With so few houses for sale, higher interest rates aren’t cutting into house prices

Single-family home prices in Rhode Island dipped slightly from October to November as interest rates seemed to have begun a slow descent from a high of 7.76% in late October, while the state of the multi-family market appears almost entirely unchanged.

Housing prices remain near record highs at the same time interest rates have more than doubled and the inventory of all types of housing – rentals, single-family, multi-family and condos – is incredibly low, according to data from the Rhode Island Association of Realtors.

The housing shortage remains at top of mind for real estate agents, but falling interest rates could bring new houses onto the market as people who own homes and are looking to move up may become more willing to give up a low interest rate for a better house, according to a news release from the association.

What was RI’s median house price in November 2023?

In November, the median price of a single-family home was $431,000, a slight decline from October’s $435,000 and the record high set in September of $455,000, according to data from the Rhode Island Association of Realtors.

The median house price is still higher than it was at the start of the year, $391,375, and well above the pre-pandemic November 2019 median price of $290,000, a 49% increase.

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While the average number of days a house sits on the market dipped in November, down to 31 from 33, the number of listings was also down slightly, the number of houses sold was down, and so was the number of pending sales.

What did the multi-family market look like in November 2023?

In the multi-family market, almost everything stayed the same. Prices are up $10,000, to $492,000, the number of listings is down 12, to 220, and almost the same number of houses sold in November as October.

What did the condo market look like in November 2023?

In the condo market, the median price dipped slightly, down to $357,500 from $380,000, and the number of days a condo sat on the market decreased from 35 to 27. The number of listings was up slightly, to 283, but well below the pre-pandemic November 2019 listings, at 689.

The number of condos sold was down to 116 from 159, although pending sales stayed relatively steady.

Why haven’t they sold? These new condos in Pawtucket cost only $299,000.

Interest rates could begin to moderate

The 3% interest-rate mortgage may have been a once-in-a-lifetime event, but mortgage prices do appear to begin coming down, slowly.

National Association of Realtors Chief Economist Lawrence Yun has predicted interest rates will average 6.3% in 2024. In the last year, they have been as low as 6.1% in February and hit a 23-year peak in late October at 7.79%, according to data from the mortgage lender Freddie Mac.

Real estate agent Stephen Antoni, with Mott & Chace, said the loosening of interest rates should bring a few more people back into the market, both new homebuyers priced out by rising interest rates and people who already own homes but are reluctant to let go of mortgages secured at 3% and 4%.

Small and regional banks are also getting more competitive in the mortgage market, offering better rates to entice the few people left in the market.

November and December are always hard times in the real estate market, bookended by Thanksgiving and New Year’s and filled with winter vacations, he said.

“My guess is by mid-to-late January, we’ll have a regular influx of inventory and by the spring, if interest rates keep coming down, inventory could build again and we could get to a more working market,” Antoni said.

In the current market, few people are looking to buy and fewer are willing to put their houses on the market.

Should I stay or should I go?

Antoni’s son faced the interest-rate dilemma after getting a promotion at work that moved his job from Connecticut to New Hampshire. He owned his house in Connecticut, with a cushy 3% interest rate. He sold the house, saw a decent profit and is looking to buy something at the new, inflated prices, and to borrow at the new interest rate, near 7%.

In a regular market, prices go down when interest rates go up because higher interest rates put monthly costs out of reach for many people. But with so little supply in the market, the little demand that’s left is enough to keep prices high.

In November, there were 1,152 homes listed for sale in Rhode Island, compared with 2,984 in November 2019.

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In Antoni’s son’s case, “his house went on the market, it went quickly, he made a profit and now he’s in the other seat, with nothing available, and he has to settle for something other than he really wanted,” Antoni said. “Time is not on his side and he is commuting back and forth to New Hampshire.”

The core problem is that there is not enough supply of homes in the state to meet the demand. That lack of supply also affects people’s thoughts about downsizing because there just is so little inventory for them to move into.

Buyers are becoming unusually choosy

With prices just below recent record highs, and few houses on the market to choose from, the buyers who remain are becoming incredibly picky, demanding that houses be in turnkey condition.

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Negative features in a house – a dated bathroom, or a kitchen in need of a remodel – are becoming reasons to not even put in an offer. Because people have to pay such a premium compared with four years ago, they don’t want to do any work, or spend money on any work, on a house, Antoni said.

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Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.