"Dad, Are We There Yet?"

As Realtors, the most common questions we get are:

Has the market recovered?
Did we hit bottom?
Is now the time to buy?
Is now the time to sell?  

As a fourth-generation and the youngest family member in a family-owned real estate company, the question for my broker, Ron Phipps, (who conveniently doubles as my father), is "Dad, are we there yet?" Knowing him and his philosophical nature, his likely first response will be – "To understand where we are, or where we are going we must acknowledge where we come from."  

Although Big Ron probably has cave plans and land maps dating back to the Jurassic period, we decided to look over numbers dating back from 1999 (pre-boom) to now. We've put together an infographic quantifying the number of sales and the median (NOT THE AVERAGE! More on that below) sales price in East Greenwich since 2001.  

To view the infographic in a larger scale, click here.

Here is our "family conversation" about where we were, where are now and where we hope we will be in the future:

Matt: I'll cut right to the chase and use the title as my first question. Are we there yet?

Ron: The question is, where is "there"? Have we recovered the lost equity from the height of the market? Clearly not. However, we are back to a market that is improving in terms of numbers of sales and appreciation. This has been largely absent since 2006. What is encouraging is the amount of activity and the renewed confidence in homeownership. Clearly, the national headlines are helping us in Rhode Island and in East Greenwich in particular. What one needs to do is drill down further. Specific neighborhoods and price ranges are stronger and weaker. The Hill, for example, is in a seller's market. The upper end of the market, above $1,000,000, on the other hand, is still a buyer's market. Remember that general statements are that general. You want to analyze the data for the specific price point and neighborhood.

Matt:  The National Association of Realtors reports that 43 of 50 states have fully recovered. Rhode Island and a few other New England states have not. Why? And just to be clear, what do they mean by recover? We've had increased sales activity, so what's missing?

Ron: The answer is the multi-faceted. First, housing and employment are like the two helices of DNA. They are tightly woven together. Strong employment generally equals a strong housing market. In Rhode Island, the employment situation has been weak.Also, you need to look at the demographics and the fundamentals of the market. We are an aging population in Rhode Island and our housing stock does not mirror that.

Secondly, our property tax situation impacts how much a family can afford which tends to keep prices down.  

Third, our market was highly speculative when credit was free flowing. We appreciated way beyond what incomes and "real value" could sustain. Therefore, our corrections were quicker, deeper and longer. As a result, our recovery has been delayed.

Matt: My real estate career began in the early 2000s. I vividly remember listing a property, showing it five to seven times the first day on the market, then reviewing multiple offers by day's end and ultimately watching the property sell over the list price. As our infographic illustrates, there were over 200 houses being sold per year for a five-year period. Can we expect this again? Or was this simply the product of an overinflated market with buyers who simply won't ever exist due to stricter mortgage qualifications?

Ron: Actually, there has been a lot of pent-up demand and we will be near, if not over the 200 houses sales, this year. Clearly, tight credit dampens the number of sales. Average credit scores (FICO) for Fannie Mae and Freddie Mac are 759 and 761, respectively. In the pre-boom years, mean credit scores were approximately 720. The National Association of Realtors Chief Economist, Lawrence Yun, estimates that 15 percent of creditworthy people are unable to purchase homes right now. We need to get back to prudent credit. East Greenwich and Rhode Island reflect that national reality of credit.

Matt: Let's talk about the median price. Well, first, you should probably take us back to fifth grade and explain median vs. average.

Ron: The average price of the market is totalling the purchase prices of the homes and dividing by the number of homes.

Example: $5,000,000 (total sales value) ÷ 20 (homes) = an average of $250,000

Median price is the price of the 10th home out of 20. Median tends to minimize outliers. This is important so that a really low or a really high price does not misrepresent or overstate the market.  

What is also important to understand is that a move in average price does not necessarily mean the value of a specific property has gone up. It could be the mix, price range of the activity. So it is important to have expert advice from a Realtor who knows the market and what the numbers actually mean.

Matt: The median sales price peaked at $550K in 2004. Obviously, there is natural, healthy inflation over the time but will we get back to that number over the next few years? Also, do you find it encouraging that the median sales price is currently above $400K (still amongst the highest in the state)? How would you compare East Greenwich's drop and recovery to other Rhode Island towns?

Ron: East Greenwich was one of the first towns in Rhode Island to recover and see real appreciation. What is encouraging is that the fundamentals of the improvement are sound.

In other words, the improvement and value are both sustainable. This does not mean that values will not go down. Remember that value is like the tide is ebbs and flows. What is encouraging, is the general improvement in the market.

Matt: If we are in fact correcting and there is lower inventory and a potential increase in sales prices, are there still good opportunities for buyers?

Ron: Still great opportunities for buyers, but the selection is more limited than it was. Many of the distressed (short sale and foreclosure) properties are being purchased quickly. As the market improves, the number of undervalued properties is seriously reducing.

Matt: So let's put the shoe on the other foot. I'm a seller and I'm reading that the former NAR President working in my backyard is suggesting that the market has improved and we may see a potential shift to a seller's market, should I wait? Also, are there some pockets of the market easier or harder to currently sell?

Ron: The best advice is to call us and we can evaluate your specific situation. The market has improved, properties are selling, and prices are in many instances moving upward. The question is, where does your home fit in the market? We can answer that question and give you the benefit of our experience: 35 years in my case, 12 in Matt's. More than 50 percent of all Realtors have been in the industry less than 5 years. Let us bring our experience to benefit you.

The Phipps family has been assisting East Greenwich families since 1976. Joyce Phipps started the East Greenwich New Neighbors Association. Ron Phipps, a former Rhode Island REALTOR® of the year, was the 2011 National Association of Realtors President. Ron's son, Matt, was recognized as one of the nations top REALTORS® under 30 in 2008. Please contact them for any of your family's housing needs.

Matt Phipps can be reached at 401-640-0071 or phipps.matthew@gmail.com 

Ron Phipps can be reached at 401-640-7097 or ronphipps@gmail.com