Lower Rhode Island Home Prices Bring Little Relief

The cost of owning a house — or even renting one — is so out reach for so many Rhode Island residents that the recent downturn in house prices will do almost nothing to improve affordability, according to a new report.

Rhode Island home loan demand is slowing, but in a state where house prices have zoomed so far ahead of growth in wages, the report shows, the share of households that spent more than of half their income on housing in 2005 stands at more than 17 percent.

Not surprisingly, the state’s poorest households make up the largest share of residents with “severe” housing cost burdens, meaning that they spend more than half their income on housing.

But the ranks of middle-class residents paying far above the recommended share of their income on housing have risen dramatically as well.

Rhode Island is now one of 13 states — including Massachusetts, Connecticut and New Hampshire — where more than half of all low-income households face this “severe housing cost burden,” according to Harvard’s 2007 State of the Nation’s Housing Report.

Nationally, the median price of a single-family house rose, on average, nearly 29 percent from 2000 to 2005, the report said, while the median household income, during the same period, fell 2.7 percent.

In Rhode Island, the median price of a single-family home in the first quarter of this year was $255,000, down from $262,000 a year earlier, according to The Warren Group.

“We’re not seeing a return to the historic affordability,” Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies, said.

“There’s a disconnect between the labor market and the housing market … and you certainly see that in Rhode Island.”

The “disconnect” between incomes and housing costs in Rhode Island is expected to persist into the next decade, as low-wage service jobs are added to company payrolls.

Employers in 8 of the state’s 10 fastest-growing occupations — janitors, cashiers, office clerks and retail sales workers, among them — will pay their employees less than the $22.50 an hour, or $46,880 a year, needed to afford the average $1,172-per-month rent on a two-bedroom apartment

Only 2 of those 10 occupations — accountants/auditors and registered nurses — pay enough to even afford a two-bedroom rental, let alone afford a Rhode Island mortgage said the housing advocacy coalition’s group’s director, Ari Matusiak.

And “none of the occupations,” he said, “earn a wage sufficient to afford the median price of a single-family home.”

The high cost of housing in Rhode Island means that people who grew up here may not be able to afford to stay because they can’t afford housing, said Brenda J. Clement, executive director of the Housing Network, a nonprofit organization.

Rhode Island voters last November approved a $50-million bond issue to help generate as many as 2,000 units of affordable houses, condos and apartments over the next four years.

“It starts to make a dent,” Clement said, “but it’s certainly not enough.”

The new affordable units, however, may not come in time to help Deanna and Ernest Perron, of Johnston, who are already a month behind on their $2,195-a-month home mortgage payments.

He is a truck driver and works in construction; she cleans houses three days a week. They live with their four children, ages 3 through 19. Their household income is about $30,000, Deanne said.

The couple bought the four-bedroom cape in 2001 for less than $100,000. They gutted bedrooms and renovated the kitchen. When they ran out of money to pay their bills, they applied for mortgage refinancing — twice.

“In the winter, my husband gets laid off, so it’s hard to pay everything on unemployment,” Deanna said, “so we get behind. So when we refinanced, the credit wasn’t good, so they’d do it — but at a high rate.”

The mortgage rates on their loan are now 11.5 percent, she said.

Their $2,195-per month payments eat up 80 percent of their income. Housing is generally considered “affordable” when a household spends no more than 30 percent of its gross income on rent or on mortgage payments, taxes and insurance combined.

The couple is working with a housing counselor at Network Rhode Island, a nonprofit agency, to refinance their house.

And last month, Deanna graduated from the East Providence Career & Technical Center with a degree as a certified nurse.

“Hopefully,” she said, “I can get us up and out of the hole.”

The Harvard report shows that while the poorest households — those earning $23,000 or less — account for nearly 80 percent of those who pay more than half of their income for housing, the affordability problem is moving up the income ladder.

Householders, such as the Perrons, which earned $23,000-45,000, accounted for 12 percent of owners and 6 percent of renters who are “severely cost-burdened,” meaning they pay more than half of their income on housing, according to the report.

And people in the upper-middle income ranks are also increasingly paying too much for their Rhode Island mortgage loans.

The Harvard report draws a broad picture of a national housing market that has gone from record high prices and sales, which generated wealth and lifted the economy, to a market plagued by falling sales, rising inventories, flattening home prices and rising residential foreclosures.

Nationally, housing now represents more than 20 percent of the gross domestic product, or goods produced, compared with 18 percent from the manufacturing sector.

Already, the drop in the housing market during the second half of last year shaved more than a full percentage point off the national economic growth, the report said.

“Many buyers are now waiting on the sidelines, hoping prices will fall,” Retsinas said.

But for all those waiting, the report suggests, many are likely to be disappointed.

SOURCE: Providence Journal