R.I. housing values soar,
study finds
July
16, 2005, By Ryan McBride, The Providence Business News
A Harvard University real estate study
places Rhode Island in one of a few areas of the country with
the greatest increases in property values and growing demand
for affordable housing.
The State of the Nation’s Housing for 2004, completed by The
Joint Center for Housing Studies of Harvard University,
indicates that the divide between incomes and housing prices
in areas with booming real estate markets has continued to
widen since 1999.
“Not surprisingly, (the study) says the East Coast and West
Coast have seen the highest appreciation in housing prices,”
said Brenda J. Clement, executive director of the R.I. Housing
Network.
The housing study was required reading for Clement, who
attended a fellowship program at Harvard’s Kennedy School of
Government last week. The program unites nonprofit and
government leaders to learn about ways to address housing
concerns in their communities, Clement said.
For areas like Rhode Island with hot housing markets,
according to the study, it is unlikely that a so-called
“bubble” in the market exists. A dip in job growth and
increase in interest rates could cool the market, however, and
slow appreciations.
With the study forecasting no significant decreases in housing
costs in places like Rhode Island, the need for affordable
housing appears to have no end in sight. Clement said this
continued trend is problematic for wage earners struggling to
afford housing costs, as well as empty nesters and elderly
people who are unable to downsize to smaller homes.
“I think it is particularly an issue for Rhode Island, because
we are being sprawled into from other states,” Clement said.
For example, the casinos in southeastern Connecticut and the
generally higher housing prices in Massachusetts have
increased demand for housing in nearby areas of Rhode Island.
“We have a regional problem that does not have regional
solutions yet.”
Clement said she was struck by how all the trends noted in the
Harvard study reflect housing challenges faced in Rhode
Island.
The Harvard study confirms much of what is found in the
state’s Consolidated Plan developed by the R.I. Housing and
Mortgage Finance Corporation. From 1998 to 2003, according to
the state’s report, the median single-family home sales price
increased by 60 percent while median household income grew a
relatively scant 9 percent.
Another major statistic in the study was that homeownership
nationwide grew to a record high 69 percent in 2004. Yet there
may be drawbacks to this trend.
Sub-prime lending – of which Rhode Island leads the country –
increased by more than 100 percent in the U.S., or from about
8 percent of all loans to 19 percent, the study shows. The
sharp increase in sub-prime loans comes as lenders are
attracting consumers with higher debt-to-income ratios or poor
credit histories with products such as interest-only and
variable-rate mortgages.
The negative effects of this include a rise in foreclosures,
especially in minority neighborhoods from which many sub-prime
loans originate. In fact, the Harvard study cites figures from
the Mortgage Bankers Association, which reported that
sub-prime loans that are either 90-day delinquent or in
foreclosure are up to 3.8 percent, while prime loan defaults
were recorded at about 0.5 percent.
The study also found that second mortgage debt almost doubled
to $178 billion. Alarmed by the figure, Clement said it shows
that homeowners have too much debt in their homes from second
mortgages and home equity loans.
Clement noted other drawbacks of owning a home in today’s
market of spiraling housing values.
“Most people have said this is a great market if you are an
existing homeowner, but I contend that it is not,” said
Clement, noting that housing appreciations have increased
insurance and tax costs. “So over the long term, even for
existing homeowners, this isn’t a good trend.”
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