Water and Real Estate

You may think this is a story on waterfront properties or maybe even water in basements, but you would be mistaken. When one talks about basic human needs, generally it includes food, water and shelter. It is in many ways ironic that our government’s focus has been more sharply drawn to fossil fuels rather than water. Fossil fuels fired the industrial revolution of the past two hundred years, but there are alternatives to this ancient, soon to be exhausted fuel. Water, however, has been a pre-requisite of virtually all life, particularly human life. It is also incongruous that there is a water shortage particularly given the fact that the majority of the surface area of the planet is water.

There are some arid facts:
36 States will face severe water shortages over the next five years.
The U.S. used a total of 148 Trillion Gallons of Water in 2000 (last available statistics). That was for every purpose: commercial, manufacturing, residential, agricultural, etc.
That translates to 500,000 gallons per person in the US. (Brian Skoloff Associated Press)

California uses 23 Trillion Gallons of water a year. Much of that is from the Snow melt in the Serra Nevada Mountains. Global Warming will reduce that reservoir.

There are 1000 desalination plants in the United States. The larges in Tampa Florida produces 25 million gallons of water a day, only 10% of the area’s daily demand.

Climatologists predict the Southwest United States drought will last 90 YEARS.

The rest of the world is in a more serious situation. The Continent with the most people has the lowest supply of water. Asia. While the ‘water wars’ in the western United States are fought in court, that may not be the case in the rest of the world. Water is not a luxury. It is absolutely necessary.

While living in Rhode Island, the Ocean State, may ‘insulate’ one from
the most serious water shortage challenges, it does not allow us to ignore it.
Some self evident truths: We need water for life. Businesses, also, need water to provide jobs. We need a State-wide water policy, (not necessarily a single water provider). A pro-active water policy would promote conservation. We need to ‘reuse’ waste water for irrigation, and non human consumption needs. We need to encourage new technologies to save water. (The Chinese are now growing aerobic rice.). We also provide businesses with reliable, fair and consistent commitments for water. Maybe we should consider building a major desalination plant here. Good government is a steward of its resources. Great government anticipates. It prepares for crisis. But more importantly, great government looks at the future with plans in place. The Constitutional Convention was all about governance. A Rhode Island Water Summit to create the architecture and the opportunities for the future of Rhode Island is now appropriate. It is fitting that a potential model for 21st century water stewardship would emanate from Rhode Island. Slater Mill on the Blackstone River is where the Industrial Revolution began on this Continent. We have been given fair warning. It is time to respond. www.phippsrealty.com

Snowbirds, Splitters and Super-splitters

About this time of year you hear, particularly at East Greenwich’s better watering holes, conversation includes the successes of the Patriots and the Red Sox. But there is another conversation underway: When are you going south? Are you spending Thanksgiving in Naples this year? Many people have delayed their departures this year due to the weather and the World Series, but the fact remains that many are on route. While no really precise numbers exist, it is accurate to suggest that the number is significant. One area condominium will see seventy percent of the members going south. Some of these people are true Snow-birds, people who travel to Florida, Georgia, the Caribbean, etc for the winter. Snow-birds lead the North and spend winter in the warmth. Snow-birds are an indigenous species here in Rhode Island. Every winter they migrate south.

There is another group called Splitters. WCI, the large Florida developer, coined the phrase: “people who own at least two homes and split their time between them for recreation, work-life balance, or to connect with family and friends.” Splitters are distinct from snowbirds as splitter travel back and forth between their homes four or five times, while snowbirds do so once maybe twice. Some splitters travel between their homes four and five times a month. Incidentally, super-splitters, Nicholas Cage, Oprah, Mel Gibson and the like, have multiple homes. Some of my recent clients fit into that category with a main residence in Florida, a home in Manhattan, a home in Stowe, Vermont and a getaway in Rhode Island.

Not sure how many snowbirds and splitters there are in Rhode Island, but there are many. The number is also increasing. How many former Governors are actually legal residents of Rhode Island?

Many of the migrant Rhode Islander rely on family to look after there homes while they are gone. Some people rely on electronic monitoring. Your security company can monitor unauthorized entry, low temperatures, water in the basement etc. Some ‘smart homes’ can be supervised remotely by sellers from any location on the globe. Obviously, leaving a home vacant increases the chances for more serious problems, but careful planning and preparation can minimize those risks.

Some people have opted to compliment their electronic monitoring with professional management services. These services actual go to the property on a scheduled basis to identify minor issues before they become major. The building is checked for security, maintenance, and necessary repairs. Typically they charge a monthly fee to monitor, and then a fee if they need to organize repairs and service people. When one looks at the cost of home and the potential risk, these services are inexpensive. There are a few companies in the area, including Phipps Real Estate Services that are engaged in the business.

So whether you want to hire professional help, or have family resources, make certain to have a plan to protect you home as you migrate to your winter nest.

Log into www.phippsrealty.com for more information

Real Estate Reflections Fall Harvest 2007

Have you ever noticed that the only news that makes the headlines is bad news? Real Estate has had a lot of head lines lately. So is it as bad as the headlines suggest? The answer is not necessarily. So what is going on? The stats are conflicted. Real Estate across the country has seen a slow down and in some areas a reduction in median price.
That is also true in Rhode Island and in East Greenwich in particular. What is most interesting is that more single family, East Greenwich homes sold in the first nine months of 2007 versus the first nine months of 2006. Yes homes are in fact selling. More of the less expensive properties are selling, but they are selling. It is also true that average price of homes has come down over the past two years. So what explains the increase in sales? The market had suffered from a language barrier between sellers and buyers over the past two years. That barrier has begun to disappear. Sellers finally understand that the market is a buyers’ market. If they want to sell they need to be flexible, specifically with price. Those sellers who have not adjusted their price expectations have not sold. Those sellers, who have looked closely at the market value, reduced their price, have generated offers and sales. For many East Greenwich sellers the assessment at the peak of the market had given them a significantly inflated perception of value. The buyers, on the other hand, have been most effective in finding the best value. Buyers look at comparable sales and also analyze the motivation of the seller. A seller who needs to sell will be a better ‘target’ for the potential buyer. One of my clients recently focused on properties that had been on the market for more than six months. When we looked at properties, his approach included a comprehensive questioning of the sellers motivation. Do they really want to sell? He was very effective in purchasing a house twenty percent below original list and fifteen percent below assessment. In short, he got a great buy. The truth is that he is more representative of buyers. Price is the deciding factor.

There are some over arching demographics that we should acknowledge. Between 1980 and 2006, the number of households in the United States increased from 80 million to 115 million. Rhode Island has seen a more modest increase, but the housing supply as related to households is not in surplus. Very simply we have enough families to fill our housing stock. Value is ebbing now as credit has been more difficult and people are nervous. One of the curious outcomes of the difficulty in selling properties is that more properties have been rented. For some sellers this is a very workable alternative.

With every challenge there is opportunity. The correction in average value has made it possible for more people, based on their ‘real income’ to buy that first home. Affordability is always a major concern. The great news is that lower average price results in more people being able to buy. Additionally, many of the multi-families are now revenue positive. The rents will cover the cost of ownership. This is great for investors looking to purchase. There has been some comment in national media that foreign investors are going to use the strength of the Euro to buy American rental property as a long term investment. Clever.

At the end of the day residential real estate meets a basic need: shelter. The real estate professionals have refocused on that purpose. You need to be able to afford the financing before buying, but it is a time of great buys. So if you can buy, you ought.

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.