Brittney Pino just doesn’t want to call Baton Rouge a buyers market for home sales. She doesn’t even want to call it a sellers’ market.
Instead, Pino — a 20-year real estate veteran and owner of Brittney Pino and Associates — called it a “frozen market” because both buyers and sellers are nervous about rising interest rates.
“Before, it was much easier to put the house up for sale and sell it,” Pino said with a laugh. “Now it won’t be that easy.”
Unsurprisingly, sharp spikes in interest rates from the Federal Reserve have upended the home sales market in the Baton Rouge area. Once red-hot during 2020 and 2021, the Capital Region reported 785 sales in October, its lowest monthly total since before the COVID-19 pandemic began.
After a two-year sales bonanza spurred by low interest rates, infusions of federal stimulus and pent-up demand, Baton Rouge’s real estate market appears to have corrected, and any potential newcomers will likely need to adjust to the new normal. the estate agents said.
Rising interest rates and a lingering inventory crunch have reduced demand from buyers, forcing more price flexibility on sellers, who are reluctant to quote because they also have to absorb a higher rate on their next home.
Pino compared the market to a speeding car that suddenly slowed down.
“It’s like you’re flying down the highway going about 100 miles an hour, way over the speed limit, and then you slow down to maybe 60, 65, 70,” Pino said. “That slowdown from 100 or 110 to about 65 mph feels like you’re going on a crawl. But really, in fact, we are going to the speed limit.
Crunching the numbers
The last couple of years have been bountiful for home sales in the Capital Region after COVID-19 briefly disrupted the market in early 2020.
Closed sales in East Baton Rouge, Livingston, and Ascension — the three parishes tracked by the Greater Baton Rouge Association of Realtors — jumped from 10,930 in 2019 to 13,932 in 2021. Total monthly sales remained above 1,000 for all months except four from June 2020 to July 2022, including a high of 1,442 in July 2020.
As a result, buyers have picked up on market stocks, which is exacerbating the current housing crisis.
Available homes decreased from 4,148 in 2019 to 1,408 by the end of 2021, according to GBRAR data. Meanwhile, the monthly supply — a metric that reflects the estimated time to sell all remaining homes on the market — jumped from 4.5 months in March 2020 to one month in January. Monthly supply for Baton Rouge was less than 2 months from February 2021 through August and was 2.5 months through October.
A “balanced” market has about 5 to 6 months’ supply, said Trey Willard, CEO of The W Group, a Baton Rouge affiliate of Keller Williams Realty.
“Everyone went out and absorbed inventory because we had cheap money, low interest rates and pretty high demand for housing,” he said.
Amid interest rates and inventory pressures, closed sales slipped in the second half of 2022. Monthly sales plunged from 1,240 in May to 785 in October, the latest data available from GBRAR. October was the first month with fewer than 800 closed sales since February 2020.
Pino said he has seen a “pretty abrupt” shift in the market after the Federal Reserve began raising interest rates earlier this year. The average rate for a 30-year fixed-rate mortgage in the United States rose from 3.22% in January to 7.08% in late October before falling to 6.61% last week, according to data from the Federal Reserve.
“We’re not seeing price adjustments having the same effect as before in a different market,” Pino said. “Right now, I think buyer demand is so low that even a $10,000 or $20,000 price drop won’t make a huge difference.”
The “new normal” of the market
Realtors are still optimistic about the market’s outlook, assuming buyers and sellers can adjust to the “new normal” of higher interest rates, Pino said.
Pino said the decrease in competition is beneficial to some buyers, who no longer feel obligated to offer tens of thousands of dollars more than the asking price.
“We’re very much in line with a sort of normalized market,” Pino said. “Will it stay like this? I don’t know, but you can see a drastic return to what it was.
Kimberly Christophe, owner of KC Homes, said the higher interest rates are eye-opening for buyers who are used to rates hovering around 2% or 3%.
However, Christophe said he could see the market reverse course in several months if interest rates stabilize or even fall.
“We just have to adjust to where the market is now, keep assuring our clients that rates are going to come down,” he said, “but in the meantime they can still buy and then refinance when rates come down.”
Kenny Hodges, president and CEO of Assurance Financial, said the new term used is “given the rate, marry the house.” In other words, if you find a home you want, buy it now and refinance once interest rates drop.
“The rate you’re getting today is not the one you’re stuck with for the life of owning the house,” he said.
Rising interest rates impacted the business of Assurance, one of the largest local mortgage companies. The number of mortgage applications is down nearly 45% year-to-date compared to the same period in 2021, Hodges said. The dollar value of funded money has seen a similar decline, she said.
Assurance’s financial model is based on buying homes, not refinancing, so Hodges said the company has been a “shining star” relatively speaking.
According to ATTOM Data Solutions, which follows the housing market nationwide, there were 660,767 residential refinance mortgages in Q3, down from 2.05 million in Q3 2021.
Hodges said he hopes the Fed’s efforts to cool inflation and interest rates will stabilize by the spring, when the home buying market picks up.
Willard noted that home values are still climbing in Baton Rouge, which may convince some people to sell. The region’s median selling price rose from $207,000 in 2019 to $254,000 in the first 10 months of 2022.
“Everyone thinks prices are depreciating,” Willard said. “It is not so. Prices continue to appreciate.”