A lost decade for R.I. condo sales

PLACE TO CALL HOME: Sherryl Amato, a condo owner in the Governor's Hill section of West Warwick, bought her home as a short-sale. She loves her condo, she says, because of the views and relatively affordable price. / PBN PHOTO/MICHAEL SALERNO
PLACE TO CALL HOME: Sherryl Amato, a condo owner in the Governor's Hill section of West Warwick, bought her home as a short-sale. She loves her condo, she says, because of the views and relatively affordable price. / PBN PHOTO/MICHAEL SALERNO

The original plan for Village on the Waterfront, a 50-acre development proposed for the East Providence waterfront, would have included 400 condominium units among the first phases.

After reading a series of marketing reports, and observing the slashing of luxury condo prices in downtown Providence, the developer reshuffled the lineup. The condos are now among the last phases in the plan, while the first stab at housing will be 200 apartments.

The local market is very strong for apartments, observed Michael H. Hennessey, chief operating officer of Village on the Waterfront LLC. The market for condos isn’t.

“If the condo market goes crazy in the future, and I think it could, I can always convert them,” he said, in a recent interview.

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The worst days of the real estate market appear to be over for single-family and multifamily homes. Sales and or prices have been rising for several years.

But for condos, the slump continues.

The market in Rhode Island and contiguous counties in Massachusetts and Connecticut has been characterized by a few scattered years of improvement, followed by declines. The net effect is a soft market, a product of financing that remains difficult to obtain for many buyers, and a broader economy that has depressed interest in homeownership among people who see renting as more realistic.

The median price of condominiums in Rhode Island, now $190,000, has declined 16 percent since the peak of $225,000 in 2006. Prices started to recover in 2010 and 2013, but then fell back. The median price dropped again in 2014, a trend that continued through the first three months of this year, according to data from the Rhode Island Association of Realtors.

The median price is now comparable to what condos were worth 10 years ago.

Condos that do sell often move only after months on the market. The average Ocean State condo sold after 102 days last year.

The picture is much the same immediately across state lines.

In Bristol County, Mass., condo prices peaked in 2005, then dropped for five consecutive years before a recovery emerged in 2011, according to data from The Warren Group, a company that tracks real estate trends. The median price at the end of March was $163,000 in Bristol County, 28 percent lower than the peak price, its data showed.

In New London County, Conn., prices peaked in 2006, then fell for five consecutive years before coming back slightly, to a median of $150,000 in 2012. Prices have fallen every year since, with the current median at $129,000. That’s a 31 percent decline over eight years, according to The Warren Group.

If the story were the same in other areas, it would be one thing. But condos have become hot tickets in many states, with the median prices rising almost as fast as single-family homes in many areas close to major cities.

In Massachusetts, a market powered by the job hub of Boston, the median price for condos was $302,000 in March, just $15,000 lower than the median price of a single-family home. Although sales of condos have cooled this year in the Bay State, compared to last, the market remains strong and an option for people who are facing a lack of inventory in single-family homes, said Timothy M. Warren Jr., CEO of The Warren Group.

So what’s the story behind the Ocean State slump?

Real estate professionals say it’s an effect of the Great Recession, which may have ended, but continues to affect buying behavior as well as the ability of buyers to obtain financing. The strength of a job center is also a factor, said Warren.

Massachusetts has 350 towns and cities, and only 46 of them have median prices that have surpassed the former peak year of 2005, Warren said. All of those communities are near Boston. “That’s where the jobs are,” he said.

To some degree, millennials, the generation that started reaching adulthood around 2000, remain skittish about home ownership, Warren said. Numerous surveys have indicated this generation of young adults is pursuing home ownership at decreased rates, compared to previous generations.

“Younger people may not see real estate as an investment, following the crash,” he said.

Bruce Lane, president of the Rhode Island Association of Realtors, said millennials are looking, and would seem to be among the groups that would find condo living a match. But some are turning to single-family homes instead because of the complexity in getting financing approved for condo purchases.

“It’s the financing,” he said.

In Rhode Island, sales of single-family homes flattened in 2014, but median prices are continuing to rise. The year closed with a median single-family home price of $215,000, the highest in six years, according to the association’s data.

Lane and other Realtors in Rhode Island say they have qualified buyers looking at condos, but that financing a purchase remains difficult. But it’s not for the reasons that stopped many sales immediately after the recession, when banks strengthened lending requirements. Buyers now understand they have to have strong finances, and agents say the preapproval process screens out those who aren’t ready.

But in a condo sale, the financial state of the buyer is only part of the picture. Lenders also examine the finances of the condominium association, the organization representing condo owners in a particular building or development, according to Lane.

The association, using homeowner assessments or fees, takes care of common property, typically things such as the roof, the parking lot, landscaping and other exterior maintenance.

For that reason, financial institutions evaluate a number of measures that indicate how well the association is managed and financed, including the percentage of units that are owner-occupied, the level of association reserve funding and percentage of units that are in arrears on condo dues.

In any of these factors, the effects of a deep recession can make an appearance.

“Unlike a single-family home, when a bank finances a condo, they’re reliant on an association taking care of that condo,” Lane said.

Kevin Fox, a sales associate with Residential Properties Ltd., sells properties on the East Side of Providence and in the Oak Hill area of Pawtucket. In his experience, mortgage lenders typically want to see two-thirds of a condo building or complex occupied by owners.

That becomes problematic when a small association, with perhaps three or four units, has condos being leased, he said.

Most condos in Fox’s geographic area are selling in the $200,000s and $300,000s, which requires financing for most purchasers. “If two or three units are rented and I get a call from someone wanting to sell,” he’ll tell them the chances are slim unless a cash buyer emerges.

That being said, he recently sold a condo on the East Side in 30 days, in a three-unit building where the independent association kept meticulous records and required all units to be owner-occupied. “That’s an anomaly,” Fox said, of the no-rent rule.

Jen Almeida, the seller, purchased the unit in 2009, three years after the three-apartment building was converted to condos. She credits the quick sale to Fox and the no-rent clause that the three-member condo association had adopted before she bought, and maintained over her six years of ownership.

In those years, two of the owners had asked for permission to rent their units, but the association held firm. Those owners ended up selling.

Had her condo not sold, Almeida was prepared to keep living in Providence and drive into Boston, where she recently found a new job. “If I had to do the commute, I would have commuted.”

Cecile Cohen, a sales manager at the Charlestown offices of Randall Realtors, agreed that for many buyers financing a condo remains difficult.

When first constructed, condominium developers typically go for Federal Housing Administration approval. But on resale, that standing may have lapsed, which tightens the pool of prospective buyers. The FHA provides mortgage insurance on qualifying properties, and its presence is seen as a standard for many lenders, Cohen said.

“The banks like that,” she said. “They back a lot of the funding.”

While not all buyers want an FHA mortgage, that status opens the marketing of the condo to a group of buyers who can purchase a home with a smaller down payment than often allowed under traditional financing, as low as 3.5 percent.

Under FHA guidelines for condos, at least half of the units in the project must be owner-occupied, a challenge in buildings where owners started renting units in the recession.

The FHA also requires that no more than 15 percent of the units are delinquent on association dues for more than two months.

Cohen is now trying to sell several condos at the Castle Rock complex in Charlestown, which was built in the late 1980s and which she said no longer has FHA approval. Several units are being offered in the low- to mid-$100,000s, which is on the lower end of the condo range. Despite the relative affordability of the properties, the absence of FHA approval could be seen by mortgage lenders as a negative.

“It’s like the seal of approval,” she said.

Beyond the FHA status of a condo building or complex, if the association’s finances don’t pass muster with the lender, the deal will not be approved, Lane and Cohen both said, no matter how solid the buyer.

“They’re looking at the association,” Cohen said. “They want to know the condo association is financially sound.”

The lender’s review of the association is the stage at which many sales fall through, Lane said.

The people who are buying the condos are professionals or younger workers who want less maintenance, and want to be able to leave without minding the lawn or snow removal, depending on the season. They are empty-nesters and retirees who are downsizing to smaller living spaces. And they are people who are picking up vacation homes, particularly in Newport and near the beaches.

The appeal of the condo to these buyers is the role that the association plays in managing the aspects of homeownership that can be a burden. But in financing, it adds a layer of complexity that doesn’t exist with single-family sales, according to Connor Dowd, a Realtor with Keller Williams Realty Newport.

Sherryl Amato, an accountant for the R.I. Association of Realtors, bought a three-bedroom condo in West Warwick last year. She had to wait 18 months for the deal to be accepted. The property was sold as a short-sale, a transaction in which the bank that holds the seller’s mortgage agrees to accept a sale price that is less than the amount of the mortgage it is releasing. These purchases can take far longer to close than traditional sales.

Amato loves her condo, her first home, which has a sweeping view of Warwick, quiet neighbors and plenty of space. And she bought it for just $135,000. But the purchase wasn’t without headaches. She originally planned to buy her first home with an FHA loan, but because the complex was not FHA-approved, she had to put 10 percent down instead.

“It was hard to come up with that money as a down payment,” she said.

But Amato, who had looked at several houses in her price range, found it a good fit for her needs. She didn’t want a yard to maintain and liked the idea that some of the larger items, like roof repairs, would be taken care of by the owners as a group.

A key selling point for condos is that they often offer a more-affordable access point to the housing market, so within a given price range, there will be more available to a buyer. And there is a lot of selection, including new units and rehabs of older buildings, Dowd said.

The negative? You’re investing along with neighbors, who may not share your priorities.

“You’re getting into the bathtub with multiple owners. You’re all in it together,” said Dowd.

According to Lane, the stronger condo sales are in areas that are well-known, established second-home markets, including anything close to the water.

This brings in another pool of prospective buyers: people looking at a condo as a second home rather than a primary residence.

This is the market for the Carey School Residences in Newport, a former elementary school being renovated into modern, loft-style condominiums.

The school is being renovated into 13 units. Half of the units have already been sold, according to Realtor Libby Kirwin, whose company, Libby Kirwin Real Estate Ltd., is listing the units.

All of the sales to date have been cash-only sales, Kirwin said, and the buyers have come from locations including Boston, North Carolina, Texas and Connecticut.

These are homeowners who are purchasing second homes, but the term downsizing implies size only, not amenities, for these properties. A unit Kirwin is now trying to sell, on the first floor, has a list price of $519,000, more than twice the median sale price for a Newport condo.

In other areas of Newport, owners of condos that are not newly updated need to be realistic when selling, she said. To help move these kinds of units as a real estate agent, she began a sister business in 2012, one that focuses on renovations and upgrades for condos without quick buyers. Kirwin can provide a prospective buyer, looking at a dated condo, with a firm price for what an update would cost, and a contractor to do the work before the move-in date. “Everything that would make the buyer buy it,” she said.

The strategy has helped her sell condos that otherwise wouldn’t have moved, she said. She used it to move a unit that had previously been on the market, under a different agent, for 565 days.

Condo buyers aren’t looking for a project, she noted.

“A condo buyer is looking for simplicity,” Kirwin said. •

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1 COMMENT

  1. how do you compare condo placements in Boston to those in Rhode Island or Providence? There are 1000’s of Boston area condo’s on or near the waterfront. From Revere to Quincy there are both low and high rises that are at full capacity. NONE of the Providence area condo’s are built on the waterfront and are thus less desirable. If there were high rises on the waterfront overlooking the Providence River and upper Narragansett Bay, possibly with a marina, you would find the condo market more active and higher priced.