The Rhode Island real estate market has done well for itself over the last decade. While ten years ago, at this time, real estate in Rhode Island was in the midsts of the Great Recession, it spent the better part of the decade making improvements in just about every major indicator. Riding the tailwinds of improving confidence, a strengthening economy, and constant activity, the Rhode Island housing market recovered admirably. Even the first quarter of 2020, when the Coronavirus was officially declared a pandemic, couldn't hold Rhode Island back for too long. While the state certainly experienced a setback, COVID-19 appears to have catalyzed an incredibly hot market. Today's market indicators look to favor everyone: buyers, sellers, and real estate investors.
The Top Rhode Island Real Estate Markets
While the best real estate market in Rhode Island is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Unemployment Rate: 7.0% (latest estimate by the Bureau Of Labor Statistics)
Population: 1,057,315 (latest estimate by the U.S. Census Bureau)
Median Household Income: $61,043 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 10.95%
Foreclosure Rate: 1 in every 17,949 (0.5%)
Rhode Island Median Home Prices
The median home value across the state of Rhode Island is $325,805, which is the highest it has been in the last decade. However, to get an idea of how much progress has been made, it helps to put some perspective on Rhode Island's past home values. In the third quarter of 2012, local home values bottomed out around $219,000, when real estate was hit hardest by the Great Recession. Since then, the median home value has received a lot of help from significant tailwinds like a strengthening economy and growing consumer confidence. From its lowest point of the Great Recession to today, the median home value in Rhode Island has increased by 48.7%. In the last year alone, prices have increased by 8.3%. To put Rhode Island's performance into context, the median home value in the United States is now $262,604, which represents an increase of 59.1% from the third quarter of 2012.
Rhode Island home values have increased every year since the Great Recession. The pandemic certainly threatened to end eight consecutive years of appreciation, but the threat was over just as fast as it began. Appreciation slowed at the beginning of the year, but several factors have come together to increase home values to historic levels. Increasing confidence in the housing sector, historically low interest rates, hopes of an impending vaccine, and a lack of available inventory have all created an impressive catalyst for buyers.
The factors serving as a tailwind for Rhode Island have turned the state into a seller's market. However, demand hasn't waned in the slightest. Despite growing home values, people appear more ready and willing to buy than ever before. The resulting competition should continue to influence prices higher, to the tune of an 8.5% appreciation rate over the next year.
Rhode Island Foreclosure Trends & Statistics
The Rhode Island real estate market boasts a relatively low foreclosure rate. With a mere one in every 17,949 homes in some stage of distress (default, pre-foreclosure, or bank-owned), the state's foreclosure rate is a healthy 0.5%. For some perspective, the national foreclosure rate is somewhere in the neighborhood of 0.7%. The difference is minimal, but it's important to note that Rhode Island is doing its best to set the bar.
While better than the national average, Rhode Island is not without its own areas with higher distributions of foreclosures. In fact, here's a list of the counties in Rhode Island with the highest distributions of foreclosures:
Kent: 1 in every 14,832 homes is distressed
Providence: 1 in every 16,613 homes is distressed
Bristol: 1 in every 20,964 homes is distressed
Washington: 1 in every 21,150 homes is distressed
Newport: 1 in every 42,291 homes is distressed
The Rhode Island real estate investing community will want to pay special considerations to these neighborhoods, as they represent the most likely areas to buy homes under market value. Additionally, investors will want to attend auctions in these communities because 65.4% of the state's distressed inventory is of the auction variety. Attending an auction in one of the counties listed above should increase investors' odds of finding a distressed home below market value.
While the foreclosure rate in Rhode Island is low, it's safe to assume defaults will increase sooner rather than later. The financial strain placed on many homeowners by the Coronavirus is expected to increase defaults by year's end. It is too soon to tell just how many foreclosures are expected to hit the market within the next year, but there's a good chance Rhode Island will have more foreclosure in 2021 than there are now. Therefore, investors who position themselves well now may be able to simultaneously help homeowners in the future and land a good deal.
Tax Lien Investing
Tax Lien or Deed: Tax Lien state
Interest Rate: 16%
*Varies by municipality
Redemption Period: 3 years
Rhode Island Real Estate Investing
With eight consecutive years of appreciation in the rearview mirror, local investors have done well for themselves in recent history. Long-term investors, in particular, have likely benefited immensely from growing home values. The equity from homes purchased just a few short years ago has most likely made the majority of investments worthwhile. However, the Rhode Island real estate market (much like everywhere else) is getting to a tipping point. Homes have increased in value so much that attractive profit margins are growing harder to come by.
The Rhode Island real estate investing community may appreciate profit margins generated from auction homes, but opportunities are not what they once were. Finding deals below market value is getting harder because of years of appreciation. That's not to say Rhode Island real estate investors can't continue to flip homes they buy at auction (the absolutely can), but rather that the new housing market created by the pandemic is more suited for long-term investors. In particular, today's most prominent indicators lean heavily in favor of landlords.
First things first: it has never been cheaper to borrow institutional money to fund the purchase of a home. To stimulate the national housing market, the Fed announced it would keep interest rates low to make buying a home more attractive. As recently as November, the monthly average commitment rate on a 30-year fixed-rate mortgage was 2.77%, according to Freddie Mac. At that rate, borrowing money is more appealing than ever before. The lower interest rates associated with today's purchases will decrease monthly mortgage obligations. Investors who take advantage of today's rates will potentially increase monthly cash flow and profit margins on long-term rental properties.
In addition to low interest rates, it looks like Rhode Island's price-to-rent ratio will help long-term investors. At 13.57, the state's price to rent ratio suggests it is more affordable to buy a house than to rent one. More affordable homes would typically work against landlords, as more people are inclined to buy than rent. However, the state's low inventory level means there's not enough supply to meet demand. Even those who want to buy will be forced to rent for the foreseeable future, which bodes well for landlords. The added competition will enable landlords to increase prices while demand is high.
Investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor in Rhode Island to ignore.
Rhode Island Housing Market Predictions
The Rhode Island housing market has done very well for itself in the last eight years. For the better part of a decade, in fact, real estate in Rhode Island has exhibited many of the same characteristics as its national counterparts. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can the Rhode Island real estate investing community expect moving forward?
Pawtucket will see more interest: Home values in Rhode Island have increased by 8.3% in the last year and are higher than they have ever been. What's more, appreciation continues at a time when uncertainty from the pandemic remains. This unique convergence will have prospective buyers seek out more affordable living situations, which means Pawtucket could see some added interest. Approximately $75,000 less than the state average, the median home value in Pawtucket looks attractive and should draw more attention heading into 2021.
Appreciation will continue: Despite the pandemic, real estate in Rhode Island remains a commodity. Pent-up demand, in particular, was enough to maintain an active housing sector. That, combined with attractive fundamentals, means more people will want to buy. The resulting demand will increase both competition and home values.
More people will move to suburbs: Cities were too expensive to begin with, and now they are hotbeds for the Coronavirus. Today, people who are permitted to work from home may start moving to suburbs to seek more affordable, roomier living situations.
The Rhode Island real estate market has, in many ways, represented the forefront of the national housing sector. With a relatively low foreclosure rate, improving unemployment, appreciating home values, and increasing demand, Rhode Island appears to be trying to set the bar. All things considered, real estate in Rhode Island has done very well for itself and everyone dealing in the industry. Investors, in particular, have enjoyed a great run and should expect the momentum to continue for at least the foreseeable future.
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