For area homeowners looking to trade in the old homestead for something with a bit more panache, the classic song by Sam and Dave may provide the best advice: “Hold on!”
The housing market in the greater New Orleans area might appear stronger than that of many other cities around the country but make no mistake, conditions are rocky around here. Ask anyone who has put a home up for sale in the last few years; the chances are pretty good that the owner is still sitting in that house and, even after dropping the asking price, drawing nary a nibble.
More than one factor has helped produce this sluggish market, but all the reasons add up to a single problem: too much inventory.
The local area didn’t experience the frenzied housing growth that produced “bubbles” in other parts of the country, but some neighborhoods saw considerable building activity early in this decade. Then, a spurt of post-Hurricane Katrina construction, though it may have seemed warranted at the time, ended up aggravating the situation.
Post-Katrina home building hit a peak a few years ago, rivaling a pre-storm high that occurred in 2004. The latest Real Estate Market Analysis published by University of New Orleans shows builders received permits in ’06 for 5,100 single-family homes in the metropolitan area.
During the following year, construction continued to increase in Orleans and Jefferson parishes, as many people built replacement homes. In St. Tammany Parish however, where new subdivisions had been sprouting like weeds even before Katrina, fears of overbuilding took the heat out of the market.
“Residential construction dropped like a rock on the Northshore,” says Ivan Miestchovich, director of UNO’s Institute for Economic Development and Real Estate Research. He says the 933 permits issued for new single-family homes in St. Tammany Parish last year marked the first time the parish total has dropped below 1,000 permits since the mid-1980s.
“It’s a function of the market being overheated and overbuilt, and then the economy did not pick up as quickly as people hoped. In fact, it slowed down,” Miestchovich says.
As lenders grew frightened of the slowing economy and saw the inventory buildup on the Northshore, they clamped off the flow of capital to home builders throughout the region. In 2008, builders were issued fewer than half as many home permits as in ’04.
Lenders have also become pickier about mortgage borrowers, and that means fewer people are shopping for homes. Just over 9,000 houses traded hands in the metropolitan area last year, down 42 percent from the peak.
As the slackening demand met the housing oversupply, home prices began to fall. The good news is that price declines in the local area don’t begin to compare with those seen elsewhere around the country.
The average single-family home price in the local area last year, at $204,131, was just 5.6 percent below the 2006 peak average of $216,295.
“When compared to national average price declines of 20 percent to 30 percent or more, the New Orleans area looks like a ‘Promised Land’ of market performance,” UNO’s researchers stated in the 2008 market analysis.
Miestchovich says his reading of the first few months of 2009 suggests a continuation of the trends. When this year is over, it will likely look “pretty similar” to ’08, with continuing declines but not a collapse of prices, he says. “The bad news is, our economy, here, is not escaping the recession.”
The analyst says the combination of a less-than-vibrant local economy and a continuing large inventory of unsold housing will produce more “softening” in home prices throughout the market.
It won’t help that the coming months are likely to bring an uptick in home foreclosures. The New Orleans area hasn’t experienced high mortgage default rates so far in this recession, but the longer the economic pressures hang on, the greater the likelihood that more homes will go back to lenders. “We’re beginning to see some ratcheting up of foreclosure activity,” Miestchovich says.
For people who have been trying or thinking about trying to sell their home, the message is, take deep breaths and be patient. Last year, the average time that a home remained on the market after being listed was up sharply, to 92 days.
Miestchovich does see some light on the horizon, however. “The inventory is beginning to adjust itself in that not a lot of new supply is coming in, so even a slow buildup of demand will help put some footing under prices,” he says.
One thing that would help is if more first-time buyers jump into the game. While the conditions are tough for people who would like to buy a house but must first sell the one they already own, first-timers are in a much better position. Both home prices and interest rates are low, and the market is rich with eager sellers.
High-quality properties are available at reasonable prices in many areas that did not flood during Katrina, Miestchovich says. “The West Bank is still a good area for first-time buyers, and St. Charles Parish has a great deal of good stock,” he says.
In addition, if they’re willing to take a damaged home and put some sweat equity into it, young buyers may be able to buy into some “demand” neighborhoods they wouldn’t have had a chance at just a few years ago.
“Lakeview and some other areas that, before Katrina, many first-time buyers couldn’t have thought about touching, are attractive for those willing to take some risk,” he says.
Depending on the extent to which a home in one of these areas has been cleaned up or repaired, he adds, it may be available for as little as half or two-thirds of its pre-Katrina value.