Real estate shows signs of life in R.I.

When Scott Bayha found the listing for a foreclosed duplex at 435 Tiffany St. in Warwick, the seller, U.S. Bank NA, a branch of U.S. Bancorp, had pegged the price at about $119,000. But a few days later, in early October, that price dropped to $108,000 and Bayha, a high school gym teacher looking for a second property as an investment, decided the fixer-upper was worth buying for a few reasons.
“Well, I can do the construction myself, that’s one reason,” he said last week, while his wife, Amy, made dinner for them and their almost-2-year-old daughter, Keaney, at their Warwick home. “And that it’s a foreclosure is another reason – there are properties that I feel are selling for a lot less than they are worth.”
The city of Warwick assessed the 1,654-square-foot home, just a few blocks from Warwick Cove, at $236,700. That is more than double Bayha’s price, but less than the last selling price, in September 2005, which was $260,000. Even at such a reduced price, it had been on the market for almost 100 days, Bayha said.
Bayha isn’t the only real estate investor in Rhode Island that late last year saw value in the high-inventory, low-price, multifamily home stock in Rhode Island. In October, the month that Bayha bought the house, year-over-year multifamily home sales in Rhode Island jumped 124.4 percent. And multifamily home prices, which were at a median of $116,000 when Bayha bought, continued to fall through the end of the year. As of December, they were down to $95,450, less than half the $200,000 median during December 2007, according to sales data compiled by the Rhode Island Association of Realtors.
But just because there’s been increased interest in multifamily and single-family homes – for which sales rose in the last quarter of 2008 – does not mean that real estate pricing has hit its bottom for this cycle and is on the way back up, Timothy Warren Jr., CEO of Boston-based real estate tracker The Warren Group (TWG), said last week.
“The number of homes that are being sold has to pick up for several months or maybe even a year, before the prices start to improve,” he said. “People who are out there shopping have to lose out on a couple of homes that they … didn’t act fast enough [on]. That’s when you start to see them getting more aggressive on their prices and willing to stretch a bit.”
Based on TWG data, Warren said prices will likely continue to fall for much of 2009.
And although the price of homes has fallen, the assessed value in many Rhode Island municipalities has stayed the same. In Warwick, where the residential tax rate is $13.41 per $1,000, Bayha will be stuck with an annual tax bill of $3,174.15 based on his investment property’s assessed value. If the assessment were based on the selling price –which might be closer to the uninflated, real value – Bayha would be paying only $1,448 per year in city property taxes.
Rhode Island homes lost an average of 11.5 percent of their value last year, according to Zillow.com, a home-value estimator based in Seattle. That, according to Zillow.com, was on par with the national average of 11.6 percent. In all, U.S. homes lost $3.3 trillion in value last year.
Still, early this year, there has been a lot of activity in the mortgage market, said Stephen M. Bessette, executive vice president in charge of retail lending at Washington Trust Company. The recent drop in interest rates – average rates fell slightly below 5 percent before being bumped up to a little more than 5.75 percent last week – was a chance for many to refinance. January was the busiest month for residential mortgage activity his department has seen since 2003, he said.
“We had as much business as we had in six months of 2008,” Bessette said. “We had $86 million in applications in January. That was 336 applications and that would be five to six times a normal January.”
About 90 percent of those applications were for refinancing, he added.
Homestar Mortgage’s Stephen Tetzner, first vice president of the Rhode Island Mortgage Bankers Association, agreed that there was a refinancing boom last month. And while interest rates were close to 6 percent last week, he said they are likely to come back down soon. “We fully anticipate that we are going to see another drop in that interest rate with some of the federal stimulus money,” he said. “The government is going to get active in getting the rates down again, under 5 percent.”
While that could help prime the mortgage pump, a proposed tax credit of up to $15,000 for the purchase of primary residences was left out of the federal stimulus package agreed to by congressional negotiators last week.
For some buyers, the real estate market’s ups and downs don’t affect transactions. That was the case when Providence College bought 101 Dante St. – a multitenant building near its Providence campus – on Dec. 11, said Vice President Edward Caron, who is in charge of college relations and planning.
That transaction was the result of a college policy to sometimes buy nearby property for use by visiting professors. In this case, Providence College paid $475,000, about 12.7 percent higher than the $421,300 that the city assessed the property at, according to the tax assessor’s office. “This decision had nothing to do with the current market or economy,” Caron said recently. “It’s something that we have been doing on a periodic basis now for a number of years. … It’s not like we made a concerted effort, given the low price of housing, that we’re going to gobble up everything within site of the college.”
But for an investor like Bayha, whose new Tiffany Avenue property already has one tenant, timing was important – even though the property does have some problems.
“There have been pitfalls to it that I never expected,” he said. When he bought the Tiffany Avenue duplex, the seller told him it was winterized. “And then when I turned the water on, it obviously wasn’t winterized early enough because all the pipes had leaks in them.
“So, I’m kind of over budget, but … I think the house is [still] worth more than I bought it for.” •