Rhode Island’s housing bubble burst in 2006, as home prices, sales and new construction stalled in dramatic fashion following a five-year run of record activity.
Single-family home sales dropped by double-digit percentages in 2006, according to the Boston-based Warren Group, which tracks real estate data across New England.
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At the same time, the state’s median sale price for a single-family home dropped to $262,500 in October – a 4.2-percent decline from one year earlier, when the median sale price of a single family home was $274,000, the Warren Group reported.
The sudden cooling of Rhode Island’s housing market – a local reflection of a national development – was driven in part by rising mortgage rates. In June, the Federal Reserve decided to keep its target short-term interest rate at 5.25 percent, following 17 consecutive rate hikes that had raised the rate from 1 percent in June 2004.
By then, however, the rising rates had made their mark, cooling the housing market and hurting consumers who had made risky choices at the peak of the housing frenzy. Those with adjustable-rate mortgages and unconventional loans were particularly affected, and nationwide, bankers reported the highest foreclosure rate in a generation. In Rhode Island, that trend so far has not been so pronounced, but in Massachusetts, it has been dramatic.
— David Ortiz
