While Rhode Island's real estate market made gains in 2014, the aftereffects of the foreclosure crisis continue to hold the housing market back from a more robust recovery.
The median house price in Rhode Island for 2014 as a whole was $215,000, the highest in six years, yet the number of sales was nearly unchanged — up only 0.25 percent — compared with 2013, according to statistics from the state Realtors’ association.
For Rhode Island’s luxury market, however, 2014 was a very good year. For homes priced at $2 million or above, sales volume was up by more than 20 percent, according to John Hodnett, principal broker/owner of Lila Delman Real Estate. This small segment of the market is largely fueled by buyers from out of state.
Most of the 2014 high-end sales were coastal homes "right along the Bay, within 100 yards of the water," Hodnett said. "It's literally just running down the coast."
Luxury home sales in Rhode Island have been so strong that "we have a bit of an inventory problem," said broker Judy Chace, a co-owner of Mott & Chace Sotheby’s International Realty, based in Charlestown. Even this winter, typically a slow time for second-home sales, has been busy, she said.
But even for the market as a whole, "the lack of quality inventory" is a problem, said Realtor Joseph McCarthy of Coldwell Banker Residential Brokerage.
As of Jan. 7, there were 3,975 single-family houses listed for sale with Rhode Island’s State-Wide Multiple Listing Service. By price, there were 1,831 listings priced under $249,999; 1,330 listings in the $250,000 to $499,999 category; 500 listings priced from $500,000 to $999,999; and 314 properties at $1 million and above.
University of Rhode Island economics Prof. Leonard Lardaro said a lack of supply is holding back the entire housing market. In addition to needing "more people to put their houses on the market," Rhode Island "does not have very much in the way of new construction," he said.
Last week, the Corporation for Enterprise Development gave Rhode Island an "F" in housing and homeownership, “a reflection of the low homeownership rate among all residents (60.4%) and the disparity in homeownership between white households and households of color.”
CFED, a nonprofit group that advocates for low- and moderate-income households, said that in Rhode Island, "homeownership among white households is 2.3 times higher than homeownership among households of color," making it "the worst state in the nation for the disparity in homeownership by race."
Negative equity
For sellers of average-priced homes, the modest price appreciation of 2014 helped some people sell without having to resort to a short sale, in which their lenders would have to approve a price below the outstanding mortgage, according to Bruce Lane, a co-owner of Williams & Stuart Real Estate.
In January, CoreLogic, an Irvine, Calif.-based company that provides financial and property information, reported that 14.8 percent of Rhode Island mortgages were in "negative equity," meaning their mortgages were higher than the value of their homes, in the third quarter of 2014. An additional 2.8 percent were "near negative equity."
Negative equity issues tend to be concentrated at the lower end of the market, but McCarthy said the problem "is blanketed across the state. It could be your neighbor next door."
Even when a short sale is not necessary, the inability of many owners to make even a modest profit holds them back from selling.
McCarthy said a house purchased in Providence's Elmhurst neighborhood 10 years ago for $240,000 will be selling for $234,000 in 2015. The owners have invested close to $20,000 in improvements. "Elmhurst is a middle-class neighborhood," McCarthy said, "and it still has not bounced back."
Taxes and jobs
"As property values build, it's getting better," McCarthy said. But another problem holding back the Rhode Island market "is the tax structure [high property and income taxes]," he added. "That's the killer."
With stagnant wage growth and high unemployment, even modest home-price increases can widen the affordability gap and price some buyers out of the market.
"Housing depends heavily on job growth," Lardaro said, and “employment here is still well below what it once was.”
In December, Rhode Island’s unemployment rate, at 6.8 percent, was the fourth-highest in the country. Last July, Rhode Island ended an eight-month stretch of having the nation’s highest unemployment rate.
Still, "our local market [Cranston and Warwick] did well" in 2014, said Lane, who is also the 2015 president of the Rhode Island Association of Realtors. He said inventory sold more quickly, and prices went up enough to get some people out of a negative equity situation.
With fewer foreclosures and short sales, investors found that in 2014, "this was the year to buy and hold, not buy and flip," Lane said. The number of distressed single-family house sales in Rhode Island fell by 19 percent between 2013 and 2014.
The short-sale route continues to be lengthy and troublesome, for both sellers and buyers, McCarthy said. Although President Obama recently signed a law providing sellers tax relief for the money given when banks write off short-sale mortgage shortfalls as a loss, that relief was provided retroactively through 2014 only, not 2015. "That could cause a hiccup in the market" in 2015, he said.
The rental factor
Lane said that with the high costs of rentals in Rhode Island, and interest rates still at record lows, 2015 may be the year when first-time buyers start to return to the market in greater numbers.
McCarthy said he recently showed a young couple of first-time buyers a home in Pawtuxet village. They are now renting in Wayland Square for $1,700 a month. Buying the Pawtuxet home would cost them $1,600 a month, including mortgage, taxes and insurance.
"It was kind of a no-brainer," McCarthy said, yet many hesitate to “pull the trigger” and buy. "People are still being gun-shy," he said, "especially the young people. They think, 'Am I going to have a job? Am I going to stay here? Is my company going to pull out of here?' They are shopping, but they are not pulling the trigger."
Although a recent report by Zillow, an online real estate database, said that nationally, rental costs rose by $20 billion in 2014, averaging more than $300 per tenant, that "is not my reality," said Christopher Cote, a Realtor and landlord based in North Kingstown.
Cote said he manages about 100 apartments, 30 of which he owns, in locations across Rhode Island. He said the rents range from $600 to $3,500 a month.
According to the 2014 Housing Fact Book by HousingWorks RI, the average two-bedroom apartment rental in Rhode Island was $1,154.
In 2014, Cote said, there were no rent increases for any of his tenants who renewed their leases, because he didn't want to give them any reason to start looking around for a new place.
"If you're happy with someone, you want to keep them," he said.
And in move-out situations, only a few rents went up, mostly for apartments that were renovated or improved after a tenant left, he said.
Rita Danielle Steele, of Geo Properties in the East Side of Providence, created "niche" high-end rentals with Residences on Angell, 10 renovated apartments in Victorian homes in Wayland Square. Rents start at $2,400 and up monthly, or $940 a week. Prices there have not increased recently, she said.
Geo Properties is also in the sales business, and this winter, Steele said, her company is renovating a single-family house, a midcentury modern home at 110 Lincoln Ave., in the Grotto neighborhood near Wayland Square. Once updated, the home will go on the market, probably in June, she said. The house was once owned by Lloyd E. Bliss, a real-estate magnate who built the Warwick Mall; he died in 2001.
It will be the "turnkey" type of house that is a rarity in the Rhode Island market, which has many older homes that need work, according to McCarthy. "People don't have the time, or the wherewithal, to renovate," he said. "They prefer to have a house that is updated."
©2015 The Providence Journal. Distributed by Tribune Content Agency
