H
omebuyers in Rhode Island persevered through high prices in August, driving a double-digit increase in home sales for the month, according to the Rhode Island Association of Realtors. The median price of single-family homes rose 9% year-over-year to over $490,500, while sales activity increased by nearly 11%. Multifamily homes also saw a significant jump in prices, up 16%, with sales improving by 3%.

    Despite record-high home prices and historically high mortgage rates, the cost of borrowing has been decreasing in anticipation of the Federal Reserve's rate cuts. Last week, policymakers reduced interest rates by half a percentage point to a range of 4.75% to 5%. Housing experts predict that lower rates will make mortgages more affordable for buyers but may also fuel higher prices due to increased demand.

    The state's realtors association reported a slight improvement in housing supply in August, with homes available for sale meeting 2.3 months' worth of demand at the current sales rate. However, this still falls short of the balanced market threshold of five to six months' supply. Realtors attribute the shortage to inadequate new construction.

    The Federal Reserve's rate cut and recent legislation may help builders invest in more home construction as borrowing costs decline and regulatory hurdles are eased. "Building more homes is the most significant factor in getting our housing market back in balance," said Sally Hersey, president of the Rhode Island Association of Realtors.

    While mortgage rates have dropped to their lowest level since February 2023, other segments of the state's housing market showed softness, with condo prices plummeting over 14% and sales dropping by nearly 8%. However, Hersey believes that lower interest rates may encourage homeowners who are reluctant to sell due to high rates to put their properties on the market.