Despite Rising Interest Rates, Baton Rouge Housing Market Inflation Should Remain Healthy | Business

Despite rising interest rates and soaring inflation, experts say the outlook for the Baton Rouge real estate market in 2022 is bright.

Residential, industrial, multi-family and local retail markets are expected to remain strong in the coming year, according to speakers at Thursday’s Trends in Real Estate conference. And even though the Federal Reserve is expected to raise interest rates several times over the next few years, rates will still be quite low, historically speaking.

“The market is cooling down a bit compared to the past two years,” said Tom Cook, evaluator at Cook, Moore, Davenport & Associates. “But if something goes from 1,000 degrees to 500 degrees, you can say it’s cooling. We’re cooling from red hot.

In 2021, demand was so high for homes that in busy areas such as Livingston Parish, homes were selling before they were actually listed as for sale, Cook said. The median number of days a home was on the market before it sold fell from 34 days in 2019 to 7 days in 2021.

Several factors have caused the demand – millennials moving into their own homes, people having more money to buy a home due to the money they have saved during the COVID pandemic and the government assistance that has been provided, and wealth transferred from family members who died during the pandemic. But Cook said the biggest factor was low interest rates.

With 30-year mortgage rates hovering around 3% in 2021, that meant to get a $300,000 mortgage, an income of $45,000 was needed to qualify, Cook said. This amounts to a monthly note of $1,265. About 135,000 households in the Baton Rouge metropolitan area have annual incomes between $42,000 and $150,000 per year.

If mortgage rates rise to 6% this year, that means to qualify for the same $300,000 mortgage on a median-priced home, an annual household income of $62,000 will be needed, Cook said. This potentially means that around 100,000 potential buyers, or 25% less, would qualify.

In response to rising home costs and interest rates, Cook said he expects more builders to start building townhouses this year, smaller residences between $175,000 and $225,000.

Limited inventory has been a problem in the industrial market, which has been strong due to demand for warehouse space, said Evan Scroggs of NAI/Latter & Blum. The vacancy rate for industrial premises fell from 6.2% at the end of 2019 to 3.1% at the end of 2021.

But Scroggs said the local industrial space is “100% functionally” because much of the empty space is stale and obsolete.

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“Having this kind of hyper-low vacancy rate means out-of-town tenants can’t move into the market,” he said. Unlike markets such as Dallas, Houston and Atlanta, there are no national companies looking to build speculative industrial developments of 250,000 square feet or more. Industrial developers who build specific warehouse space here do projects of 15,000 to 25,000 square feet.

“We’re out of sight, out of mind,” Scroggs said.

Although rising interest rates and high gasoline prices are a concern, Charlie Colvin of Momentum Commercial Real Estate said he expects the retail market to remain healthy.

“There’s been a lot of interest from restaurants, auto companies, fitness centers,” he said — all items that can’t really be sold online. The retail vacancy rate rose from 10.5% to 8.8% in 2021, which Colvin says is a sign of health.

Even the fact that Towne Center is considering tearing down a building that had been occupied by Books-A-Million and replacing it with a 286-unit upscale apartment development is a good sign, Colvin said. Towne Center uses proximity to retailers and restaurants, such as Whole Foods, PF Chang’s, Nike, and Walk-On’s Bistreaux & Bar as selling points for apartment renters.

Craig Davenport of Cook, Moore, Davenport & Associates said that after several years of stagnant growth, the apartment market has picked up in 2021. Rental rates jumped 9.4% from 2020 and rental rates vacancy dropped from 10.4% to 4.8%.

Several factors propelled this growth: low vacancy rates in areas such as Ascension Parish, increased enrollment at LSU, and the return to in-person classes.

The favorable figures have attracted the attention of foreign investors. Prior to 2021, a non-LSU apartment complex was selling for more than $190,000 per unit. Last year, eight transactions exceeded that mark and 12 apartment developments sold for more than $24 million.

While rising interest rates and construction costs are expected to cool the market slightly, Davenport said there are still good signs.

“There’s a lot of money out there looking for deals,” he said.

The Trends Seminar began in 1988 as a joint project of LSU’s Business and Investment Division and the Real Estate Research Institute. The goal of the program is to educate division members, their clients, and other real estate professionals in the greater Baton Rouge area about what’s happening in the local market.

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