To understand the housing market that is most relevant to Lafayette, you must drill down. In early July The Daily Advertiser ran a story that cited a “national real estate market assessment firm” in reporting that Lafayette home prices showed a 6.8 percent decline from May 2008 to May 2009. The paper subsequently ran an editorial declaring, based upon that report, that the Lafayette housing boom was officially over.
After the story and editorial ran, I, along with many others, challenged the numbers. Even the national real estate assessment firm that was originally reported to be the source of the data denied that it was the source. I do give credit to The Daily Advertiser for running a number of subsequent articles that presented data calling into question the validity of the original story.
One person quoted in the follow-up articles is a good friend of mine, Rod Noles of Alexandria. He is a longtime Realtor who is familiar with the Lafayette market. He said something that all of us should heed in tempering our understandable concern with what is going on in the housing market. Rod said, “If you torture numbers sufficiently, they’ll confess to anything.”
Understanding the current market dynamics as they relate to your situation is vital. Is the time right or wrong to buy or sell? While it seems to be a simple question, getting an accurate answer is not so easy. Here’s why: All real estate is local. On virtually any day, news reports will focus on national home sales and home values. In preparing this article I noted one story that stated home sales for the second quarter were up 3.8 percent over the first quarter of this year but the median sale price homes dropped by almost 16 percent from a year ago. Information such as this may sell newspapers, but it is of absolutely no value, nor is it relevant, in determining what is happening in Lafayette’s housing market. In fact, Lafayette Parish home sales were up over 37 percent in the second quarter over the first while our median sale price was down by slightly more than 1 percent versus the 16 percent reported.
My point is that these “national” numbers serve absolutely no purpose other than to create perceptions that cannot be applied to the reality of any local market. However, we deal with buyers and sellers every day who are influenced by them.
Even local data can be misleading. Certain areas of Lafayette Parish have seen significant increases in the number of sales reported versus last year while other areas have experienced declines. Likewise, average sale prices in some areas are up while others are down. To get a true picture of values and market conditions, you need data that “drills down” to the area and neighborhood.
It’s not just demand but also supply that impacts value. This is basic economics but still very pertinent in analyzing and understanding the dynamics of our housing market. The most widely used measurement tool we use to evaluate the interplay between demand and supply of housing is something called the “number of months supply.”
Let’s suppose that in seven months a total of seven houses have been sold in Lafayette. That would be an average of one house sale per month. Let’s also assume that there are currently seven houses on the market for sale. Based upon an average absorption of one house sale per month, it would take seven months for all of the houses to sell. Hence, the number of months supply would be seven.
As of July 31, 2009, in Lafayette Parish we have a six-month overall supply of homes. According to the National Association of Realtors, a normalized or balanced market is one with five to six months supply of homes on the market. The more that number of months increases, the more likely it is that selling homes is more challenging and the more likely that asking and sale prices will decline. Conversely, the more a market is under that five-six month threshold, the more likely you will find asking and sale prices increasing.
It is not uncommon for the media to report national “number of months supply.” Over the first half of 2009, the range has been nine months to a year. Again, this has no relevance to Lafayette Parish and should be disregarded as meaningless when presented.
However, using the overall Lafayette Parish number can also be misleading and dangerous. Once again, to get a true picture you have to drill down. For Lafayette home sales under $150,000, the number of months supply is only four months. For homes in the $150,000 to $299,999 range, there is a 5.4-month supply and for those priced at $300,000 or above the figure is 16 months. There can also be significant variations within those price groups and whether the home is new construction or a resale property.
I am confident in saying that our overall housing market has remained remarkably stable in comparison to what many other markets have experienced over the past four years. But understanding the market as to area, price range and supply and demand to a specific area or neighborhood is vital in making a prudent decision when buying a home. That’s the service that competent real estate professionals can offer — they can drill down.
Bill Bacqué is CEO of Van Eaton and Romero Realtors and has been in the local real estate business for 35 years.