PROVIDENCE, R.I. (WPRI) – The real estate industry considers the housing market to be healthy and balanced whenever there’s a six-month supply of homes available for sale at any given time.

Supply has now dwindled to about 22% of that amount in Rhode Island. And many argue it’s related to several issues tied to the ongoing housing crisis, including scant new development and rising interest rates. The latter has helped tamp down the frenzied home-buying seen in 2021 and 2022 – yet still hasn’t stopped home prices from continuing to rise.

“At the end of the day, we need more housing units,” said Bryant Da Cruz, president of the Rhode Island Association of Realtors. “Whatever we can do from a policy point of view to make that happen is going to go far in terms of allowing folks to move into homes.”  

The Realtors, which represents more than 7,000 members, released year-end data earlier this month showing single-family home sales declined 17% compared to 2021 – a data point that might typically signal a cooling housing market, falling prices and a shift to a market that favors buyers.

Yet the group also reported a simultaneous 10% increase in the median price of single-family homes, which topped $400,000 for the first time in 2022 — suggesting an unusual dynamic in which demand is high in part because supply is so low that a buyer’s market can’t develop.

“If you put a property on the market and price it realistic, it’s going to sell – there are a ton of buyers out there,” Da Cruz said, although he acknowledged that the Federal Reserve’s ongoing interest rate hikes have complicated the math around how much families can afford each month on housing.

“With every point or half-a-point increase, it’s pushing people who were once qualified for a certain dollar amount to a point where they are no longer qualified, so that probably has a lot of people sitting on the sidelines right now,” he said.  

But Da Cruz also argued buyers have been spoiled in recent years because the Fed kept interest rates near zero for so long following the financial crisis of 2008, allowing people to spend far less on 30-year mortgages that could come with interest rates as low as 2.5%.

Today, mortgage rates have moved sharply higher, hovering around 6.5%. Still, that’s far lower than the mid-1980s, when Cruz remembered his parents purchasing a home after securing a mortgage with an interest rate of 15%.

“There are probably buyers in the market today that don’t know anything but low interest rates, but if you look a the 40-year average of interest rates in America it’s just about 7%,” he added.

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And while the Fed hasn’t given any indication how long it plans to raise its rates during 2023, Da Cruz said he believes home prices could stabilize this year. He’s doubtful that they will decline, though.

Regardless of the math around month-to-month affordability, Da Cruz argued none of that matters much if there aren’t homes to buy. And supply has gotten increasingly worse in recent years.

In 2021, Rhode Island ranked last in the country for new housing construction. Da Cruz has also heard from some sellers who balk at the idea of selling their current homes – especially if they’re locked into low interest rates – stalling mobility in the market.

“You might have someone who is older, who might want to downsize, but at the same time they might be stuck,” he said. “If they’re stuck, the people who are coming up behind them have nothing to buy.”

Addressing the housing crisis has become a top issue this year for many state lawmakers, including House Speaker Joseph Shekarchi, who is expected to support a package of legislation yet to be unveiled this session.

Asked what he’s looking for from policymakers, Da Cruz said he wants local zoning requirements to become less restrictive, making it easier for developers to create new housing units. The pushback Da Cruz said he sees at the municipal level often is rooted in the idea that the influx of new residents might put an untenable strain on local services, such as schools and infrastructure.

And while some communities – especially in rural areas – are already gearing up to fight against any legislation that would create statewide uniformed zoning to spur new housing development, Da Cruz said it’s time for that mindset to change.

“We have to get away from that,” he said. “We have to look at all pricing points and also at all different types of home.”