Signs point to sustained recovery

ON THE MOVE: Jamieson Cohn and Marianna Kessimian play with their 3-year-old son, Cyrus Cohn, and 4-year-old daughter, Harper Cohn, at their new Cranston home. Rhode Island has seen 12 consecutive months of increased home sales. / PBN PHOTO/DAVID LEVESQUE
ON THE MOVE: Jamieson Cohn and Marianna Kessimian play with their 3-year-old son, Cyrus Cohn, and 4-year-old daughter, Harper Cohn, at their new Cranston home. Rhode Island has seen 12 consecutive months of increased home sales. / PBN PHOTO/DAVID LEVESQUE

The last time the housing market showed this much life was the summer of 2010.
Rhode Island’s year-over-year home sales had just surged 11 percent in the second quarter, median prices were up 9 percent and frantic buyers had pushed the average length of time a listing stayed on the market to a scant 83 days.
Of course, most real estate agents knew buyers had been rushing to claim the expiring federal stimulus-plan tax credit, but few predicted back then that the market would soon begin a steady dive over the next 18 months that would more than wipe out any gains.
So this summer, after year-over-year, single-family sales rose 18 percent in the second quarter and June marked the 12th consecutive month of increased sales, many economists and real estate professionals are measuring their enthusiasm over what has all the appearances of a legitimate housing recovery.
“I feel we are making strong, positive movement and there is a sense of normalcy, but I do not think we are through all the problem issues,” said Karl Martone, a Realtor with The Martone Group RE/MAX Properties in Smithfield. “Inventory is starting to become balanced out and we are getting to a more-balanced amount of inventory. The proof is in the amount of transactions and units sold, which tells us consumer confidence is higher.”
The main concern in Rhode Island, Martone said: unemployment.
Others are even more encouraged by what they see.
“The truth is we have seen the bottom,” said Sally Lapides, president of Residential Properties Ltd. in Providence. “I was worried during the first three months of the year, but the next three were much better. We are not seeing people with money hoarding it – they are moving forward with housing. They may have changed their price point and are not spending as much as 2005 or 2007, but they are buying.”
If almost all agree that the worst of the housing slump is over, a bigger question is what kind of recovery this turns out to be.
Based on the last three months of sales, the high-end, second-home market and low-end, first-time and flipper markets are leading the rebound while sales in the middle range – between $300,000 and $800,000 – remain sluggish. “The middle of the market is usually third-time buyers and that group is probably the least secure and holding back a little more,” Lapides said. “They may have lost a little more when the market turned down and may worry a little more about security. They are saying, ‘What we have is good enough and we don’t need to move.’ ”
Bruce Lane, an agent with Williams & Stuart Real Estate in Cranston, is also optimistic, but said the low-end and distressed properties are where the action is.
“Properties starting with $100,000s are helping push us into sales in the $200,000s and $300,000s,” Lane said. “The $199,000 homes are selling quite quickly. We had one last week that went into a multiple-offer situation that we haven’t seen in awhile. Buyers are starting to realize there are values out there and they are acting quicker.”
Lenders are seeing similar trends.
At Navigant Credit Union in Smithfield, Chief Lending Officer Fred Reinhardt said while overall mortgage initiations have been flat, the number of loans to first-time buyers has nearly doubled in the first six months of 2012 compared with the same period last year.
“We are seeing a lot of first-time homebuyer activity where they are buying starter homes and taking distressed properties off the market,” Reinhardt said. “To ever get back to the days of 2005 and 2007, we will need to see that next level of purchase, of $500,000 to $700,000, which has been fairly dormant, pick up.”
Illustrating the move down-market, Reinhardt said Navigant has seen a 14 percent decline in average loan size so far this year.
Indeed, while sales have increased, the volume in distressed properties and starter homes caused the median Rhode Island single-family price to decline 6 percent in the second quarter compared with the second quarter of 2011.
In addition to taking equity from existing homes, low sale prices can have a reinforcing effect on a slow housing market by driving down appraisals to levels that discourage banks from making loans on deals where the buyer and seller agree on a price. “That’s been our problem: the properties that have been selling are at the low end and the median price is not where we would like it, so we don’t have good comparables,” said appraiser Jamie Moore, president of the Rhode Island Association of Realtors. “Making the sales reflect what the market is has been difficult. There is no way out of the loop except for more sales and higher prices.”
Although there is general consensus that the market is headed up from last year, most Realtors are reluctant to predict when we might actually see prices rise.
Perhaps the best sign for the future of the market is that inventory has declined significantly, by almost 1,000 Rhode Island properties of all kinds, from 6,658 in June 2011 to 5,740 this past June.
As it has been for the last few years, Moore said a chief concern is difficulty knowing what banks will do with delinquent loans they are holding, how many they are holding, and whether another wave of distressed properties will be released into the market.
In the Providence-Fall River-New Bedford area, the foreclosure rate of 2.87 percent has receded from a high of 3.21 percent in March 2011, according to CoreLogic, and remains below the national rate of 3.41 percent.
However, the area’s 90-day delinquency rate of 7.32 percent is well-above the 6.94 percent national rate.
Unlike the foreclosure rate and foreclosure sales, Rhode Island and metro Providence’s delinquency rate has declined steadily since the end of 2009, although May saw a slight year-over-year uptick.
Even if banks don’t unleash another wave of foreclosures on the market and the recovery experiences no setbacks, most economists see progress being gradual.
Patrick Newport, an economist who specializes in real estate with IHS Global Insight in Lexington, Mass., said the national real estate market is headed in the right direction, but he expects it will experience a slow climb back to health. “I see a very long recovery that will take three or four years to reach normal conditions, mainly because the economic recovery has been slow and there are so many bad loans,” Newport said. “There are still 6 million homeowners behind on payments, so foreclosures will take three or more years to unclog.”
Asked what normal conditions will look like when they arrive, Newport said he could see prices rising 3 to 4 percent annually again and foreclosures back below 2 percent across the country.
While the Northeast hasn’t experienced the devastation from foreclosures seen in the South and West, Newport said those Sunbelt areas will probably start growing faster once the economy does recover and migration to those areas continues.
National real estate data firm Zillow last month declared that the housing market had “reached bottom” in 2012, as marked by the first increase in its home-price index since 2007.
In addition to the low end of the market, another area where sales have picked up in Rhode Island is the mansion and luxury second-home market, which is seeing money come in again from outside the state.
In the first six months of 2012, sales of more than $1 million in the state have increased 43 percent compared with the same period in 2011, according to Melanie Delman, president of Lila Delman Real Estate.
Newport, Providence, Barrington, Narragansett and Westerly have all seen more seven-figure sales so far this year. Those five communities have also seen some of the strongest sales and smallest price declines in the second quarter (the East Side of Providence saw a 3 percent median price increase.)
Delman said the sales have come from well-known buyers who have been looking for some time and this year made a move.
“The buyers have been out there waiting for the right thing and what we are waiting for are some fresh, new faces who come when they feel it is safe to invest in real estate,” Delman said. •

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