A leading real-estate firm says houses are cheap – relatively speaking – in the Providence region.

Home prices in the Providence-New Bedford-Fall River metropolitan area are 13% undervalued relative to the economic fundamentals of the region, significantly more than the 7% undervaluation nationwide and 8% undervaluation in Boston, according to an analysis by Trulia, the real-estate data firm.

Jed Kolko, Trulia’s chief economist, explained the methodology in a blog post:

[W]e assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources … we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.

Home prices in the Providence area have fallen a long way since the height of the housing bubble: Trulia estimates prices were 51% overvalued during the middle of the 2000s, while they were 39% overvalued nationwide. (The Providence metro area encompasses all of Rhode Island plus Bristol County, Mass.)

Housing prices are below their fundamental value in 91 of the nation’s 100 largest metro areas, including Providence, according to Trulia. The only places where homes are estimated to be overvalued are in California, Texas, Oregon and Hawaii.

There aren’t exactly a flood of new people arriving in the area to snap up those supposedly cheap houses.

Trulia reports Providence was the sixth-slowest-growing major metropolitan area in the U.S. last year, eking out a population uptick of 0.1%, compared with 3% in fastest-growing Austin, Texas. Providence also has some of the oldest housing stock in the country: 6.6% of the homes for sale in March were built before 1900.

• Related: Study: Cost-of-living in Providence 23% above national average (Feb. 20)

This shows home prices in Rhode Island (blue) and nationwide (red), indexed to show the growth since 1980.

Rhode Island saw a much more bigger increase in housing prices than the nation as a whole from about 1985 to 1990, then stagnation throughout the 1990s following the banking crisis, then another rapid run-up from 2000 to 2006. Home prices in Rhode Island have fallen significantly since then, but compared with 1980 they’re still much higher than prices nationwide:

A different comparison makes housing prices look somewhat more reasonable – this chart is Rhode Island home prices (blue) and per-capita income (green), again indexed to show the growth since 1980:

Update: The Rhode Island Progressive Democrats’ Sam Bell passed along this graph to quibble with my suggestion above that the stable housing prices of the 1990s were linked to the banking crisis, showing it was a regional phenomenon:

Rhode Islanders pay a significant premium to live here.

The cost of living in the Providence metropolitan area was 23% higher than the national average last year, according to the latest index from the Center for Regional Economic Competitiveness. That made Providence the 25th-most expensive U.S. jurisdiction out of about 300 examined by the Virginia-based research group, data provided to WPRI.com shows.

The country’s most expensive places were Manhattan (125% above average), Brooklyn (79%), Honolulu (67%), San Francisco (63%) and San Jose (57%); the cheapest were Harlingen, Texas, and Norman, Okla. The costliest metropolitan area in New England was Bridgeport (46% above average), followed by Boston (40%), New Haven (28%), Hartford (24%) and Providence.

Here’s how the Center’s Dean Frutiger describes its methodology:

The composite index numbers is composed of the six individual component categories, groceries, housing, utilities, transportation, medical care, and miscellaneous. Each of the categories has a weight attached to it, respectively, 13.56, 27.02, 10.30, 12.35, 4.60, and 32.17. These numbers represent the percent of average annual income spent in those categories by a professional/managerial household. The composite index number therefore, is composed of 13.56% of the grocery index, 27.02% of the housing index, etc.

Housing is the category where Providence-area residents pay the biggest premium, 32% more than the national average. They also pay 29% more for miscellaneous goods, 27% more for utilities and 17% more for health care, but only 5% more for transportation.

Metro Providence’s high costs were a big topic recently on Executive Suite with urban expert Aaron Renn. (more…)

By Dan McGowan

PROVIDENCE, R.I. (WPRI) – Federal funds for affordable housing in Providence have been suspended for more than a year as city officials continue to address “program deficiencies” uncovered by the Department of Housing and Urban Development (HUD), WPRI.com has learned.

Read the rest of this story »

The local housing market is still struggling.

Rhode Island home prices declined 3.5% in September from a year earlier, the largest drop in any state, according to real-estate data firm CoreLogic Inc. Prices rose 5% nationally, with 43 of the 50 states reporting increases, including a 2.5% uptick in Massachusetts.

Housing prices doubled in Rhode Island between the summer of 2000 and the winter of 2006, according to the Federal Housing Finance Agency index. Prices have dropped 35% over the last six years and are now back to about the same level where they were in the summer of 2003.

A total of 11,832 homes were sold in Rhode Island during the 12 months through September, an increase of 10% from the previous year, according to CoreLogic. One in four of those were short sales, and there was a 9.9-month supply of distressed homes in the state.

Rhode Island continues to have more homeowners in trouble than most other states. CoreLogic said 7.5% of all mortgages in Rhode Island were at least 90 days delinquent in September, tied with Connecticut and topped only by Florida, Nevada, New Jersey, Illinois, Maryland, and New York.

Corelogic said 22.7% of Rhode Island homeowners had negative equity in September, meaning they owned more on their mortgage than their property was worth.

• Related: Watch Executive Suite with Gorbea, Marcantonio on RI housing (Oct. 29)

What’s wrong with Rhode Island’s housing market?

A new chart making the rounds this week in the economics blogosphere raises the question. Amir Sufi, a finance professor at the University of Chicago, compared each state’s house price crash from 2006 to 2011 with its house price recovery over the last two years.

Basically a state is worse off the closer it gets to the bottom-left of the graph, which arguably gives Rhode Island the weakest housing market of all – the seventh-worst housing crash in the nation from 2006 to 2011, followed by the weakest recovery (in fact, a further decline) into this year:

(h/t: Wonkblog)

Patrick Kennedy is sweetening the deal for would-be buyers of his home on Aquidneck Island.

Kennedy has cut the asking price for his three-acre waterfront property on Farmlands Drive in Portsmouth to $1.395 million, a $200,000 reduction from the original asking price in January, according to its listing with Prudential Prime Properties.

The former congressman built the 10-room, three-story home overlooking the Sakonnet River in 2001. It’s described as the Kennedy Orchard House and features three bedrooms, three bathrooms, two fireplaces and 3,144 square feet of living space. The estimated annual tax bill for the property is $17,975.

Kennedy, who now spends most of his time in New Jersey with his wife and new baby, has said he plans to buy a home in Providence to maintain his ties with Rhode Island. He retired from Congress in 2010 but returned recently to campaign for his successor David Cicilline.

Kennedy wouldn’t be the first Rhode Island politician to be disappointed by the local property market in the wake of the housing bust. Gov. Lincoln Chafee was forced to cut the price of his Providence home repeatedly before it finally sold for $675,000 last September.

• Related: Patrick Kennedy inherits millions from his late father Ted (Aug. 25, 2010)

Rhode Island built up significant goodwill on Wall Street with last year’s pension law, and Treasurer Gina Raimondo says the state should tap into that now by borrowing to fund affordable housing.

Raimondo spoke at Wednesday’s kickoff for Yes on 7, the campaign for a Nov. 6 ballot question to borrow $25 million and use it to subsidize new and refurbished affordable housing. The treasurer said the “tough” pension cuts will allow Rhode Island to get lower interest rates from the bond market.

“We said we’re going to cut so we can invest,” Raimondo said. “I’m very happy to tell you that because of pension reform and some of our other good fiscal decisions last year, it puts us in a much better standing to go to the bond market now to raise money for things like affordable housing, so we can invest in Rhode Island’s future.”

The treasurer pitched the housing bond as “a fiscally responsible and prudent thing to do” – good stimulus and good social policy. “People ask me, how are we going to get Rhode Island working again?” she said. “We’re going to make this state competitive. We’re going to take money and invest in things that are right.”

(more…)

The housing crash is still being felt across Rhode Island.

More than one out of every three homeowners in Providence County – 37% of all borrowers – are still underwater, meaning they owe more on their mortgages than their properties are worth, according to first-quarter data compiled by Zillow. That puts it among the worst 20% of all U.S. counties.

The situation isn’t much better in Kent County, which includes Warwick, where 34% of homeowners are underwater. Negative equity is much less prevalent in the southern part of the state, with underwater rates of 17% in Newport and Washington counties and 15% in Bristol County.

Three-fourths of Rhode Island residents live in Providence and Kent counties, and they’re caught in a regional phenomenon; at least 30% of mortgages underwater across a broad swath of Central Massachusetts, Northeast Connecticut and the northern half of Rhode Island, according to Zillow.

Housing prices in Rhode Island dropped 24% between the second quarter of 2006 and the first quarter of this year after soaring 151% from 1997 to 2006, according to the Federal Housing Finance Agency’s index.

(map via Zillow)

The Rhode Island Housing and Mortgage Finance Corporation – better known as Rhode Island Housing – plans to sell $61.1 million worth of bonds this week to take advantage of low interest rates.

Richard Hartley, the quasi-public state agency’s treasurer, told WPRI.com most of the proceeds from the homeownership opportunity bonds will be used to refund older bonds that carry higher rates. Morgan Stanley is handling the transaction.

The General Assembly created Rhode Island Housing in 1973 to stimulate the housing market. As of Dec. 31 its outstanding bonds totaled $1.55 billion. They are not legally guaranteed by state taxpayers.

The agency says its delinquency rate is “below average when compared to industry data for all Rhode Island mortgage liens” because it does not offer subprime or second mortgages and uses conservative loan standards.

Rhode Island Housing’s current commissioners are Jim DeRentis, Denis Barge, Steven Costantino, Paul Dimeo, Paul McGreevy, John Monteiro and Treasurer Gina Raimondo. Its longtime executive director is Richard Godfrey, a lawyer who’s led the agency since 1993.

It’s no secret Rhode Island was hit hard when the housing bubble burst. But six years later after prices peaked, the state is still among the worst affected in the nation.

Rhode Island ranks No. 7 on a new Housing Misery Index created by Trulia, a real-estate data website. The index adds two numbers together: the percentage change in home prices from the peak and the percentage of mortgages either severely delinquent or in foreclosure.

Rhode Island scored a 34 on the index, primarily due to a nearly 30% decline in home prices since 2006. The only more miserable states were Nevada (73), Florida (62), Arizona (55), California (54), Michigan (37) and Idaho (35), with Georgia tying Rhode Island for seventh place.

“Why these two indicators?” writes Jed Kolko, Trulia’s chief economist. “First, big price drops lead to more underwater borrowers and less household wealth, which hurt the housing market and hold back economic recovery. Second, defaults and foreclosures damage consumer confidence in the housing recovery, and foreclosures cause pain not only for people who lose their homes but also for their neighbors.”

Richard Florida at The Atlantic Cities took a closer look at the numbers:

Housing misery is directly linked to the economic crisis. There is a substantial correlation between Housing Misery and the unemployment rate (.61). Housing Misery is positively associated with the percentage of state residents who rate current economic conditions to be “bad” (.47) and negatively so with the percentage who rate them as “good” (.46). There is no correlation whatsoever between housing misery and state income levels or education levels. …

[S]tates with higher levels of housing misery tended to vote for Obama in 2008 (the correlation between the two being .32), while those with lower levels of housing misery were more likely to go for McCain (-.33).

As you’ve probably heard by now, Attorney General Peter Kilmartin and his colleagues from across the country have reached a $25 billion settlement with the big banks for foreclosure abuses. The Washington Post’s Wonkblog has a solid FAQ explaining the deal. Felix Salmon likes it and Tom Sgouros doesn’t.

$25 billion is a lot of money, but how much of that will wind up in Rhode Island? Here’s a chart offering the official answer ($172 million), sent along by AG Kilmartin’s press secretary Amy Kempe:

For more information, visit riag.ri.gov/mortgagesettlement, the website Kilmartin’s office set up to help people understand the settlement and make use of it (if they’re eligible).

Tim White points me to this March post from the real estate blog Curbed featuring “Surprisingly Swanky Homes in America’s Bankrupt Towns.” You guessed it – Central Falls made the cut.

Curbed highlighted the developer’s residence in the M Residential converted mill building on Roosevelt Avenue along the Blackstone River (it was Elizabeth Webbing Mills until 2001), which was going for $389,000 at the time:

The property mixes original industrial details with modern bathrooms and an open plan kitchen. While the views aren’t bad, who’s to know what will become of the town; even the mayor has been relieved of his job. Rhode Island’s fourth-largest city, Pawtucket, lies just to the south, so hopefully a municipal merger might quickly quell the financial morass in Central Falls.

The link Curbed included in its post is dead, so the unit apparently either got sold or taken off the market. If you like what you see, though, the M building’s website says there are still five units left – “prices reduced.”

And if Central Falls isn’t your style, Curbed has options in Vallejo, Calif., and Hamtramck, Mich., too.

Update: What are the odds? Turn out the building is facing a tax sale tomorrow morning.

(photo: M Residential)

Housing is a pet issue for U.S. Sen. Jack Reed, and for months he’s been arguing that Fannie Mae and Freddie Mac should convert the 250,000 foreclosed homes they own into affordable rental housing. Doing so, he says, would cut down on the number of distressed properties for sale and help hold down the cost of rent.

Reed finally got some traction this week as the Obama administration announced it wants the federal government to partner with private investors to make it happen. Now the proposal is grabbing the attention of influential policy writers including The Washington Post’s Brad Plumer, Mother Jones’ Kevin Drum, and the Center on Budget and Policy Priorities’ Jared Bernstein (who recently left Vice President Biden’s office).

Time magazine’s Alison Rogers raised a number of questions about how Reed’s proposal would work in practice, but offered nothing but praise for his efforts:

Yet, with too many people in positions of power bewailing the housing crisis without taking steps to correct it, there’s something appealing in the fact that Senator Reed is at least trying to think outside the lockbox. (Sorry, bad real estate joke.) When Sen. Reed says that we all need to be more proactive and creative in healing the housing market, he’s not just talking about the problem. He’s trying to search for some kind of solution. A little more of that creative thinking might give us a nudge in the right direction.

Chafee's house at 54 Barnes St.

If Lincoln Chafee’s experience is any indication, Rhode Island is still a buyer’s market for housing.

This week the governor and his wife reduced the asking price for their 3,900-square-foot home on Providence’s East Side by another $70,000. It’s the third reduction – and the biggest so far – since the house went on the market in mid-February.

The Chafees are now looking to get $729,000 for the seven-bedroom, three-and-a-half bathroom property at 54 Barnes St. That’s down 18% from their initial listing price of $889,000. The house didn’t sell at $829,000 or $799,000, either.

The Chafees bought the house for $939,000 in 2006, so selling at the current price would mean a sizable $210,000 loss for the wealthy couple (before closing costs – though at least those are apparently low here). They previously tried to get rid of the property in 2009 but didn’t wind up selling at the time.

Bill McBride, who writes the must-read economics blog Calculated Risk, suggested in May he expects the Chafees’ house to sell somewhere in the $700s. “So many homeowners are unwilling to price their homes realistically – at least the Chafees have been willing to reduce the price,” he noted.

The 101-year-old two-story colonial has an appraised value of $801,200, according to the city assessor’s office. Records show the house sold for $370,000 in 1998, meaning the price more than doubled in the eight years between then and when the Chafees bought it.

(photo: Residential Properties)

This is a little odd: The cost of closing on a mortgage in Rhode Island has apparently plunged from 14th-highest in the country down to 41st-highest over the past year, according to Bankrate’s annual survey.

Origination and title costs on a $200,000 mortgage in Rhode Island average $3,705 this year, down from $3,972 in 2010, Bankrate said. Closing costs rose 8.8% nationwide to average $4,070, with the highest costs in New York ($6,183) and the lowest in Arkansas ($3,378).

It’s possible that Rhode Island’s small size leads to noisy findings in Bankrate’s surveys. Over the past three years, the state has bounced from No. 42 in 2009 to No. 14 in 2010 to No. 41 in 2011.

It’s also possible last year was an outlier, which would mean Rhode Island is indeed one of the least expensive places in the nation to close on a mortgage.

Here’s how Bankrate explained its findings:

Most of the rise in closing costs is tied to fees charged directly by lenders. … Origination fees include lender charges for services such as underwriting and processing.

“Interest rates get a lot of attention, and rightfully so, but it’s also important for consumers to compare lender fees when shopping for a loan,” said Greg McBride, CFA, senior financial analyst for Bankrate, Inc.

Bankrate surveyed up to 10 lenders in each state in June 2011 and obtained online good faith estimates for a $200,000 mortgage to buy a single-family home with a 20 percent down payment. Costs include fees charged by lenders, as well as third-party fees for services such as appraisals and title insurance. The survey excludes taxes, property insurance, association fees, interest and other prepaid items.

Bankrate has more information on the survey here. Single-family home sales in Rhode Island were down 22% in June compared with a year earlier (as predicted), the Realtors said this week.

A number of cheerful correspondents have e-mailed me over the last 24 hours to point out this week’s U.S. Commerce Department report that showed Rhode Island’s economy grew 2.8% in 2010 (after inflation). The growth rate was 18th-fastest among the 50 states and ranked No. 4 out of six in New England.

Call me a Debbie Downer, but I’m not that impressed.

It’s certainly good news that Rhode Island’s economy grew faster than 32 other states’ did last year, especially considering we did so despite having one of the nation’s worst unemployment rates. And it’s a relief that Rhode Island’s economy finally grew in 2010 after shrinking for three straight years.

So 2.8% would be nice if we were in a normal situation. The problem is, we’ve just suffered an economic body blow. We have a 10.9% unemployment rate and at least 62,100 people out of work. What we’d really like to see isn’t standard growth of 2.8% – we want the much faster growth Rhode Island experienced after the deep recessions of the 1970s, ’80s and ’90s.

Think about it this way: Our economy was still smaller in 2010 than it was six years earlier. In constant dollars, Rhode Island’s GDP totaled $44.36 billion back in 2004, peaked at $44.96 billion in 2006, and shrank to $42.84 billion in 2009. Last year it grew to $44.01 billion – still below 2004′s level. Here’s a chart:

If the economy had continued growing at the 1998-2006 average rate of 3% over the last four years, it would have totaled $50.68 billion in 2010 – 15% higher than the actual figure. True, we grew at nearly 3% last year – but that implies that we’ve permanently downsized the size of our economy, meaning we’re not going to make up the growth we missed during the recession.

Rhode Island had a housing bubble during the last decade, and it’s quite plausible that it expanded the size of the economy past where it would have been in its absence. But the state’s high unemployment rate and its many vacant buildings imply a huge amount of slack capacity. At this rate, it’s hard to see what puts them back to use anytime soon – especially since the nation as a whole is doing little better, as Martin Feldstein pointed out in today’s Wall Street Journal.

One of my trusted tutors thinks it won’t happen until the housing market, especially new construction, perks up. There’s good reason to think he’s right. The economic output of Rhode Island’s construction and real estate industries both shrank again in 2010 even as the rest of the economy grew. That means those sectors were still holding back the recovery last year, even as manufacturing, retail and finance all started to rebound.

Got a more optimistic take? I’m all ears; drop me a line.

Bill McBride of the must-read economics blog Calculated Risk posted two interesting charts last month about the mortgage delinquency crisis that I thought I’d share. They’re a reminder of just how much the housing crisis has affected Rhode Island.

This first one shows the delinquency rates in the 10 worst-hit states at three points over the last four years: around the start of the housing crisis (January-March 2007), a year ago (January-March 2010) and this past winter (January-March 2011).

The data comes from the Mortgage Bankers Association; Rhode Island is second from the right:

A couple things stand out to me in this one. Rhode Island’s rate of seriously delinquent mortgages is quite high – ninth-worst in the nation. The percentage of delinquent mortgages in Rhode Island nearly tripled, from 5.5% to 14%, between 2007 and 2010. And while the total delinquency rate fell by a bit more than a percentage point over the past year, the share actually in foreclosure continued to rise.

This second chart has the same information as the last column of the first one. It shows the delinquency rates for all 50 states, sorted by level of serious delinquency. Rhode Island is ninth-worst, so it’s near the left side:

As a side note, reading Calculated Risk is one of the ways I learned how valuable good charts can be when it comes to reporting about money. Bill’s are much nicer than mine, partly because he’s smarter than me and actually understands Excel!

(charts: Calculated Risk)

From the Rhode Island Association of Realtors (emphasis mine):

Single-family housing sales fell 26 percent in April from a year earlier, marking the tenth consecutive month of year-to-year decline, according to statistics released today by the Rhode Island Association of Realtors. Median price also fell, down seven percent from April 2010 to $190,000, reversing an upward trend in median price that began in November, 2009. …

Some degree of the decline can be attributed to the tax credit in place last spring which pushed home sales upward. April 2011 sales, however, remained below the sales level of April 2009, when no tax credit incentive was in place.

Kudos to the Realtors for acknowledging those difficult facts in the last paragraph. The drop in sales was predicted here at WPRI.com, but that doesn’t make it any less of a problem for Rhode Island’s feeble recovery. The Warren Group’s Vince Valvo told me last fall he expects these big drops all the way through this June.

Why is it more expensive to live in Providence than in Boston?

That’s the question I had after seeing this chart in the new Rhode Island economic forecast released by Moody’s Economy.com as part of the Revenue Estimating Conference. It shows the change in consumer prices – that is, inflation – since 2000 for Providence, Boston and the U.S.:

For the last decade (at least), the cost of living has been rising faster in Providence than in nearby Boston or nationwide. While the cost of some individual item may be lower here, prices overall have increased about 33% since 2000 in Providence, compared with 27% in Beantown. Why would that be?

Probably because of rents, according to Zach Sears, Economy.com’s new Rhode Island analyst.

“Providence has had a relatively low [rental] vacancy rate, meaning a tighter market, and this would push up rents,” Sears told me in an e-mail. “This was particularly true in the first half of the last decade, when demographics were more positive and the housing stock was not growing much. This dynamic changed in the second half of the decade, as out-migration turned negative and the housing stock started growing faster, easing these pressures, and vacancy rates increased.”

That makes sense. Rhode Island saw the second-largest increase in the cost of renting a two-bedroom apartment over the last decade, behind only Hawaii, according to a study released earlier this month by the National Low-Income Housing Coalition. A household needs to make $39,853 a year – $19.16 an hour – to cover the $996/month fair-market rent for a two-bedroom in Rhode Island, the study said.

Sears’ analysis is also worrying because the rental vacancy rate in Rhode Island has dropped sharply since 2009, and a tighter market could mean higher rents, as I mentioned back in February. And the same trend is expected to be seen across the U.S., Bloomberg News reported last week:

Apartment rents and occupancies are likely to continue to rise as the U.S. home and labor markets remain depressed, economists said at a conference sponsored by investment-advisory firm Bentall Kennedy. …

U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand for rentals, according to Reis Inc. …

An estimated 4 million to 4.5 million people per year in their 20s and early 30s are entering the housing market at a time when 28 percent of American homeowners with mortgages owe more than their houses are worth, Poutasse said yesterday at the conference in Vancouver. So-called echo-boomers desire mobility and see properties with negative equity as a hindrance to selling and moving elsewhere, he said.

“This generation isn’t going to behave the same way with housing,” Poutasse said.

Chafee's house at 54 Barnes St.

Bill McBride, who writes the must-read economics blog Calculated Risk, has been keeping an eye on Governor Chafee’s (thus far unsuccessful) efforts to unload the Providence house he and has wife bought in 2006.

As I reported yesterday, the Chafees have reduced the price twice since putting the home on the market in mid-February – it’s now listed for $799,000. McBride, who knows the housing market better than just about anybody, thinks they’re getting closer to what the market will bear:

When this house was first listed, I argued we’d see a price reduction. Although Case-Shiller doesn’t track Providence, house prices have fallen about 15% in Boston and 23% in New York – and that would suggest a selling price in the $700s for the Chafees’ home. So many homeowners are unwilling to price their homes realistically – at least the Chafees have been willing to reduce the price.

One of McBride’s commenters noted that the house has an appraised value of $801,200, so the Chafees are only now asking for what the city says it’s worth. Meanwhile, another commenter questions whether the local property market should be compared with those in Boston and New York:

I don’t know much about Boston’s real estate market. But why would you compare the real estate markets in Providence and New York? The economic base, job scene, inventory, relocation market, etc. is totally different. Providence once was one of America’s great manufacturing towns. Now, all it has left is government and education.

Providence has more in common with Detroit or Cleveland.

Detroit?!

Chafee's house at 54 Barnes St.

Doesn’t anybody want to buy Lincoln Chafee’s house?

After two and a half months on the market, this week the governor and his wife reduced the asking price for their 3,900-square-foot home on Providence’s East Side by another $30,000.

The Chafees are now seeking $799,000 for the seven-bedroom, three-and-a-half-bathroom property at 54 Barnes St.

That’s down 10% from the initial listing price of $889,000 they sought in mid-February. The Chafees had already reduced the price to $829,000 last month.

The Chafees bought the house for $939,000 in 2006, so selling at the current price would mean a $140,000 loss for the wealthy couple (before closing costs). They already tried to get rid the property in 2009 but didn’t wind up selling.

Home prices in the Providence-New Bedford area dropped 33% from the peak of the housing bubble in June 2006 through last December, according to a home-price index maintained by FNC Inc., a mortgage-technology firm. Prices on the relatively desirable East Side likely haven’t fallen by that much, however.

(photo: Residential Properties)

Chafee's house at 54 Barnes St.

Even the governor is feeling the pain of Rhode Island’s dormant housing market.

Over the weekend, Gov. Lincoln Chafee and his wife Stephanie reduced by $60,000 the asking price for their 3,900-square-foot home on Providence’s East Side, a decrease of 6.7%.

The Chafees are now seeking $829,000 for the seven-bedroom, three-and-a-half-bathroom property at 54 Barnes St. That’s down from the initial listing price of $889,000 they sought in mid-February.

“It was repriced to reflect the current market conditions,” Ellen Kasle, the Chafees’ listing agent at Residential Properties, told WPRI.com on Monday.

“This property was put on the market in the wintertime, when there were very few properties available,” she said. “This is the beginning of spring, a lot of other properties are coming on, and I wanted to be competitive.”

The Chafees bought the house in 2006 for $939,000, so selling at the new, lower price would force the wealthy couple to take a $110,000 loss on it. They already tried without success to unload the property in 2009.

Kasle, who’s been with Residential Properties for 22 years, said would-be buyers are mostly unaware of the home’s prominent seller. ”We’re selling the real estate, not the celebrity,” she said.

Kasle added that the new $829,000 price point was already attracting more interest in the house. ”I will tell you that since I repriced it – which was 48 hours ago, I believe – I’ve had a showing on Saturday and I have three lined up,” she said.

Kudos to Bill McBride, the wise author of finance blog Calculated Risk, who predicted back in February that Chafee would have to reduce the price.

(photo: Residential Properties)

HousingWorksRI is out with a new report this morning on the foreclosure crisis in Rhode Island. The study is full of grim statistics, but here’s one that stood out to me – more than one in 10 mortgaged homes in Central Falls fell into foreclosure over the last two years.

In all, 117 of Central Falls’ 1,045 mortgaged homes entered foreclosure between January 2009 and December 2010, according to the report – 11.2% of the city’s mortgaged housing stock.

That’s way ahead of the next three: Providence (7.2%), Woonsocket (5.7%) and Pawtucket (4.6%). In 10 of the state’s 39 municipalities, the total was under 2%. Central Falls has a myriad of problems, but the fact that it’s an economic basket case has been a key contributor to the city government’s insolvency.

Perhaps unsurprisingly, the report also found that the foreclosure problem is concentrated in four of Rhode Island’s biggest cities: Providence, Warwick, Cranston and Pawtucket accounted for just over half of the state’s 4,738 total foreclosures in 2009-10.

The report also contains this striking chart, showing just how frothy Rhode Island’s housing market got – and just how far prices have fallen since the bubble burst, particularly for multifamily homes:

The latest quarterly snapshot of Rhode Island’s residential rental market shows a surprisingly steep drop in the number of apartments and houses available for rent.

Here’s the Census data on Rhode Island’s rental vacancy rate from 2005 through the end of 2010 – you can see there was a fairly sudden drop in the second half of last year:

That’s interesting as far as it goes, but the data has its limitations: Rhode Island is a small state, this is just a sample, and that one quarter could be an outlier.

So I called Sean Zierak, a senior mortgage banker at Allied Home Mortgage in Cranston, to find out what he’s seeing out there – and he confirmed the tightening trend shown in the Census data. He thinks it’s being driven by Rhode Island’s high rates of foreclosures and short sales.

“People who have always been homeowners have nowhere else to go but into the rental market,” Zierak said. “So we have a tightening of inventory on the rental side, plus we have higher rents going on [in places] where there’s fewer people in the buying market.”

Places with a significant number of college students, like Providence and Narragansett, have always had a sizable rental market. But now more people are renting homes in other cities and towns like Warwick, Cranston, and even Burrillville and North Smithfield, Zierak said.

“People need to live,” he said. “They might have been foreclosed on or had a short sale, but they need to live because of their kids’ education. They need to rent. It’s tough.”

The state’s housing market used to get a steady stream of first-time homebuyers, many of them recent graduates who decided to stay after college. “I think we’ve lost that over the last couple of years,” mainly because of banks’ tougher credit standards, Zierak said.

The growing need for rental accommodations has changed the market for properties that can be rented out, too. A lower purchase price means an investor can get positive cash flow out of a home that a few years ago wouldn’t have produced enough monthly income as a rental to cover the mortgage and other expenses, according to Zierak.

“It’s amazing,” he said. “We’ve created a whole new sector. Rental was a fringe a few years ago – now it’s a become a real niche. There’s some really powerful players that are now focusing on rentals.”

The Rhode Island Association of Realtors is out with its annual report on home sales in Rhode Island, and the message about 2010 is, hey, things have been worse:

Last year’s sales of 6,833 single-family homes increased 3% from 2008′s volume of 6,648 sales, the last year that sales volume was not affected by the tax credit on home sales. For purposes of comparison, when analyzing sales data since 1990, the median number of home sales per year was 7,600 sales.

There’s another important comparison left out of the press release, though.

In 2004, at the height of the housing boom, the number of single-family homes sold in Rhode Island totaled a whopping 9,982, according to the Realtors. So last year’s sales total of 6,833 was still a drop of 32% from the peak.

Last week’s much-discussed OSPRI report, which attributed Rhode Island’s limited population growth to economic factors like the estate tax, has stirred lots of discussion about what’s keeping more people from moving here.

For another hypothesis, check out Harvard economist Edward Glaesar’s essay in Sunday’s Boston Globe Magazine:

To really understand the conundrum of a state like Massachusetts – with its high incomes and low population growth – we must factor in our lack of housing. An area’s growth is almost perfectly correlated with the increase in the number of homes. If you don’t build, you don’t grow, and our state just doesn’t build.

The issue isn’t lack of demand for new housing, but the vast number of local regulations that deter it. …

While our anti-change rules may keep our communities looking the way we like them, they also mean that we do a worse job of providing affordable housing than deep red states, such as Texas.

Although Glaesar is writing about Massachusetts, the issue he raises could also apply to Rhode Island.

The state added only 11,940 new housing units between July 2000 and July 2009, according to the Census Bureau, bringing the total number to 452,191 – a 2.7% increase over nine years. “Rhode Islanders face a widening gap between their income and their housing costs despite decreased home prices,” HousingWorksRI reported in its housing affordability study last September.