James Houle is an appraiser and Rhode Island real estate expert based in Portsmouth, where he runs his business, James Houle & Associates. He got his start in the Rhode Island real estate industry in 1981, when he established his real estate appraisal, consulting and brokerage service.
While still a licensed real estate broker, Houle now focuses mostly on real estate appraisals, performing appraisals of single-family homes, multifamily housing, commercial properties, industrial properties and vacant land.
PBN: When we last spoke, you discussed how COVID-19 pandemic-era trends drove demand in coastal Rhode Island. As we move further away from that period, how have those trends evolved, and are we seeing any normalization in pricing or demand?
HOULE: I think the COVID-19 pandemic accelerated some trends [that] were already in the process of occurring. First, we knew that since the 2008-2009 market collapse, the amount of new housing that needed to be built to satisfy demand was at least a one-third off of the optimal target amount. But it was kind of hidden by other economic forces, such as higher unemployment and high volumes of foreclosed properties coming back onto the market. So, there was bound to be a housing shortage, no matter what. But just when market forces were beginning to stabilize, the sudden additional surge of COVID-period buying from 2020-2023 generated an exposure of the true shortage.
At the same time, we also saw a rise in working remotely. This had already been happening, as was the use of short-term rentals for temporary but isolated housing during COVID. But these became standard practices during that time. All these factors are affecting the real property market. But how much are they related to COVID or how much they are related to underlying trends is a question.
Specifically, I think the one factor that I find most interesting is that the highest-end market, at least in terms of what has sold since the end of 2023, seems most changed. In the state, for the 28 months of September 2020 to December 2023, there were 15 sales over $10 million, of which six were at $16 million or above, topping at one sale of $30 million. In the 28 months since, starting January 2024, there have been 10 sales above $10 million, and only one at or above $16 million, which was also the highest selling price in that time. So, in spite of consistent appreciation in the general market, the highest end is off considerably. It seems those buyers may have returned to the cities.
PBN: Interest rates have remained elevated compared with the pre-2022 market. From an appraiser’s perspective, how have higher borrowing costs impacted home values and buyer behavior in Rhode Island?
HOULE: I’m not sure everyone would fully agree with me on this, but I do not see the current interest rates affecting home values all that much. If you look at history, mortgage rates of 6%, which is about what we have now, have been a pretty good rate. In fact, I have always looked at that 6% figure as a fair rate for the cost of money.
I think if there has been any result from interest rate increases, it is that they are impacting sellers’ – not buyers’ – behavior. Anyone with an existing 2%-3% rate is loath to give it up by selling the property, knowing they may not be able to afford a place to go. So, overall, I think the previously low rates of a few years ago are affecting the total available inventory now. I do not think the higher rates are impacting sales as much.
PBN: Inventory constraints have been a persistent issue in the housing market. Based on your analysis, are we seeing any meaningful increase in housing supply locally, or does the shortage continue to influence pricing?
HOULE: Inventory has marginally increased, but I would certainly say the lack of inventory has generated higher prices. And, sadly, it is not an easy fix. Let’s look at this from a larger view.
In 2000, the median selling price of a house in Rhode Island was $135,000 and the median income was $42,500, so house cost was 3.18 x median income. In 2010, the median price was $210,000, or 4.01 x median income of $51,600. By 2025, the $500,000 median price was 5.75 x the median income of $87,000. Income increases in that time were 2.9% year to year, while general inflation was 2.54%, so income kept pace with inflation. But house values increased at a rate of 5.35% annually, double the rate of salaries or inflation.
So, why is that? We know home prices are a function of supply and demand. Supply is low, and demand remains high, so values naturally go up. What would seem to be reasons for low supply? We discussed increasing interest rates keeping owners from selling, but to that we would add general trends of holding real property as a hedge against inflation and volatile economic movements; second-home buying; incredible increases in building costs, which increased substantially during COVID because of supply chain shortages and now from tariff cost surcharges; and finally, the surge in short-term rental purchasing.
In southern R.I., it is stated that up to 20% of the homes are sold for short-term rental purposes. And, to make matters worse, these are generally the most modestly priced houses in those towns. So, in southern R.I., a very large percentage of median and below-priced homes are sold for income purposes. The buyers who are shut out of the market because of this competition – but who need a modestly priced home for full-time residency – are then forced to move, using up supply in another town nearby. I have no idea how one could quantify that actual dollar impact, but it certainly helps push up selling prices, as it takes up supply.
Perhaps this is another item that needs to be addressed from a legislative perspective, but I think this horse may be permanently out of the stall. In short, there are a lot of factors that are affecting housing supply that are going to be with us for a while.
PBN: There has been increasing discussion around zoning reform and housing density in Rhode Island. How do you see these policy changes influencing property values and development patterns in the coming years?
HOULE: This is a really good question. I think all the zoning reform and policy changes are needed, and they are very well-intentioned. If left alone, they should and could result in some meaningful change, and I support them fully.
I also think there needs to be more changes to zoning. We need to move away from the standard single-family zoning that has been in place since the 1950s. The average household size fell from 3.3 persons in 1960 to 2.5 persons now, reflecting a shift toward smaller, less-traditional family units. So, why have a 2,000 [square-foot] single-family house on a site, when two 1,000-square-foot apartments in the same-sized building would fit needs for space better?
The larger problem appears to be the resistance that is building – from individuals at planning and zoning hearings screaming NIMBY [not in my backyard], to the more organized legislative moves within many municipalities to challenge what they see as the state’s legislative interference.
As an example, a lot of the new zoning changes encourage construction of deed-restricted moderate-income units. These are the ones most strongly opposed on a local level. But it is important to realize that maybe 60% of R.I. would qualify for moderate-income housing. If many people did not already own a house, they would find it difficult to enter the market again today. We don’t need people opposing new housing. We need better education on the problem.
PBN: With more data and valuation tools available online, how has the role of the professional appraiser evolved, and what value does an experienced appraiser bring that automated estimates cannot replicate?
HOULE: I would say this: I think AI [artificial intelligence] will become a standard part of the larger appraisal paradigm. The online valuation tools will continue to improve their accuracy. It seems very reasonable to me that a substantial amount of appraisal work will shift from individuals viewing the properties then returning to an office where a report is prepared, to simply allowing the computer to do the lion’s share of the work, supported by a general on-site inspection to ensure the property is there.
Especially in many lending situations, in which the value of the property is only a part of the qualification process, a computer-driven opinion of market value may well be sufficient. And the computer will be able to introduce avenues of thought that open the analytical process, ultimately improving the current general process, even if humans remain a major part of the valuation process. The computers should eliminate, or at least mitigate, some built-in predisposed positions humans bring to the process. In fact, the more complex the assignment, the more valuable the computer could be. And for most commercial/investment assignments, I think AI models will be very effective.
For the immediate future, I see the electronic process as being reasonably dependable. The problem I see is that if true market value is based upon what agreement a willing buyer and willing seller would form, then it would seem that computers would always only be reasonably dependable. Why? Because much of the driving force in making buying decisions is comprised of varying degrees of personal and subjective motivation. In short, we find the computer doing empirical thinking while trying to analyze emotional thought. History tells us that is a very difficult thing to do.
Marc Larocque is a PBN contributing writer. Contact him at Larocque@PBN.com. You may also follow him on X at @Marc_La_Rock.
