Baton Rouge home sales are slowing, so why are prices going up?

    While nearly every indicator points to a slowing Baton Rouge residential real estate market, there’s one measure that seems curiously out-of-whack with the rest—rising prices.

    Despite stagnant home sales and a steadily rising supply of inventory, the median sales price for Baton Rouge area houses continues to climb, up nearly 4% year-to-date in July compared to last year, according to the Greater Baton Rouge Association of Realtors. 

    Typically, when inventory increases and sales slow, markets can expect to see prices drop, or at least stall. So why is the opposite happening in Baton Rouge’s residential market?

    Local mortgage lenders point to a confluence of factors, such as the increasing costs of construction and a shortage of affordable homes on the market, as well as exceptionally low interest rates boosting consumer buying power. 

    Although inventory overall is rising, Assurance Financial owner Kenny Hodges says Baton Rouge is still seeing a lack of more affordable homes for first-time homebuyers.

    “Builders are building more expensive houses now,” he says. “New home construction prices are higher. In starter home communities, with average prices around $300,000, that’s a tough price point for people in their mid to late 20s.”

    And total supply of houses, while rising, has not outpaced demand just yet, Hodges added. Coming off two years of intense housing activity after the August 2016 flood, he says the market is more or less returning to normal.

    “We’re certainly seeing a little slow down in the East Baton Rouge market,” says GMFS Mortgage President Tee Brown. “The cost of construction is one component that has continued to increase over the last several years. That’s driving a good bit of it.” 

    Interest rates have also dropped this year, which factors into affordability, Brown says. Even though the prices are up, low rates put people in a position where it makes sense to buy homes now and lock in those rates. 

    The low rates have also led to a flurry of refinancing activity among homeowners, he adds. Hodges has seen an uptick in refinancing as well, saying his business is seeing the most applications its had in three years. 

    Lastly, both Brown and Hodges add that the economy is still booming. And that obviously helps maintain a healthy real estate market.

    “Employment has been strong,” Brown says, “so homebuyers are able to handle the higher costs.”

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