Realty Bytes February 2009

Some Light at the end of the Tunnel:

For the past 18 months, the news has been negative. Inventory is up, prices are down, continuing to fall, and many people are facing foreclosure. It has been nothing short of discouraging. In Rhode Island, sales, (the number of units), dropped by 12.8 percent and the average price dropped by 20% over the prior year. Unemployment is now over ten percent. The numbers are serious.

The question everyone is asking: Are we at the bottom yet? It is a great question. Some answers, however, are only available after the event. Or in other words are only visible in the rear view mirror. We will know the bottom after we have passed through it, or at least when prices stop going down. We are not yet there. Hopefully it will be very soon.

So with this sobering information why would anyone anticipate improvement in the market? Very simply is there are a few encouraging signs and events. The signs include the fact that the end of the year reported an increase in pending sales over the end of the prior year. Prices appear to have reached a level that is causing demand to INCREASE. First, inventory overall is down. In truth, this is not due to a huge increase in sales and a reduction in new listings, but rather a combination of slightly more sales and reduction of unsold listings. A good number of unsuccessful sellers have taken their homes off of the market. Unrealistically prices properties will not sell in this market and nostalgic sellers are getting the message. Second, interest rates are now hovering around 5% which is 1.5% BELOW where it was early last year. For a $400,000 mortgage the payments will be $500. Less per month at 5% versus 6.5%. That is a huge savings. Among the most encouraging events it that Congress has passed and the President has signed the Economic Stimulus package. This will be good for employment in Rhode Island and for infra-structure, but it also contains an incentive: an $8,000 tax credit. The credit is available for first time home buyers which also includes people who have not owned real estate for the past three years. The credit is a true credit against taxes owned in 2009. The credit is ten percent or $8000 which ever is less. If you own $5000 in Federal Tax you will owe nothing and you will get the balance ($3000.) in the form of a check. There is an income limit of $75,000 for a single filer and $150,000 for married files. Additionally, the credit is subject to a three year recapture. This means that if you sell the house within three years, the government gets the $8000 credit back. This initiative will definitely produce some additional sales. Another encouraging event is the Treasure Departments new Foreclosure mitigation program which is being rolled out shortly. The goal is to modify mortgages so that the families can stay in the home. The program has had various names, but we will see some real progress. The final event is that we have a new President. While we wait to see what this will mean, it is a positive sign to have a new and different approach to the housing crisis. History will evaluate effectiveness, in the interim; it is a bright light of encouragement, particularly for the State of Rhode Island Real Estate.