A recent Sunday edition of the stateâ€™s daily newspaper had two back section articles that can be described as â€śGood News-Bad Newsâ€ť.
First, the good news: â€śForeclosures drag down median house priceâ€ť proclaims a lead story in the real estate section. A condo on chic College Hill went for $105K while a single family house in run-down South Providence sold for $20 thousand. Both of these were properties foreclosed on by the lender or a government agency that backed the mortgage.
In February the median house price â€“which means half were sold for more and half for less- in Rhode Island was $170K, down from $282.9K at the height of the real estate bubble in 2005. A decline of 40%.
Why do I call this â€śgood newsâ€ť? Remember back in the boom years when a common complaint was that real estate prices were so high â€śour kids will never be able to afford a home in Rhode Islandâ€ť? Now the beef from those who did buy at the peak is that they are â€śunder waterâ€ť. Curiously enough, advocacy groups for the homeless and those lobbying for â€śaffordable housingâ€ť also complain that home prices are falling.
A couple of years ago I testified at a legislative hearing on several bills aimed at foreclosures. Being under water is no big deal, I said, all you have to do is keep making your mortgage payments and the market will eventually come back. When you drive a new car off the dealerâ€™s lot you are immediately under water since the car is automatically worth less than you paid for it. This brought nods of assent from some members of the committee.
The alliance for this and coalition against that were in attendance at the hearing. One of their representatives claimed that something like 1 in 13 homeowners at the time was behind in their mortgage payments. I pointed out that this meant that 93% of homeowners were current. The math seemed to mystify some members of the House Judiciary Committee.
Falling real estate values, to be sure, do present problems for some people. Among them are those who use their residence as a piggy bank.
I was doing a consulting assignment at an area bank after the housing bubble burst. The bank froze thousands of home equity lines of credit where the outstanding balances of the mortgages on the property exceeded its value. In other words the amount of the outstanding loans was higher than the value of the collateral.
The cubicle where I worked was in the middle of a call center that was handling the customers who were irate that the bank didnâ€™t notify them that their line was being frozen. Many thought this was against some law. (Which it isnâ€™t because as soon as the homeowners were notified their line was going to be frozen many of them would max it out.) This is prudent banking.
Some were furious because they were planning on paying for their daughterâ€™s upcoming destination wedding with the HELOC. Others screamed that the tuition bill from their kidâ€™s exclusive college was due. Precisely why a customer should be allowed to borrow against insufficient collateral seemed lost on these debtors.
Some insisted the bank should loan them the money because â€śthe taxpayers had bailed the banks outâ€ť. Lost on these folks was the fact that the banks needed to be bailed out because the government insisted on and greased the skids for risky loans.
Of course, homeowners arenâ€™t the only ones complaining about falling real estate prices. Realtors are feeling the pinch, too. Understand that a real estate broker or agent has nothing to sell. Their job is to match a willing seller up with a qualified buyer. For that they get or split a fee -their commission- usually six percent of the sale price.
Now you donâ€™t have to be a mathematician to figure out that six percent of $282.9K is a lot more than six percent of $170K. Guess thatâ€™s why fewer realtors are driving around in Mercedes and Lexus and more are in Fords and Chevrolets.
So, the good news is itâ€™s a buyerâ€™s market and there are plenty of houses to look at. Also, mortgage rates are really low. At Triple-A you can get a 30-year, fixed rate mortgage at just over four percent with 20 percent down and $900 closing costs. Donâ€™t have 20 percent down? AAA will get you a 30-year, FHA loan at 3.75 percent with just 3.5 percent down and $2,700 in fees.
Now is a great time to buy a home in Rhode Island.
Now for the bad news: The lead story in the consumer section of that Sundayâ€™s paper was headlined, â€śMarket not so rosy for nursesâ€ť. You read that right â€“there is apparently no shortage of nurses even though one of the charter schools being set up in the state is aimed at graduating nurses and the two-year nursing program at CCRI is being pushed as a career field, particularly for single mothers.
According to the article, â€śNursing was once viewed as a recession-proof field with a chronic labor shortage. But thereâ€™s a new reality for nurses; itâ€™s hard to find a job.â€ť
I know this to be true because not too long ago my wife and I were chatting with our â€śserverâ€ť at a local eatery. She told us she was waiting on tables three nights a week because she couldnâ€™t find a full-time job. She had completed the CCRI nursing program and was an RN but no hospital in Rhode Island would hire her because she didnâ€™t have a bachelorâ€™s degree.
Having a BS is no guarantee either. Last year my wife and I helped a young woman who had graduated from URI with a degree in Nursing. This new RN could not find a job in Rhode Island because every hospital would hire only experienced nurses. She wanted to work in an oncology department which is no easy career field. We heard that a new oncology wing at Yale-New Haven Hospital had opened up and told this young woman who was working as a pharmacy tech at the drug store we patronize. She applied online and was offered the job a couple of days after her interview.
A recruiter for a Tacoma, Washington-based hospital chain predicts, â€śAt some point we will go back into a shortage.â€ť Problem is, if that point is 5 or 10 years down the road, the technical skills of the current crop of unemployed nurses will be out of date and the jobs will be offered to the newly-graduated.
My point is, no government bureaucrat, no labor economist, no education administrator can predict what jobs will be in greatest demand in the future. Not too long ago, if you were repairing IBM Selectric typewriters or developing 35 millimeter color film at Kodak you probably thought you had a pretty secure job.
Richard August is a North Kingstown resident and a regular contributor to the Standard Times. His opinions are his own.