While the past year has thrown a wrench in some sectors of the local real estate market, the residential sector is in the midst of an unprecedented boom.
Local home sales in 2020 increased nearly 22% by dollar volume to $3.13 billion, which is four times greater than the average increase over the past four years.
At the same time, median home sale prices increased more than 6% to $220,000 from $207,000, while supply decreased more than 28% and the amount of time homes spent on the market fell to 26 days from 34, a 24% drop.
“If you are in the residential market, you know it has been wild,” says Tom Cook, an appraiser with Cook, Moore, Davenport and Associates at the annual TRENDS seminar sponsored by the Greater Baton Rouge Association of Realtors. “We’ve seen phenomenal growth. It’s a fantastic market.”
Activity has been strong in both new and existing home sales and is fairly consistent throughout the area. But amid the pandemic, there hasn’t been any job growth, so what’s fueling the surge in sales and prices?
Several things, but chief among them: low interest rates, says Cook, who surveyed local real estate brokers to take their pulse.
“That’s the primary driving force I heard from everybody,” Cook says. “Back in the 1980s, I remember sleeping outside to get bond money–to get a 12 percent interest rate on a 30-year mortgage. Now, we’re bumping around 2-3 percent.”
Other factors include: Millennials moving out of their parents’ homes, the need for a better work-from-home environment, more disposable income because of COVID-19, pent-up demand and poor existing housing stock that was built primarily in the 1970s and 1980s.
That pent-up demand has been particularly good for homebuilders, he says.
“During the 2010s, we were averaging 21,000 new homes per million, where in the past decades it had been closer to 41,000 per million,” he says. “So there were fewer houses built in that decade, which is creating demand now.”
But Cook predicts the bubble will burst with what he believes will be inevitable inflation as a result of the growing federal deficit and a corresponding rise in interest rates. More immediately, skyrocketing lumber prices, which have doubled in the past year, and labor and appliance shortages will continue to nudge prices for land, lots and finished product ever higher.
“Lot prices are going up, land prices are going up, somebody’s going to be paying more,” he says.