You have heard the most important rule of real estate: Location, Location, Location. You probably have heard the new variations of the same concept: All real estate is local or each market is unique. All of these rules are common sense rules. Many things are portable, real estate, obviously is not. It is not just, what it is, it is where it is.
So real estate is understood and analyzed in terms of where it is. But to be really understood, real estate must be analyzed, also, in terms of WHEN it is. GPS is used as a navigational tool. When looking at real estate we need to add a feature to our electronic map, the ‘when feature.’ The when is now summer 2008?
In the largest sense, Rhode Island real estate has changed significantly. The number of sales has dropped significantly since 2006. The first half of 2008 showed another drop of 19% unit sales of single family homes since 2007. Average price of single family homes have also adjusted downward from approximately $280,000 to $250,000. This is a change of 6.9%. Condominiums have seen a similar trend: Sales unit volume dropped from 944, first half of 2007, to 647, first half of 2008. Condo prices have remained fairly constant changing from $215,500 to $215,000. Multi family sales are up significantly, while average price is down significantly.
These are the numbers, but the real challenge is what do they mean. First, we are still in a correcting mode. The number of active listing has gone down this year versus last year.
This bodes well for a stabilization of price. The number of pending sales has gone up for each of the last three months, communicating that nostalgic sellers with high priced houses are withdrawing their listings, and the prices of the remaining properties are low enough to generate sales. However, there is a fact in the price changes that is most telling: A large portion of the real estate market is bank owned. Almost one is five single family homes sold in the first half of 2008 was owned by a bank. Among multi family properties, more than half of the sales were bank owned. This is why prices have shown a significant downward adjustment. Some sellers, want us to ignore, these distressed properties when determining value. Unfortunately, when such a large portion of the market is banked owned, you cannot ignore the information. Moreover, these properties, although wrapped challenge, are priced so low they are compelling to many buyers.
Secondly, the Housing recovery act is in the process of becoming law. It is the single most important housing bill in at least a generation. It has many elements, over 600 pages long. Its primary features include 1. Shoring up Fannie Mae and Freddy Mac, the largest ‘buyers’ of mortgages; 2. Providing relief from foreclosure of many Americans; and 3. Stimulating housing sales. The last item is being done with several tools; the most effective is a tax credit of $7500 for first time home buyers. This should really help us in Rhode Island. The definition of a first time home buyer is someone who has not owned a house in the past three years. This bill will go a long way to shorten the real estate downturn.
Third, the demographics are strong locally. Very simply, we have enough ‘families’ to fill the housing we currently have available, in the broadest of terms. We do have an oversupply of expensive, urban condominiums, but when you look at the total number of families and the total number of residential units, there are enough families to fill them.
The issue is one of value and affordability. Many people cannot afford to purchase right now. Some very savvy investors are buying multi family properties a priced well below value. It is a smart move, as prices are low, demand for rentals high, and the properties will not only carry themselves, but can generate positive cash flow. We have returned to great fundamentals.
Fourth, the signs of stabilization are visible. In the industry we have been looking for the light at the end of the tunnel. (8000 people had licenses as of April 30, 2008. On May 1st after the renewals, that number dropped to 6000 people. A lower number of sales, at lower prices, translate to less brokerage fees for sales people. It has been, and continues to be very difficult for people in real estate.) The visible light is the number of pending sales and the passage of the housing bills. Both of these are good signs. It is a perception in the real estate community that we are on either side of the bottom. Also the number of bank owned properties are enabling a lot of sales. The investors are buying and buying well.
So where are we? Our time sensitive GPS suggests we are still in correcting mode. After the majority of bank owned properties are sold, price stability will be visible. Condo are doing the best is holding their value at the moment. We expect that trend to spill over to single family soon. So if you have been on the side lines, trying to time the market for the bottom, it is a really great time to look. We will not know where the bottom was until AFTER we have left it. It is only visible in the mirror. Check out the current options. There are some great buys out there now. One important recommendation: Get expert advise. Regardless of whether you are buying or selling, this market is difficult to analyze. Contact a Realtor, who ‘knows’ your market area, so you have some who can help you un-knot the dynamics of this market.
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