Terrence M. Hassett’s Smith Hill neighborhood, where many of Providence’s multi-family homes are, has been one of the worst hit by foreclosures in the past year, the City Council majority leader said recently.
“But I think the West End is catching up,” he added. “I think it’s because of all the multi-family homes in Smith Hill, which means there are a lot of investors. And while our homeownership is up, there are still a lot of investor properties. They’ll [buy a property] with terms that are probably unreasonable or unworkable and they find themselves in that in a foreclosure situation.”
Foreclosure figures for the city for 2008 are difficult to determine because banks and loan originators aren’t required to identify them as such when properties are sold. But owners of multi-family homes are being hit particularly hard, according to statistics from the Rhode Island Association of Realtors. The group reported that, from January to May, member Realtors sold 3,457 residential properties in Providence. Of those sold, 827 – or 23.9 percent – were bank-owned properties, many of which are short sales and foreclosures.
While multi-family homes make up only 15 percent of the total sales during that period, they account for 35 percent of the bank-owned sales, according to RIAR.
Conversely, single-family homes accounted for 70 percent of residential sales and only 50 percent of bank-owned sales so far this year in Providence.
The disparity in multi-family home foreclosures over single-family home foreclosures is a likely reason why the other area in the city with the highest apparent foreclosure volume is the West End, said Jeanne Tracey-McAreavey, director of the Community Housing Land Trust of Rhode Island, a statewide federation of community-development corporations with land trusts.
According to The Warren Group (TWG), a Boston-based real estate tracker and publisher of Banker & Tradesman, foreclosure notices in Providence jumped 161 percent, from 631 to 1,647 properties, from 2006 to 2007.
“So many of these mortgages are upside down,” CEO Timothy M. Warren Jr. said in an interview. “People owe more than their house is worth, so it’s a tough situation. The only thing that they can really do is try to settle up, to get the lender to accept a short sale.”
According to Rhode Island Association of Realtors statistics, Providence home sales grew quicker in 2004 – the height of the real estate boom – than the statewide trend. During that year, Providence sales jumped 20.43 percent, but the rest of the state only increased by 8.63 percent, according to RIAR.
In the last two and a half years, the drop in sales has been much sharper in Providence than elsewhere in the state. In 2006, Providence sales fell 23.8 percent while the rest of the state fell 14.4 percent. In 2007, Providence sales fell 17.8 percent while the rest of the state fell 8.6 percent.
But the most recent quarterly sales figures released by RIAR suggest that the decline in the sales rate in Providence has slowed and is evening out with other communities. In Providence during the first quarter this year, sales were down 21.57 percent from the year before – almost even with the statewide 23.19 percent drop.
“No doubt about it, when you go into some of the suburb communities, it has been a non-issue,” RIAR President Robert Scaralia, of RE/MAX 1st Choice in Cranston, said earlier this month. “There are quite a few areas where it’s not an issue. It’s definitely had a high concentration in the urban areas.”
But the foreclosure issue isn’t a real estate issue at heart, he added, saying it was caused by a “lending bubble” because tight lending practices had lapsed. The National Association of Realtors this month predicted that while home sales will continue to drop through 2009, median prices are expected to rise by next year. Scaralia said that’s a sign that more qualified buyers are going to get into the market while interest rates are reasonable.
“What’s interesting is that during the 2004-2005 period, most people had never heard the term ‘short sale’ or even heard the word ‘foreclosure’ uttered in any conversations,” Scaralia said. “Now it is part of our vocabulary but eventually it will be removed.”
Tracey-McAreavey said her organization is gearing up to start a new program to tackle the issue in the Olneyville and West Elmwood neighborhoods. The effort, dubbed the Foreclosure Property Recapture Program, was awarded $50,000 by the United Way of Rhode Island and another $250,000 by the nationwide Living Cities coalition to support the first year of the program.
That program is an attempt to buy properties in bulk from banks and investors that have foreclosed on them, Tracey-McAreavey said. “Therefore, hopefully, we’ll be encouraging the owner or the holder of the property to sell it to us at a discount because we’re buying from them a number of properties at once,” she said.
Those properties would then undergo some minor rehab and be re-sold.
“We’re looking to just get these properties back into the hands of people who will live in them,” she said.
Hassett said multi-family homes in which the owner lives haven’t been hit as bad as investment properties in Smith Hill.
In the City Council, he’s planning to push 24-hour board-up legislation that will require owners – even banks – to board up “dangerous” property promptly. That would include foreclosed property that’s vandalized.
“When you leave a building wide open, with kids in the proximity, a number of kids might be in and out of the building,” Hassett said. “If one of them went through the floor, you would have a tragedy.”
The Smith Hill Neighborhood Association, working with Hassett, has also launched a property-acquisition program similar to the land trust’s program, he added.
“On a cycle, I think because Smith Hill was the first to notice the impact of foreclosures, we’ll be the first to get out of it,” Hassett said. “There are homes that were foreclosed a year ago that are now selling, obviously at a discounted price, though.” •
