RI's median house price dropped in July after record high. Is a cooldown ahead?

With mortgage rates climbing slightly, record-high house prices plateaued in July as inventory remained extremely tight across the state, according to data out this month from the Rhode Island Association of Realtors.

The average 30-year fixed-rate mortgage hit 7.09% last week, technically a 20-year high, although it is just barely above the 7.08% interest rates hit in mid-November last year, according to data from the mortgage lender Freddie Mac. The last time mortgage rates were so high was April 2002.

"It's very tight," real estate agent Stephen Antoni said. "Obviously, inventory is still our biggest issue here. For every house that goes on the market, properly priced, there is a bidding war of 12 buyers or more."

The median price of a single-family house in Rhode Island decreased slightly in July, down to $440,000 from $442,750 in June, the highest median price on record. Inventory of single-family homes increased slightly, a 14% change from 989 houses listed in June to 1,130 listed in July.

Is there any sign of a cooldown? Rhode Island house prices hit record highs in June.

With high interest rates and single-family home prices up 48% over pre-pandemic July 2019, first-time home buyers are being pushed out of the market. Wind the prices back to January 2019 and today's are up 74%.

The number of homes sold in July went down, from 834 in June to 670 in July, a 20% decrease.

First-time home buyers pushed out of the market

"Cash is trumping it on every offer category, which still leaves move-up and move-down buyers in the market," Antoni said. "First-time home buyers, it leaves them home-less or frozen where they're at."

The equity that would-be buyers have in homes they already own is allowing them the flexibility to offer cash, and offer more money, on houses that banks may not appraise to be worth what they're being bought for.

$17,500 grant for home buyers: Buying your first home in RI? The state may give you $17,500 for your down payment

"There's definitely a frenzy," Antoni said. "People who waited because they saw interest rates go from 3% to 4%, then they went to 5%, and now we're at 7%, and they think they've got to get something now, but again, there's nothing out there.

Real estate agent Robert Caron said he is seeing the comeback of the offer to waive inspection, a personal pet peeve, calling it a "terrible thing to do" and especially bad for first-time home buyers.

Interest rates restrict market from both ends

The market is being squeezed on one end by higher interest rates, pushing up the cost to borrow, making it harder for potential buyers to afford a mortgage. A $700,000 mortgage at 3% interest cost a $2,951 a month while that same mortgage, but at 7% costs $4,657 a month.

On the other end, the low interest rates offered during the pandemic, some as low as 3%, are "golden handcuffs" because anyone who bought or refinanced at rock-bottom rates will pay a lot more buying a new house because interest rates are now so much higher, Antoni said.

Where are all the affordable homes? 12 most economical towns to buy a home in RI

Antoni said his son bought a house three years ago when interest rates were near record lows. His family has grown and he wants to buy a bigger house, but with the steep rises in interest rates and prices, his best advice to his son is to stay put.

Real estate agent Robert Caron said homeowners have a "huge disincentive" to sell and buy again.

"Every time the mortgage rate rises, you're squeezing someone out of the market," Caron said.

The tightness of the market is, in many respects, a self-perpetuating cycle, Caron said. Many sellers put in contingency clauses that they need to find something to buy before the deal can go through.

"It's another impediment in the seller's basket," he said.

Caron said he is not expecting any big changes in the market and that conditions now are a lot different from the bubble in 2008, when banks were "giving money for anything."

The market has come a full 180 degrees since the frenzied buying during the pandemic at low interest rates, Antoni said.

"What's going on, saying it's a crazy market – that's not even a word that describes what's going on," he said.

"Indescribable is a cop out, too. What's going on is, the market is still moving and the pool of people that can move with the market is getting smaller and smaller."

Multi-family market stays the same

In the multi-family market, everything in July is almost unchanged from June, with the same median price, $500,000, nearly the same number of listings (216 in June, 196 in July) and the number of houses sold (123 in June, 128 in July).

Condo prices are down, as are sales

In the condo market, the median price is down to $359,900 from $376,450, a 4% decrease, while the number of listings is nearly the same (259 in June, 292 in July) while the number of units sold is down slightly (186 in June, 139 in July).

Where are the most affordable places to buy a house?

The Providence Journal analyzed data from the Rhode Island Association of Realtors to find the 12 places in the state where the median home price was below $400,000 in the first half of the year. Central Falls topped the list ($329,500), although it barely had any home sales, followed by Woonsocket at $330,000.

See our full analysis of the 12 towns with the lowest median selling prices, and how they have changed since 2019.

Where are all the affordable homes? 12 most economical towns to buy a home in RI

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

This article originally appeared on The Providence Journal: Rhode Island real estate prices in July were just below June's record