U.S. Housing Market Conditions, First Quarter 2003: National Data

Lafayette, Indiana
The Lafayette metropolitan area housing market grew during the 1990s as the local economy expanded and high-paying manufacturing employment opportunities attracted families to the area, increasing demand for homes. Continued expansion at Purdue University increased demand for additional rental housing in the area. Between 1990 and 2000 population in the two-county metropolitan area grew more than 13 percent to 182,821. Since 2000, however, employment losses and a cap on enrollment at Purdue have slowed in-migration and population growth.

Nonfarm wage and salary employment averaged 96,900 in 2002, a 0.1-percent increase over the preceding year. Prior to 2002 Lafayette’s economy had grown since 1990, but at a decreasing rate since 1995. The lack of job growth is due to layoffs and closings within the manufacturing and transportation sectors, which account for a quarter of all jobs in the area. Employment in these sectors declined 1.5 percent between 2001 and 2002. Subaru-Isuzu, the area’s largest employer, has reduced its workforce by more than 500 and now has slightly fewer than 3,000 employees. Purdue University’s recent investment of more than $100 million in new infrastructure and renovated facilities will help to stabilize the local economy. Also, the Purdue-sponsored research park has helped establish several high-technology businesses.

Building permit activity has been strong throughout the past 10 years. Permits for more than 800 single-family homes have been issued annually since 1993. Despite recent declines in the local economy demand for new homes increased. In 2002 single-family permit activity totaled more than 1,000 homes, a record high for the metropolitan area. Single-family permit activity for the first quarter of 2003 was lower than the first quarter in 2002, but this was due more to the severe winter weather than a slowdown in demand. The majority of new single-family developments are in southern and western Tippecanoe County, outside of Lafayette and West Lafayette.

Much of the recent multifamily development in the area reflects expectations of continued demand for new rentals and Purdue University’s announcement to convert some student housing to other uses, increasing the demand for off-campus rental housing. Multifamily permit activity, which peaked at approximately 1,000 units in 2000, averaged approximately 600 units annually in 2001 and 2002. However, with the economic slowdown, the construction of more than 1,600 new rental units since 2000 has softened the market, slowing absorption and increasing the vacancy rate. Overall occupancy for the first quarter of 2003 was less than 90 percent. Near the university, where vacancies are rare, the occupancy rate is a reported 94 percent. Developers are reacting to the softer conditions by cutting back on new development. Very few properties have instituted rent increases, and concessions have become widespread. Local appraisers and property managers attribute the soft market to the slowdown in the economy and to delays in Purdue’s housing conversions; however, they believe that the situation is temporary.

The changes in the local economy have not yet significantly affected the existing sales market. Total sales in 2002 reached 2,199 homes compared with 2,083 in 2001. In 2002 the median price for an existing home was $107,500, and low interest rates and plentiful affordable building sites have made new construction affordable in this area.

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