RI housing market set for double-dip

PROVIDENCE, R.I. (WPRI) - Home prices are set to fall again in Rhode Island now that a federal tax credit which has boosted sales since early last year has expired.

The median sales price for an existing single-family home in Rhode Island will bottom early next year at around $200,000, said Andres Carbacho-Burgos, an economist with Moody’s Economy.com whose forecasts are used by state budget officials.

That is down from $295,000 at the housing bubble’s peak in June 2006 and $220,000 last month, according to data from The Warren Group and the Rhode Island Association of Realtors, respectively.

“We expect home prices to go back down again” as banks begin putting foreclosed properties on the market and buyers are no longer enticed by the $8,000 tax credit, Carbacho-Burgos told Eyewitness News.

A MacroMarkets survey of economists last week found 60 percent expect home prices to decline nationwide this year.

Record low rates

Home prices usually fall toward the end of the year, and the size of the drop this year will depend on the number of properties on the market and whether interest rates stay at record lows, said Karl Martone, president of the Rhode Island Association of Realtors.

There is currently about six months of housing inventory on the market in the state, which is “extremely healthy,” he said.

The average rate for a 30-year fixed-rate mortgage was 4.56 percent last week, and the 15-year rate was 4.03 percent, both the lowest since records began in 1971, according to Freddie Mac.

“It’s hard to say what’s going to happen six months from now, but if the rates stay under 5 percent it’s going to keep things really helpful,” Martone said. Lower prices have also made homes more affordable, he said.

“I think [sales] are going to continue to grow in the healthy manner we have been growing,” he added.

Unemployment hampers sales

Both the number of homes sold and their selling prices will fall now that the tax credit is not available, said Vincent Valvo, group publisher at The Warren Group, which tracks real estate transactions across New England. The credit was available to buyers who signed contracts between January 2009 and the end of April. Sales must close by Sept. 30.

Despite record low interest rates, the number of applications for mortgages and refinancings is falling. In Rhode Island, the number of pending home sales – which measures signed contracts but not closings – has dropped for four straight months, falling 29 percent from June 2009 to June 2010, according to the Realtors.

“Rhode Island’s sitting there with a 12 percent unemployment rate,” Valvo said. “Does any of that add up to a robust real estate market? It ain’t gonna happen.” He suggested Congress should reinstate the $8,000 credit, though not all economists agree.

Bubble doubled prices

Housing prices in Rhode Island rose dramatically in the first part of this decade, more so than in other New England states, as lenders relaxed standards and relatively few new homes were built, Robert Tannenwald, a former vice president of the Federal Reserve Bank of Boston, told state lawmakers last year.

In the 10 years from June 1989 to May 1999, the median sales price of a single-family home here stayed basically flat at about $127,000, according to Warren Group data. Those years included a deep economic downturn followed by a slow recovery for the state.

Then prices began to climb. The median price doubled within five years, reaching $255,000 in June 2004. The number of homes sold per year jumped from 9,607 in 2000 to 11,312 in 2004.

Prices peaked in June 2006 as the median hit $295,000, then started to drop, falling 39 percent to $180,000 by March 2009.

That’s when President Obama signed the housing tax credit into law, which spurred another boom in sales here. The median hit $291,100 last August, near its bubble peak, and has hovered around $200,000 since then.

Few houses built

While sales of existing homes have slowed, construction of new ones has all but stopped. Builders put up just 53 new structures in Rhode Island in 2008-09, down from 1,802 in 2005-06, according to the U.S. Census Bureau.

Home sales boost the broader economy by providing work for bankers and brokers and driving retailers’ sales of carpets, couches and other items, Valvo said.

“It has this massive ripple effect on the economy – you really want people buying houses,” he said. “When they’re not buying houses it’s bad – and that has a ripple effect, too.” He agreed the median Rhode Island home price will bottom around $200,000.

A broader recovery for Rhode Island’s housing market will depend on the state’s job market bouncing back, Valvo said. The state has lost about 45,000 jobs since early 2007, or nearly one in every 10 positions.

“It’s all about jobs,” he said. “If people don’t have jobs they can’t buy homes, period.”

An earlier version of this story incorrectly said there was 80 to 90 days of housing inventory on the market, according to the Rhode Island Association of Realtors; there is about six months of inventory on the market, while the average sale is taking 80 to 90 days to complete.