Residential Properties Ltd.

This week Chas Adams and I spoke with Nellie Gorbea, Executive Director of Housingworks RI.  Recognized by the Providence Business News 2009 Business Women program as a “Woman to Watch”, Nellie oversees the HousingworksRI’s coalition of over 140 organizations working to improve housing rental and ownership opportunities in Rhode Island, especially for the state’s workforce.

HousingWorks RI recently released its annual Fact Book on affordable housing in Rhode Island. The 2011 Fact Book features the incredible success of the 2006 affordable housing bond known as Building Homes Rhode Island (BHRI). The $50 million housing bond created 1,255 affordable homes in 30 communities throughout the state.

The Bond was an incredible boost to the state’s overall economy, including these findings from the economic impact study:

• The $50 million generating about $800 million in total economic activity.
• More than half of all the new construction in Rhode Island between 2007- 2010 was sparked by the bond
• At a time of record-high unemployment, BHRI supported 6,100 jobs in Rhode Island.

While declining values have made housing more affordable, there is still a great need for long term affordable solutions, there are only nine communities in the state where the average wage earner could afford to purchase a median priced home, and foreclosures are still a big problem.

This week’s Real Estate Insight:

Despite the overwhelming success of the last bond initiative, there is no money for Affordable housing in the 2012 budget.  Massachusetts has about $285 million in its current budget for housing programs, and Connecticut is investing over $130 million in housing this fiscal year. The return on the investment has been proven to not only provide affordable housing to the neediest of individuals, but has also been a great boost to the overall economy in general, particularly the hard hit construction industry.

Listen to this week’s podcast here:

Last week we fielded a call from Frank in Florida who by his own account has lost 87% of the equity in his home, and this week we had a call from Pat in Cumberland asking why would someone even want to buy a house in Rhode Island these days. Both of these callers were very passionate and it made me reflect on their situations. Prices have fallen about 32% from the peak in 2006, according to the Standard & Poor’s Case-Shiller home-price index.  Economists say that every home sale eventually generates $60,000 into the GDP, spurring economic activity for Realtors, Title Attorneys,   plumbers, electricians,  furniture stores,  Home Depot,  Lowes et al,  resulting in the equivalent of one job created for every two sales.  Unfortunately, since Housing is part of the problem, we haven’t been able to  rely on Housing to pull us out of this recession like it has in the past; that is why we have a ‘jobless recovery’ with fears of double dipping into recession. Price drops that force borrowers underwater can lead to more foreclosures. In the past people were able to ride out jobless periods by borrowing on their home equity, unfortunately, many people have lost that cushion. The fact is you really haven’t lost anything, unless you have to sell right now, the only money you have actually “lost” is what you have put into it. So when will we see gains in equity? Economists believe we will soon start to see 2- 3% appreciation, so ten years to break even if you bought at the peak, but this is pure speculation, anything could happen.

It is funny how so many people would rather follow the crowd than do what is best for their personal situation, the people who flocked to buy during the boom thought nothing of the fact that so many unqualified people were buying houses they could not afford, betting on negative amortization loans and continued appreciation to float them, yet fear of the future  now keeps many people on the sidelines in spite of historically low prices and mortgage rates.  Today commentators are vilifying the “draconian lending standards that continue to hold housing back”, while that may be true to a certain extent,  I actually feel more comfortable in my mortgage today knowing that the majority of fellow homeowners  can actually afford the home they are in, don’t you?

Pat chided us for our Pollyanna outlook, but perception does play a role in the economy, and since there is so much negative news, we do like to report some of the positive reports to offer homeowners some reassurance  that they are not jeopardizing their financial futures by continuing to pay their mortgages.

This Week’s Real Estate Insight:

Unfortunately Rhode Island has historically been one of the first states to fall into recession and one of the last to recover, so it might be bumpy for a while, but everything is cyclical, and when the market does come back it might just come back like gangbusters.  The majority of Americans still believe housing is a good investment, there is pent up demand and new households being created every day. The decline in divorce proceedings is noteworthy; a University of Virginia study found that nearly 4 in 10 married Americans ages 18 to 45 who had been considering divorce put off their plans   because of the poor economy.  When values do begin to rise, these people can sell their house, or feel confident to support separate households. So don’t worry too much, as Lil’ Rhodys motto points out, there is Hope.

Listen to this week’s podcast here: