If you’ve bought real estate in Rhode Island recently with designs to sell it for a big profit, chances are you’re going to be disappointed.
That’s because for the first time since 2000, single-family home prices in Rhode Island rose by less than 10 percent last year. The median price went from $264,700 in 2004 to $282,900 in 2005, up 6.9 percent, according to the R.I. Association of Realtors.
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That’s a big change from just last May, when Money magazine ranked Rhode Island’s real estate market fifth in the nation for anticipated growth, tied with Phoenix and Mesa, Ariz., with both expected to see prices rise 17.7 percent, compared with 7.1 percent nationwide.
Why the slowdown? Experts say it’s due to a combination of factors, especially the growing number of homes for sale, which has created more balance between supply of homes on the market and demand from house hunters. And they don’t expect the state’s housing market to jump back into double-digit mode this year, either.
“I’d be very nervous about buying a house right now, because there are conditions under which housing prices could actually start falling locally,” said Leonard Lardaro, an economist at the University of Rhode Island.
Residential real estate prices have soared in the state in recent years for several reasons, including an influx of out-of-state buyers, a rise in high-end development, and a low rate of new housing production – the second-lowest in the nation, in fact, after Washington, D.C.
Now, however, house values are being tempered by an abundant supply of housing on the market, Lardaro said. Based on composite averages, the number of single-family homes on the market here jumped last year to 3,179 from 2,273 in 2004. Moreover, the current number is up to 4,790, according to the Realtors association.
“I think people are trying to cash in before the trend of prices begins to slow down,” Lardaro said. The trend is “healthy” because prices will be more in line with value, he said, while a continued frenzy could lead to a price crash. But for short-term investors, the slowdown could mean that annual inflation, about 3 percent a year, could exceed the growth in a home’s value.
“We are very close to a peak,” he said, “and you do not want to buy at a peak.”
In some towns, prices have already declined, the Realtors association said: Barrington, Bristol, East Greenwich, Johnston, Lincoln, Narragansett, Smithfield, Tiverton and Westerly all saw lower median prices in the last quarter of 2005 than in the same period in 2004.
Still, there were more communities with double-digit growth: Little Compton, Middletown, Newport, Providence, Central Falls, Glocester, Foster, Exeter, Hopkinton, Richmond and North Kingstown. But, investors are getting more cautious.
“I’ve seen investors shift their focus from trying … to realize short-term gains on a short-term investment to perhaps getting into something for the long term,” said Michele Caprio, president of the Realtors association and a real estate broker in Cranston.
Caprio said that last year she saw fewer real estate investors come to the state and buy up entire blocks of housing, as she observed in the previous couple of years. “I think like everything else, it’s moderating a bit,” she added.
However, investors continue to have success in buying multi-family homes to either turn into condos, or to keep and rent out, Caprio said. In fact, the median price for multi-family homes in the state rose last year to $290,000 from $260,000 in 2004, up 11.5 percent.
On the condo side, median sales prices increased by 6.8 percent last year, in line with single-home value appreciations.
The state’s real estate buying frenzy may have peaked in 2004, with single-family home sales reaching a record 9,982. Last year that figure dipped to 9,711. Caprio attributed the slower sales to the number of homes for sale and media reports about the slowing market.
“There is definitely an impact that the media perhaps has had on buyers thinking that [they] can offer 10 to 15 percent below the asking price,” she said. But “sellers are not really in that mind-frame yet.”
That disconnect is keeping houses on the market for a longer time: an average of 67 days last year, compared with 57 in 2004, according to the Realtors.
Charles Lemire, regional director and executive vice president of REMAX of New England, said the real estate market has reached the end of a 10-year growth cycle.
“The market has corrected itself,” he said. “We are back to what is called a normal marketplace, where there is a balance between demand and supply, and you’re going to start to see the prices in some categories decrease.”
