The residential real estate market is multifaceted in 2024, filled with somewhat opposing forces and has been near impossible for economists and reporters to predict for years.
Housing Units Needed
There is high demand and great need for housing units. It would seem that there is an awesome opportunity for residential developers in the coming years. In Rhode Island, residents have the distinct dishonor of living in the state with the lowest rate of home construction in the nation. As we shared above, the net number of units added over the past several years was statistically insignificant. The housing shortage is well documented and discussed, but the state has yet to see much impact of new housing developments. 2024 will see the completion of several large projects including the Christine Apartments project which adds 416 total units to the market. Hopefully more properties can be preserved along the way so there can actually be a significant net increase to the housing stock over the next couple years as more developments are completed.
Legislators Taking Action
The Commonwealth of MA is roughly 200,000 housing units short of its needs according to Governor Healey, through 2030. The Governor filed the Affordable Homes Act at the end of 2023 that is currently being considered by the Joint Committee on Housing. This demonstrates the intent of legislators to spur and incentivize development to reach their massive goals for increased housing supply. Of course an important answer to the housing crisis is increased supply.
The Fed is widely expected to lower rates in 2024, which would bring the cost of financing down a bit. This would likely have a positive impact on new construction development, but may do little to ease the strain on homebuyers. The historic increase in Fed rates was expected by many to slow, halt or reverse the rapid appreciation in the real estate market. Yet home prices continued to increase in 2023, though at a slower rate and there is no sign of that stopping in our region.
Historically Low Housing Inventory
The increased rates did have a negative impact on housing inventory though. Homeowners can’t afford to give up their 3% existing mortgage rates, so they aren’t selling and moving when they normally would. In fact, Rhode Island has been averaging around 1,000 available homes on the market, down about 80% from a previously normal market. For comparison in 2010 there were 6,833 single family homes sold. In 2023, there were only 532!
So there are these opposing forces of critically high demand for housing and inflated construction costs. Apartments have low or no vacancy, there are very few single family homes available to buy, the governments want to incentivize and invest in development. And yet the cost of construction is still high and out of reach for a lot of people, and some banks are being cautious with investors.
Increased Home Equity
Still, homeowners have a record amount of equity built up in their properties from the swift appreciation since the Pandemic. With interest rates expected to soften this year, homeowners will have even more opportunity to tap into their accrued equity to make home improvements and expansions. We’ve already spoken with dozens of homeowners this year who are looking to expand their existing homes.
Additionally, developers continue to look for opportunities. We have helped our clients analyze dozens of multifamily development deals in the new year and have already have a several new construction mid-size multifamily buildings in the design phase. There are great opportunities in every economy and we are here to help.
We will be very interested to see how these forces play out over the rest of the year. Will lowered interest rates be just what the market needs to put a fresh boost on housing starts? Will a net increase in housing units be possible in Rhode Island? And will an influx of housing units have an impact on the rental housing market? And will ADUs finally get the green light in Massachusetts and Rhode Island?
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David Sisson Architecture is a full-service, multi-disciplinary professional architecture firm based in East Providence, RI. We are licensed, registered, and insured architects in Rhode Island, Massachusetts, Connecticut, Vermont, New Hampshire, Maine, New York and Washington, providing both commercial architecture and residential architecture services. David Sisson Architecture specializes in multifamily housing development, adaptive reuse projects, historic preservation and commercial projects.
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