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.
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Think the real estate market in Newport County, R.I., is soft?
If so, think again, say the Newport Daily News and the Newport County Board of Realtors President, Jennifer O’Hora Lawrence.
During a presentation Tuesday before the Jamestown Chamber of Commerce, Lawrence said the current Rhode Island housing market gives first-time buyers the opportunity to get into the game, offering more options for those searching for a new place to live.
As for those who got wrapped up in the housing boom of the past few years, Lawrence’s message is just sit tight, because home prices will rise up again - just maybe not as fast as before.
“In Newport County, we’re very fortunate that we’re islands,” Lawrence said. “There’s only so much land and we have a lot of special events that only happen here and make this area attractive.”
Home prices during the past few years have surged not only in Rhode Island, but also across the country. It was common for houses and businesses to sell for record prices, but that trend has slowed.
Lawrence said the mainstream media tends to lump a niche market such as Newport County in with the rest of the country, when in reality, Rhode Island mortgage demand is strong and the market is in better shape than many people believe.
The median sales price for single-family homes in Newport County rose in Little Compton, Portsmouth and Tiverton in 2006, while they were off slightly in Jamestown, Middletown and Newport compared to 2005 figures. Statewide, the 2006 median price was down by a little more than one-tenth of 1 percent.
“We couldn’t sustain the intense pace we had in the last few years, but it opens it up to both buyers and sellers,” Lawrence said. “But what’s happening in Las Vegas and Florida isn’t happening here.”
The housing market in both those places has struggled for the past few years, with not enough buyers for the number of homes being built.
Statistics provided by Lawrence indicate that single-family homes in Rhode Island experienced an average of 79 days on market in 2006, close to two weeks longer than the year before.
Stephen D. Antoni of the Kent Washington Association of Realtors, said what his organization is seeing across the Narragansett real estate landscape is roughly the same as the situation in Newport County.
“Home prices won’t go that much lower,” Antoni said. “In Rhode Island, with the exception of the condo market, we haven’t seen the decline in the market that others have experienced, nor are we positioned to.”
The bad thing, Antoni said, is that some buyers got into the market a couple of years back and became overextended, leading to many of the foreclosures running in the legal section of newspapers.
“People want to buy a house and that’s our job, to sell them a house, but I cringe when I read those foreclosure notices,” Antoni said. “I hope none of them were buyers I represented because you form a bond with them.”
Another problem is that sellers are trying to get post-boom prices when that market has tapered off. But Lawrence said as long as mortgage rates remain reasonable, there will be buyers in the market.
Based on large-scale real estate forecasts, for every point a home loan rate increases, a million buyers are knocked out of the market.
Below are the median sales prices for single-family homes in Newport County and Rhode Island in 2006, with the percent change from 2005:
SOURCE: Newport Daily News
As Rhode Island home prices are lowered in order to boost sales activity, Realtors must also spend time figuring out the region’s condo market.
As reported by The Providence Journal, the statewide median condo price during October, November and December fell 7.4 percent, but the median for the year was $225,000, up 2.8 percent from 2005, based on a report released this week by the Rhode Island Association of Realtors.
Prices of condos in the state held up better, overall, than those of single-family houses, which last year saw a $7,500 decline in the statewide median home price, to $282,500.
Rhode Island’s condo sales last year declined 16.3 percent, as demand for home loans remained quiet in the face of such increased values. 2006 also marked the first decline in condo sales since 1993, when the median price of a condo in the state was $83,000.
Condo prices rose last year in 17 of the 35 communities reporting condo sales, and fell in 14 communities. The association reported no condo sales data for 5 communities: West Greenwich, Little Compton, Glocester, Foster and Scituate.
(The association only reports sales made through real-estate agents to the state Multiple Listing Service, so sales by owners do not show up.)
The market’s cooling is being felt in Providence, where hundreds of new luxury condos are coming on line during the next few years.
Generally, if the supply runs ahead of Rhode Island mortgage demand, prices tend to fall. Last year, the median price of the 142 condos sold in Providence fell 5.6 percent or $12,000, to $201,000, the association’s information shows.
The Rhode Island housing market continued to weaken in October, with prices showing double-digit declines from a year ago.
According to the Providence Journal, the median price of a condominium in October was $225,000, down 12.2 percent from October of last year. Condo prices in the state have now declined for three straight months. Prices of single-family homes also fell, albeit less sharply. In October, the median price of a single-family house was $262,500, a decrease of 4.2 percent from October 2005.
“Our figures continue to show sluggishness throughout the Rhode Island housing market,” The Warren Group CEO, Timothy Warren Jr., said. “While we’ll be looking closely for signs of bottoming out, our best guess is that we won’t see conditions turn around in a tangible way much before the middle of 2007.”
The nationwide slump in the market has recently weakened demand for condos, which had found strong appeal among first-time home buyers and homeowners looking to downsize. But as the market weakened, Warren said, “the effects of gravity finally caught up with them.”
Rhode Island single-family home sales during the first 10 months of this year were down 8.85 percent, compared with a 3.6-percent decline in condo sales. Although condo prices have fallen for the last three months, they are still up 5.5 percent since January, as home mortgage rates have remained affordable.
Sales of single-family houses, by contrast, fell 10.31 percent in October compared with the same month last year, as qualifying for a Rhode Island mortgage is quickly becoming a tall order for many lower- and middle-income households. Sales have declined for four of the last six months.
The Warren Group’s data is based on public records and includes houses sold by owners as well as real-estate agents. Pretty much all of New England has been hit hard, but Rhode Island’s housing market has held up better than the market in Massachusetts, where single-family sales during the first 10 months of this year have plummeted 15.13 percent, while condo sales declined 13.57 percent.
The median price of a single-family home in Massachusetts in October was $312,000, down 6.87 percent from October of last year. The median condo price was $261,750, down 4.82 percent from the same month last year. Record low Massachusetts mortgage rates sparked five years of rapid home sales and price appreciation - which is starting to unravel now.
“You never know where the bottom of the market is,” Warren said, “until you’re at the bottom.”
Homeowners across New England seemed to have it all in the first half of this decade: rapid jumps in price made homes stellar investments, and if they decided to sell, buyers eagerly paid top dollar.
But 2006 is shaping up to be the year the region turned into a buyer’s market, with a housing slump hitting New England harder than most of the rest of the country, and predicted to stay that way through decade’s end.
The downturn cuts across the housing spectrum, from Maine to Connecticut. Economists predict New England’s historically volatile market will recover more slowly than the nation’s even if home mortgage costs remain low.
The downturn has sellers going to unusual lengths to unload properties.
The Boston Globe reports that in suburban Somerville, just outside of Boston, an area condo developer trying to sell the last of 18 units slashed prices — to $599,000, nearly 17 percent below what a comparable unit sold for three years in the same project.
“In any other market, this would be gone,” said real estate agent John Schwagerl, who has two potential buyers holding off on placing offers until they can unload their current homes. “The phones are ringing less. But when they do ring, there’s more work involved with it.”
In downtown Boston, the developer of a 14-story condo project held a real estate auction — a sales tool rarely used since the housing downturn of the early 1990s.
Bidders at the Folio Boston project’s October auction snapped up 31 luxury units in less than two hours at an average price of $778,000 — about 20 percent below the average asking price before the auction. The head of the firm that ran the event expects the market slump will lead to more such sales in Boston and elsewhere.
New England saw home prices rise by 73 percent from 1995-2004 compared with 44 percent growth nationwide. Gains in some areas were sharper, with prices nearly doubling in Boston.
Now New England is seeing a return to what it experienced at the end of the last century: prices growing faster than the nation’s through most of the ’80s, only to take a dive when boom turned bust in the 1990s. The region is prone to bigger swings than areas such as the Midwest, making both the ups and downs of real estate far more pronounced.
“The downturn here is more severe because the upside was so big,” said Karl Case, an economics professor at Wellesley College.
New England and the Northeast in general are more prone to wide housing market swings because development is more dense, with less available land to build. There are more restrictions on development, so it takes longer for developers in built-up areas to put up new houses.
The New England Economic Partnership projects the region’s home prices will remain flat through 2010 — in part because of price declines across parts of the region this year — and fall short of the U.S. forecast of 2.1 percent growth per year through the decade’s end.
Among New England’s six states, only Connecticut and Vermont are expected to see housing prices rise at rates above national averages through 2010. Massachusetts mortgage demand is projected to drop by 1.8 percent as the Bay State — the region’s most populous — is hit the hardest.
Meanwhile, permits to build new homes are expected to decline in all New England states through 2010 by 6.2 percent. That compares with a slip of just 0.3 percent per year expected for the nation, which is experiencing faster population growth than New England.
Every state in the region except New Hampshire ranked among the nation’s bottom 10 in housing starts from 2000-2004, the Federal Reserve Bank of Boston reported.
Yet as those interested in buying and selling continue to jockey for position across the New England region, industry officials are reminding area customers that most homes will likely yield some healthy investment returns — provided the owner holds onto the property for a few years.
“People who buy now will come out just fine. People who have a little guts and act now can expect prices will eventually get better,” said Fred Meyer, of University Real Estate in Cambridge.
Prices of single-family houses sold by real estate agents in the Rhode Island housing market declined in 20 out of 39 communities during the third quarter, shaving $3,800 off the average statewide median price.
The figures were released by the Rhode Island Association of Realtors.
The steepest declines were reported in about a half-dozen suburban and rural communities, where house prices during July, August and September fell 7.5 percent or more. Prices in 17 other cities and towns rose, while two communities - Providence and Warren - showed no change from a year earlier.
The statewide median house price dipped 1.3 percent, to $286,200, according to the association of Realtors; therefore, anyone looking for a house in these areas should speak to a home mortgage company today because buyers possess a great deal of leverage.
In Providence, single-family house sales plummeted 26 percent during the third quarter, the association reported. The median house price in Providence remained unchanged at $215,000.
Communities with the steepest price declines during the third quarter include:
In Middletown, the market is especially soft for houses in the $400,000 to $600,000 range, said Edward Moy, a broker-agent for RE/MAX and vice chair of the Middletown zoning board.
“Plus, you’re competing with Portsmouth and the Portsmouth schools,” Moy said, “and that’s been a difficult competition.”
To sweeten deals, Moy said, he has reduced his commissions by as much as $1,000. “When there aren’t many sales coming in,” he said, “it would be foolish not to, because 5 percent of zero is zero.”
The market slump comes just a few years after Rhode Island experienced some of the most dramatic rates of house-price appreciation in the country, fueling house building and seeding the state with mortgage brokers and mortgage lenders. Now, as the national housing market slumps, those businesses are feeling the effects.
Frank Sullivan, a mortgage broker and a co-owner of Cameron Mortgage in East Greenwich, said his business is off 35 percent to 40 percent from last year.
“I’ve got more listings than I’ve ever had in my career,” Sullivan said. “Right now, I don’t have a loan in my drawer. Not one. This is the first time in 20 years.”
A marriage often leads to the purchase of a first home.
In the case of Bank Rhode Island (Bank RI) and Rhode Island Housing, a marriage under the auspices of Priority Mortgage Services has led to the purchase of many first homes.
Started last year, the partnership involves BankRI issuing home loans and Rhode Island Housing handling the underwriting, closing services and the consumer education. The program won award for innovation from the National Council of State Housing Agencies.
“We need partners to make first-time home buyers aware that this is out there,” Chris Barnett, spokesman for Rhode Island Housing, told the Providence Business News. “We come together not only to fulfill our needs, but also to serve Rhode Island’s housing needs better.”
In recent years, as concern has grown about the affordable housing in Rhode Island, banks have become more and more involved in addressing the issue, working on everything from home purchase loan programs to studies and policy analyses, such as one sponsored by the former Fleet Bank in 2004.
Thomas Hogg, CFO at Rhode Island Housing, said that on the lending front, a strong partnership with 35 banks has enabled the agency’s First Homes program to offer low-cost financing for qualifying buyers.
First Homes offers low-interest home mortgage loans with the option of 30-year or 40-year terms to first-time buyers. About 1,500 loans are issued through the program each year. Though originated by the banks, they are financed by Rhode Island Housing, which has the ability to raise low-cost money.
Separately, Sovereign Bank says it offers qualified consumers mortgages with rates a half-point below the market rate. Sovereign also hosts “pre-qualification nights,” he said, during which consumers looking to purchase their first home can be set up, on the spot, with a real estate agent offering a home in their price range.
On the development front, Citizens Bank took the lead in 2004 with the creation of its “Citizens Housing Bank.”
The $200 million loan program, offering low-interest money to nonprofit developers in Massachusetts, Connecticut, New Hampshire and Rhode Island, aimed to help create 1,200 new housing units.
Jeanne Cola, Senior V.P. and Director of Community Relations at Citizens, said the program has created about that many units already. Developers of both rental and owner-occupied properties are eligible for the loans, which have a fixed rate of 3 percent for 3 years, with a 25-year amortization schedule.
While the program is closing in on its goals, Cola said, it is still going strong. Citizens has made affordable housing a priority, she added, because it is crucial to creating healthy families.
“Healthy families equal healthy communities,” she said, “When we have healthy communities, business thrives.”
Bank of America spokesman Ernesto Anguilla said his institution invested $174 million in affordable housing projects in Rhode Island during 2005.
Several institutions have also set out to make ownership more affordable for their own employees. BankRI offers its employees a $2,500 grant for the purchase of their first home, as well as reduced-rate mortgages. Citizens also offers grants to employees who are buying a home.
Peter Walsh, BankRI’s senior vice president of retail lending and its director of community relations, said banks have played a major role in addressing the Ocean State’s affordable housing problems.
“The bank dedicates time to affordable housing because the bank recognizes that it’s important. When the state wants to grow and the bank wants to grow, it’s important that we have affordable housing,” Walsh said.