Jan. 22--Some of the same factors that pulled Rhode Island's housing market into crisis before the rest of the nation may rescue the state from the crisis before other parts of the country, according to the head of the state's housing agency.

"Most of the country is overbuilt," said Richard H. Godfrey, executive director of Rhode Island Housing. "Rhode Island is still underbuilt. We have a housing shortage."

In part because of that shortage, Rhode Island has the largest gap between what people earn and what it costs for housing, Godfrey said. "We were more desperate here. Therefore, the subprime lenders, the predatory lenders, the high-cost lenders came in here first," he said. "That's really what triggered it here. That was unsustainable, and we had a lot of bad lenders making bad loans."

But that offers a ray of hope looking forward, he said. While parts of the country that overbuilt will have to clear excess inventory of housing before prices stabilize, the Ocean State won't have to, Godfrey said. "I think that Rhode Island will actually be better in the long run, and may come out of the real estate crisis sooner because housing is still in short supply here."

Godfrey sat down with The Providence Journal this week to offer his insights into the housing market in Rhode Island and offer advice to people dealing with it.

"It's a highly targeted problem. I mean, there are some parts of the state, some neighborhoods in Providence, that are virtually untouched, but there are other neighborhoods that are really dramatically impacted," he said. "You have some neighborhoods, house after house is boarded. Other neighborhoods, it appears there's no problem at all."

For the most part, too, it affects people who bought a house or refinanced mortgages in 2004 or later. Homeowners who bought before then, "Chances are ... you're OK, you still have equity in that house," said Godfrey.

According to Godfrey, today's housing crisis has it roots in two earlier economic slowdowns, one in 1989 in Rhode Island and one in 2000 that affected Internet technology companies -- so-called dot-coms -- but was not as severe in Rhode Island.

Following the 1989 slowdown, Rhode Island enacted planning and zoning regulations that made residential development harder, he said.

"It really put a lid on all new building," Godfrey said. "And we haven't kept up with the housing need. Unless we reverse that, we can never grow economically because there's no place for workers to live or for customers to live. So that is really Rhode Island's long-term issue: How are we going to grow economically with all of the prohibitions and all the difficulties on building?"

Those restrictive regulations helped create the current housing shortage, he said, and then, the dot-com recession hit.

"The Mideast, Asia were flush with capital. The stock market busted in 2000 in the dot-coms. So, where did they put that money? They put it into American real estate because they figured it was better to invest in Providence than in Tehran or wherever else," said Godfrey. "We saw too much money chasing American real estate in the early part of the 21st century."

That made credit easy -- too easy in Godfrey's assessment -- and buyers flooded a housing market that was already short on supply.

Following the law of supply and demand, prices skyrocketed to unsustainable levels, he said. "We saw, particularly in many urban neighborhoods, doubling and tripling of home-sale prices."

Despite the doom and gloom of current times, Godfrey said the situation has reversed. "We think now's a good time to buy," he said. "Prices are low. Costs are coming down. Interest rates are low."

But he counsels caution. "We have always advocated buy what you can afford, build what you can afford, when you can afford it." Now that prices have returned to rational levels, even bargains, homebuyers can be more confident that the value of their home will not drop dramatically after they buy, he said.

"People need to look at a house as a home first and an investment second. Unfortunately, I think people have had it backwards for quite a while," said Godfrey. "My 401(k) has lost 40 percent of its value, and I've got nothing to show for it. If my house came down 40 percent, then I'm still living there. It's not costing me any more. I've got a roof over my head. Housing has inherent value. You know, there is value to the road in front of your house -- the sewer, the sidewalk -- and the home itself -- bathrooms, kitchens."

Godfrey said that people now paying $1,000 a month in rent would make a good investment if they could buy a house with a monthly mortgage payment of $1,000.

Rhode Island Housing offers down-payment assistance for qualifying buyers, he said, as well as classes in buying a house, including a review of the prospective buyer's credit history, and in buying foreclosed houses. "Education is really critical," said Godfrey.

The agency also has opened a help center to assist homeowners facing difficulties, he said. In the 15 months the center has been open, 3,000 people have contacted it, Godfrey said, and the center has helped save 500 homes, bringing down some borrowers' mortgage payments by several hundred dollars a month.

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