Real estate: Seller’s are learning that it’s now a buyer’s market.

As the summer draws to a close, the slowdown in the Rhode Island housing market has settled in, with a drop of about 3 percent in both the median house price and the number of houses sold in the first half of this year, according to statistics from the state Realtors’ association.

The condominium market has fared a little better, and a little worse: the median sales price dropped nearly 8 percent, but the number of sales increased 5 percent, in the first half of the year, the Rhode Island Association of Realtors reports.

The number of houses for sale in Rhode Island through the state Multiple Listing Service this month is 6,874, up from 6,473 at the same time last year, and 4,715 in September 2005. And the condominium inventory is 1,793, up from 1,771 last year and 1,028 in 2005.

According to Alan Pasnik, an analyst with The Warren Group in Boston, inventory is a key statistic to watch in tracking the real estate market. “As it goes up, you can be pretty sure that prices will go down,” he said.

Recent numbers from The Warren Group, which collects data on all real estate sales, not just those made through Realtors, indicate that July sales of single-family houses in Rhode Island dropped 4.4 percent, and year-to-date sales [January through July] fell 6.3 percent, from last year. The Warren Group said the median house price fell 4.1 percent in July, from $280,000 to $268,500; and the year-to-date median house price fell 2.8 percent, from $270,000 to $262,500.

The Warren Group also reported that condominium sales year-to-date were up 1.7 percent, though the median price dropped 4.3 percent, to $225,000. In July, condo sales were down 4.2 percent from a year before, with 207 condo sales this July compared to 216 in July 2006, and the median price dropped 2.5 percent, to $224,200.

Of course, statistics just give a general overview. Some properties sell relatively quickly, while others linger on the market for a year or more. Realtors say pricing a property correctly is the most important action for owners interested in a swift sale.

Housing economists often refer to real estate prices as “sticky,” because sellers are so averse to price cuts that it takes time for prices to respond to market conditions. And some sellers resist advice to cut their prices even as months go by without any interest in or offers for the property. Some sellers even blame their real estate agents, but “the Realtors don’t really control what’s happening out there,” said Cecile Cohen, president of the Rhode Island Association of Realtors. “It really is the buyer that controls the market — what they are willing to pay.”

Cohen said that although the five-year housing boom that nearly doubled the average real estate price in Rhode Island ended in 2005, many sellers still haven’t come to terms with the fact that it’s now a buyer’s market. “There are always sellers who aren’t willing to believe that the market isn’t booming,” Cohen added. “They are really in the position of being behind the market.”

“I think it’s going to be very tough sledding for the next couple of years,” said real estate attorney Robert Goldman, of the Providence firm LaPlante Sowa Goldman. Goldman is also a former general counsel for the state realtors’ group.

Goldman said the recovery of Rhode Island’s housing market could be hampered by rising foreclosures and the credit crunch caused by freefall in the subprime mortgage market.

“There’s no question that it’s affecting all the credit markets, not just the mortgage market,” Goldman said of the subprime crisis. “As a practicing conveying attorney in Rhode Island … title work and closings, across the board, there’s been a tremendous slowdown in the amount of work.” Goldman said he has seen a significant decline in just the past month.

“The entire subprime market is basically gone right now,” he added.

Goldman said Congress may act to increase the limits for government-backed loans to help sustain the jumbo loan market. Jumbo loans, which exceed the limits for government-insured loans, and generally come with higher interest rates as a result, have been harder to obtain in recent months, as lending guidelines have tightened, Goldman said.

Goldman said he believes there will be a “second wave of implosion” in the real estate markets that have seen price depreciation of 20 to 50 percent since the boom ended. In markets where prices have plummeted so far so fast, more people who have refinanced and borrowed against equity that is no longer there will be in trouble, he said.

“Foreclosures, the number of foreclosures are only going to escalate in 2008,” Goldman said. “There’s going to be a real problem.”

But Cohen and Ron Phipps, president of Phipps Realty Inc., of Warwick, said they’re seeing stabilization in sales and prices in Rhode Island after the correction of 2005.

“All real estate is local,” Cohen said. “What’s happening in California, Nevada, Michigan or Florida — it isn’t necessarily what’s happening in Rhode Island.” She said New England was one of the first regions to start seeing decreases in the market, and she expects it will be among the first to climb out of the slump.

Phipps admitted that the market correction “will be a little more arduous” because of the impact of rising foreclosures and the resulting credit constriction.

Nevertheless, Phipps said there are buyers in the market who are creditworthy, but they are “savvy” and will not pay more than what they think a property is worth. Often they encounter sellers who refuse to negotiate, he said. Phipps said he has been involved in situations as recently as this month in which sellers rejected offers from buyers outright, without making any counteroffer, because the prices were so far below their expectations.

“We still have sellers who are wrapped in nostalgia,” he said with a sigh. “If you really don’t want to sell … if you’re waiting for the exuberant buyer who will buy anything … it may make sense to step back and say, ‘I should wait a couple of years.’ ”
Joy Sawyer, an interior designer, has been playing the waiting game for more than 18 months. She bought a house in 2004, at the height of the boom, in North Kingstown’s coastal Poplar Point neighborhood. Last year, the house went on the market because her husband’s job took them to Albany, N.Y., where they have been renting a one-bedroom apartment. Their North Kingstown house remains unsold, so they plan to return to Rhode Island this month and live there until it does sell. “We got stuck in one of those places that you never want to be,” she said.

Sawyer’s husband, who works for an architectural engineering firm and travels quite a bit, can work from Rhode Island, but his company’s headquarters is in Albany. Sawyer said her husband’s employer has allowed this accommodation because of housing market conditions.

Sawyer’s house is now priced at $939,000, but was first listed at about $1.1 million. “They’re just aren’t that many people who are looking in our price range,” she said.

Having a house on the market for 18 months has been an emotionally draining experience, Sawyer said. “It’s like being pregnant,” she joked. “You talk about it all the time.”
Christine Dunn, Providence Journal September 16, 2007

Multi-Generational Housing

As the real estate market has cooled, several historic trends are re-appearing. Most intriguing of these trends is the move back to multi-generational housing. Rhode Island is one of the best case studies for multi-generational housing in North American. From the Native Americans to the first Colonists and from the Irish, Italian to Guatemalan immigrants, the tradition has been a cornerstone of shelter. The concept of the suburbs has challenged the route, but even in the suburbs, multi-generational housing is becoming more common.

The triple decker houses in Providence are an ideal example of theory applied. The grandparent would be on one floor, the middle agent parents on another and the newly weds on yet another. Each had a degree of privacy with their own apartment, but they lived in a common building. This was true when the houses we first built in the early 1900’s and as true today. Three family, multi-generational, homes, are a great way for a family to pull financial resources together. As price increased, it had become almost the only way for families to get on the first rung of home ownership. Some of the additional benefits include at home childcare with ‘Papa and Avo,’

Recently, a widow invited me to review marketing her home in Cowesett. It had been a great, large ‘family home.’ that she and her husband had remodeled and enlarged. He had passed and it did not make sense for her to live alone in a 4,000 sq ft house. What strikes anyone walking through the home is the rich fabric of this family’s history in the house. From the ‘door jamb’ marking of each child’s height, to the oceans of photographs, one cannot help but feel the wealth of life. Yes, there is the ‘evidence’ of sadness and tragedy, yet they are a part of the whole, neither prominent nor dominant. They simply are. This is not a house, this is truly a home.

The owner discussed her plans with her children. She would move into a single family home of less than half the size, but it would absolutely include a garden so she could pursue one of her passions. It would need to be large enough for her to entertain the entire family.

When I called this week to set up an appointment to complete the paperwork to market the home, she was particularly excited. Now in this market, most sellers are not exuberant. Her excitement, however, is the result of a change in plans. Her son, his wife and their young children were going to move in with her. She would not have to give up the home she loved. Her son will put his house on the market.

It is my impression that this will become more, not less common as another trend in multi-generational housing. For real estate purposes it makes lots of sense. For environmental reasons it makes lots of sense. For family reasons, it makes the best sense of all.

Pricing in an Ebbing Market:

The statistics reflect a radical change in the market: In 2005 we were at the summit of the value market, a seller’s market peak. Today we are in a valley of value, a buyer’s idea of perfect. While it is easier to appreciate how high or low the market is from an extreme position, hindsight is the best vantage point of all. Truth: the average sales price in Rhode Island has dropped from $282,500 to approximately $270,000 in the course of thirty months. East Greenwich has followed the same average adjustment. What makes East Greenwich most challenging is that the last revaluation was done in 2005. The new valuations were certified for the 2006 tax cycle. Buyers have reached an awareness that most of the homes in East Greenwich are selling at less than the assessed value. The problem is most sellers have not been advised of this information. One must remember that assessments are a tax valuation tool rather than a precise metric. The information is intended to be representative of value rather than a representation of absolute value and it is truly time sensitive. The value was set as of December 2005, the peak of the market.

One of the Moorehead houses we were marketing recently had an assessment in the mid 580s. It took almost nine months to sell. One of the challenges was pricing the property to sell in a market in which average sales price was going down. We reduced the list price from the low to 600’s to $565,000. We ultimately closed at $530,000. essentially at 90% of assessment. This is has become more common not less.

The reason this is so important is that historically assessments were significantly lower than fair market value. One would assume that their house was worth more than the tax assessor said it was. This is a new ‘reality.’

There is a more important message. Properties that are selling right now are either ‘wow properties or extremely well priced. “Wow” houses are those few properties that are so awesome that they evoke a ‘must have feeling.’ Wow houses generally represent 5% of the market. They sell quickly and often, even in this market, there are multiple offers.
We just had one in Cowesett that was a fabulous Nantucket Cape with an amazing kitchen. We had multiple bids and it sold quickly. The other groups of properties that are selling well are the ‘extremely well priced’ properties. The phrase sounds something like an oxymoron. Extremely well priced houses are those properties that are five to ten percent below fair price. There are in fact a significant number of those properties right now. They tend to sell quickly and fairly close to value. In short, they are ‘obviously’ a great value. Today that segment of the market is becoming larger due to the large number of REOs. REOs are real estate owned properties. They are owned by banks and financial institutions and are usually the result of foreclosure and short sales. Both of these categories have fluid definitions, so precise analysis of the numbers is difficult.
Right now, approximately 1 in ten properties fit the ‘extremely well priced’ definition.

So what about the remaining 85% of the market? Generally, the prices in the market are, in fact fair. Sellers must allow some room between list price and sales price to allow for negotiation. Of the houses that are selling the difference between final list price and actual sales price is between five and six percent. A house listed at $300,000 on average would sell at $282,000. and $285,000. We have so much inventory right now that it will take ten months to sell all of the single family houses if no new ones come onto the market. Sellers that are selling their properties are pricing just below what the recent sales suggest. This is an absolute acknowledgement that value is ebbing. The good news is that these properties are selling. Not necessarily quickly, but with patience and careful awareness of the details of the market, your house will sell. It is also a time when the assistance of a professional is the most critical. An experienced Realtor will be of great value in generating a sale in this market. So as value ebbs, be pro-active as a seller to reach the goal a sale