R.I. home appreciations outpace rest of nation
Westerly resident David Newton is house hunting,
and so far, he’s made two offers in two months. Newton – who lives on his houseboat
– is looking for something nice but small, near the water, for less than $200,000.
He’s optimistic that he’ll find something within his price range – then again,
he says, maybe he’ll just buy a bigger boat.
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“There’s stuff here – it just takes a little longer to find,” Newton said.
“I could go up (in price) but I don’t want to.”
Newton belongs to a legion of home buyers reluctantly looking to spend more
for a house in Rhode Island, which led the nation with the highest home appreciation
for 2002 and for the first three quarters of 2003, according to a recent report
from the Office of Federal Housing Enterprise Oversight.
The cost, said one housing expert, is that it leaves many Rhode Islanders
with no affordable alternatives.
“The real estate market is a runaway train. It has picked up so much speed
it is leaving thousands of middle-income Rhode Islanders stranded at the station,”
said Chris Barnett, spokesman for Rhode Island Housing and Mortgage Finance
Corporation. “The growing gap between what people earn and what homes cost has
grave implications for our economy. It will affect recruiting, retention, expansion
and sales.”
The median sales price for a single-family home in Rhode Island rose 22 percent
in 2003, from $188,150 in 2002 to $230,000. According to the office, which publishes
results quarterly, housing prices have steadily climbed since 2000 in Rhode
Island – the housing price index (a measurement of the upward movement of house
prices) was 15.47 in the first quarter of 2003.
For all of 2001, Washington, D.C., led the country in appreciation; in 2000,
New Hampshire and Massachusetts shared the title.
In 1998 and 1999, Rhode Island ranked below the national average for the rate
of home appreciation.
“There is tremendous demand – real estate has led the economy for the past
three or four years,” said David Godden, managing partner of Randall, Realtors/GMAC
and president of the Rhode Island Association of Realtors. “There are also more
buyers now. All of the baby boomers have kids who are of house-buying age.”
There were slight drops in appreciation for the second and third quarters
of 2003, something federal housing officials said is happening nationally, but
appreciation in Rhode Island was still up to 12.35 percent in the third quarter,
keeping the No. 1 position for appreciation in the country.
“It’s a chicken and egg question – I’m not sure if the new home market hasn’t
influenced home appreciation,” said Roger Warren, executive director of the
Rhode Island Builders Association. “It’s demand relative to supply and we haven’t
been able to meet the demand with supply.”
Permitting moratoriums and restrictions in many cities and towns in Rhode
Island have restricted new construction, Warren said.
“We rank last in the nation in housing growth, so it’s no surprise the cost
of housing is skyrocketing,” Barnett said.
The average selling price of a single-family home in August 2003 passed the
$300,000 mark for the first time, reaching $302,600. The Realtors association
attributed this to the growing number of high-end homes sold – a record 118
$1 million-plus homes last year through State-Wide MLS, a subsidiary of the
association.
Although Warren said the builders association doesn’t keep track of how many
permits are sold for different home price ranges, he said he had been told that
the market for $1 million-plus homes was softening.
“The market is not skyrocketing like it was, but it’s leveling off to a nice
even pace,” Godden said. “It’s still aggressive, healthy.”
Warren said that as long as demand continues to outpace supply and new home
construction, that home appreciation would follow. “There is a low inventory
related to demand, which influences price,” he said. “I bet we could impact
appreciation if we get more permits” to increase supply. “It will mean very
little inventory – as fast as our members can build them they will be sold,
even faster than they can build them.”
Special programs and low interest rates don’t address the problem, Barnett
said.
“Clever programs that offer low interest rates or down payment assistance
are just a Band-Aid,” he said. “The solution is housing policies that make it
easier to create housing for our work force can afford.”
Godden said he encourages young people to invest in multi-family homes for
additional income and also condos.
“It’s tough for a lot of people to find what they want, but we’re in Rhode
Island – we don’t have enough appropriate land” to build as much housing as
is needed, Godden said. “But the first-time home buyer – we do have a problem
with them” finding something affordable.
“Younger people are going to get discouraged,” Newton said. “Where are they
going to get the $20,000 to put down? People are just going to keep saying ‘no’”
to their offers.
