presently listed for sale through real estate agents. At a sales rate of 1.2 homes per month, that represents a 77.7 month supply.

The chart below shows the percentage of homes sold through September by price grouping. In 1998, 43 percent of homes sold were priced $100,000 or less, with 99 percent priced at $500,000 or less. Two factors combined to shift the numbers to the right.

The first factor was rising home prices that moved a house from a lower priced grouping to a higher priced grouping. This largely accounts for the difference between 43 percent of sales coming in the $100,000 and under grouping in 1998, falling to 2 percent in 2008.

The second factor was a healthy and growing real estate market fueled by out of state people moving here and buying upscale homes. Notice that in 2007, only 40 percent of sales were in homes priced at $200,000 or less, meaning that 60 percent of sales came from homes priced above $200,000.

In 2009, just two years later, the percentages exactly reversed, with 60 percent of home sales in the $200,000 and under grouping. Fewer people in the mid to high end category were in the market in the first nine months of 2009.

Unless a family is grossly outgrowing its present home, or has to move into the area, few mid to upper range buyers are motivated to buy now. With a government in Washington talking about raising taxes on people with money to pay for global warming programs, health insurance, and various welfare programs, people with money are wary about making new commitments until they know what their future tax picture looks like.

The second factor is the changing mortgage market. Loans for more than 80 percent of the purchase price are not common these days, and coming up with $100,000 cash to put down on a $500,000 house is prohibitive for many people who took a serious hit to their 401ks and other investment accounts within the last year.

The high volume of sales below $200,000 has also driven down the median price of homes sold. The median price means half of all homes sold above the price and half below the price. The chart below shows median price through September for the last twelve years.