http://www.baton-rouge-real-estate.com/ – Baton Rouge Home Appraisers: Where’s The Bottom For Greater Baton Rouge Housing? Correct Answer Is Based On Local Incomes!
Last week, David Jacobs, with the Baton Rouge Business Report, reported a startling study about how high and out of sync Greater Baton Rouge housing prices are when combined with transportation. The article, Baton Rouge-area household spends 52% of income on housing and transportation, was published on 8/9/2011. In the article or study, the CNT recommends spending no more than 45% and that combining local housing prices with true transportation costs provides “an accurate measure of of the true affordability of housing”.
Other Studies. We also know that according to Core Logic, Baton Rouge is in its’ 9th straight month of home price correction. We also know from the 24/7 Wall Street study that Baton Rouge made America’s 10 Sickest Housing Markets list this month.
We’re In For More Correction. It would appear, based on these 3 studies, that Greater Baton Rouge Housing is in for more correction.
This is my reply below to David Jacobs submitted on 8/10/2011:
I read your Business Report Weekly and wanted to thank you for reporting on this. This has really helped me. Just 3 weeks ago, I was ready to go for a visit to the LSU Real Estate Research Department with similar questions as to where should GBR Housing be priced relative to local incomes? I think this is a foundational question going forward and might possibly shed some light on where the bottom might be in local housing prices in the future. If GBR housing is out of proportion, by how much or by what percentage? Are the current still nose-bleed high housing prices sustainable? Obviously if we asked this question in 2007 from some of the Zachary and ASC $300,000 neighborhoods, the answer today is probably not. $140/sf for new homes wasn’t sustainable across the board. This is why builders like DSLD Homes are having such success……because the insanity in local new home prices from 2006 to 2008 was never sustainable based on local incomes.
As a local home appraiser, I’ve been scratching head all along here wondering WHY local housing is so expensive…..in Louisiana. Baton Rouge has been a wonderful place to grow up and now raise my family, but we’re not California with almost a perfect climate where one would expect high prices. Why are home prices so high here….still in 2011? Even with the modest correction, it would certainly seem that we’re still at nose bleed levels on the pricing of some local housing relative to local incomes. I scratch my head monthly on this issue.
Please understand, I’m not a conservative appraiser. Whatever the housing market’s decision has been, in the form of home sales, I reflect in my reports. However, we’re now about 9 months into this local correction and I’m beginning to think that locals are finally coming to their senses on what they pay for local housing relative to local incomes. There are A LOT of sellers in denial right now, and Hurricane Katrina didn’t help with that at all. It only made it worse. Today, some local Real Estate Agents are hiring me for my Listing Appraisals on their listings that have been on the market for months now, they know are overpriced and they bring me in to show the seller the reality of the local numbers in comparison to sellers perception that their home is worth more.
The chart below doesn’t indicate a huge problem in GBR housing, not like some sour markets in the USA where there’s 3-4 years of supply. However, talk to most appraisers locally and you’ll find that we’re checking “Slow” market for growth or sales and in some subdivision/markets, there’s been such few home sales that it’s become very difficult to complete appraisals for the lack of comps sold within 3 to 6 months, especially under $125,000.
These are some of the things I’ve been thinking about in GBR Housing since 2007 and going forward. Are we fairly priced or still way out of balance? Yes, the market is correcting back to some sense of sanity…..finally…..and how many more months or years will it be till we reach equilibrium (sanity) based on local incomes.
New Homes Are Still Priced High. I still see a local builder and have them say something like, “This market is killing me…when the market coming back?!”. And that builder just doesn’t get it….that the post Hurricane Katrina builder’s market isn’t coming “back” in terms of such exaggerated pricing. The odd thing here is the LHBA (La Home Builders Association) would probably tell you today that we’re too low for their builders to make a decent profit on local home building. What they experienced in 2006-2008 (unsustainable pricing) and expect in the future just wasn’t/isn’t sustainable.
This is why I believe that new TND in Zachary recently announced will take a decade or more to build out because $140/sf to $200/sf just isn’t what local incomes will support and until local builders understand this, they’ll be more developments started and then finished by DSLD Homes. This is also why I believe that new Wyndam Estates development in Denham Springs with 1600sf homes on “tiny lots” in $190’s or $120/sf will also take much, much longer than expected to fill and should be filled with homes in the $150s to $160s. It’s about market economics and local incomes and the local economics, at least outside of Baton Rouge itself, is in favor of DSLD Homes pricing. Those builders and developers that fail to understand local incomes will continue to have their fledgling developments sold to and finished by developers like DSLD Homes after spending millions to break the dirt.
Bill Cobb, Appraiser
