On the Market
New Orleans real estate trends for 2021
It will be a shock to no one to hear that for residential real estate in the New Orleans area, it’s a seller’s market. Prices are up, inventory is down, and competition is fierce when houses do come on the market.
Will the tight market continue into next year? Are there still opportunities for first-time homebuyers? What nuances might give buyers or sellers an edge in the marketplace?
To understand where the housing market may be going begins with looking at the factors that shape the present circumstances. As always, within the overall arc of rising prices and fewer homes on the market, there are certain subtleties, certain niches that go against the overall trends and open some unexpected doors.
Inventory is Key
Several different conditions help define a seller’s market, available inventory being one of them. “We’re seeing about two and a half months of inventory right now,” said Jennifer Nierman, a realtor with Latter and Blum, “and that equates to a seller’s market. If we had six or more months of inventory, that would indicate a buyer’s market.” Nierman added that “inventory has decreased since this time last year. Demand continues to outstrip supply.”
In turn, this drives prices higher, another key definer of a seller’s market.
“It’s a great time to list your home,” suggested Caitlin Brewster, a realtor with Reve Realtors. “Everything is at a premium across all price points.”
It’s a great time to list your home, Everything is at a premium across all price points. Caitlin Brewster
Drew Roman, owner and president of the local branch of America’s Mortgage Resource, described it as “an appreciation market. There’s limited inventory, and houses that do go on the market are getting multiple offers, sometimes multiple cash offers. All of Orleans Parish is very tight.”
The COVID-19 pandemic is a significant force behind the current market, and will likely continue influencing residential real estate for the foreseeable future.
“COVID-19 redefined the definition of home for a lot of people,” explained Brett Rector, broker and co-owner of the Witry Collective. “People want more room, in-home work spaces, larger yards.”
“The changing work environment is substantially changing home purchasing,” agreed Kate deKay, CEO of Eustis Mortgage Company. “With the remote work model, where people are able to work from anywhere, people are able to move to where they want to live rather than where they need to for work.”
New Orleans benefits from being a desirable destination for many of these newly freed remote workers, who are often younger. In addition, “COVID-19 spurred a lot of people to buy second homes,” deKay added. “Some people came to New Orleans to get out of the larger cities, and some within the city have looked for places on the outskirts.”
The flip side of this is that financial uncertainties ensuing from the pandemic have also been a factor, according to Roman. “Many people have compromised incomes due to COVID-19,” he observed. “People are still uncertain about their jobs. This makes them much more conservative about moving.”
More people staying put, combined with more people coming into the market, obviously have a major influence on inventory availability. And there is another consequence of people holding on to their current homes: “People who have made the choice to stay in their homes are now catching up on deferred maintenance,” observed Rector. “This is keeping the repair trades really busy, so it’s difficult to get work done if you want to make repairs before selling your home.”
A related factor, according Latter and Blum’s Nierman, is that “the cost of timber is up, there are delays in construction supplies, so we are seeing a decrease in new construction.”
“Due to the costs of construction, only heavily subsidized projects or high-end projects can be built right now,” agreed Andreanecia Morris, executive director of Housing NOLA. “This is also driving up the costs of rehabilitating or renovating houses, which in turn means it’s easier for developers, who have more resources, than for your younger people, families or first-time buyers.”
There are a few new-build neighborhoods going up on the Westbank, according to Erika Buxton, a realtor with NOLA Living Realty who specializes in working with military families on that side of the river. But demand is through the roof: “There are 250 people on the wait list for a new-build neighborhood in Marrerro,” she reported.
The final major influence on the inventory situation is somewhat of an irony: once a seller sells and becomes a buyer, the market works against him or her. “The prices are great if you’re in a position to sell, but many people who would consider selling are holding off, unless they are moving away, because they don’t know where they would go,” commented Rector. “So more people are simply satisfied with the home they have.”
A New Real Estate Landscape
All these factors are creating circumstances where both sellers and buyers are stepping outside the usual residential sales patterns. On the sellers’ side, noted Nierman, “Realtors will list a property but not begin showing it for several days just to show that they have some inventory, and to get more offers in hand.”
“We’ve seen a property get listed on Friday, but the realtor won’t begin showing it until the following Wednesday,” concurred Roman from America’s Mortgage Resource. “This builds the number of offers, and the competition.”
Consequently, several of the realtors said, many homes are selling above their initial listing price. The average number of days many properties stay on the market is well below normal. Bidding wars are increasingly common.
“Whoever has the most money wins,” Rector stated flatly.
Market trends shift. Explore new areas, open up your options. Right now may not be the perfect time to buy that dream house, but it could be right around the corner. Brett Rector
Faced with this landscape, “Buyers’ agents are using creative new strategies to get their clients some options,” Nierman said. “Buyers are willing to remove certain contingencies they might normally have in order to get a contract.” In some cases, this even includes waiving pre-purchase inspections and other standard precursors to signing.
Cash purchasers have a distinct advantage in the current market. To counter this, “Buyers should get pre-approved with a recognized local lender,” recommended Roman.
“Pre-approving borrowers keeps them more competitive with the cash offers,” agreed deKay from Eustis Mortgage, who also suggested that first-time buyers keep an eye out for legislation pending in Congress. One measure would provide a ten percent tax credit for new purchasers, while another would provide up to $25,000 in down payment assistance.
“If we still have such a shortage of inventory, and affordability issues, the impact of these acts will be limited,” she cautioned.
Morris from Housing NOLA also suggested that government programs can help first-time and lower-income buyers, though she said more support is needed from both the public and private sectors, especially for people whose price range might point them more towards properties that need some work.
“We need more types of renovation loans, especially programs that would enable long-time renters to buy in their neighborhoods,” she advocated. “The old approach of buying a double and living in one side while fixing up the other isn’t happening now. Banks are not confident that these rehab projects will actually be completed. We need the city, the state and the private sector to come together on this, especially since it would create more rental units in the process.”
Morris pointed out that “inventory is there for the fixer-uppers,” though she noted that the complex permitting process is another impediment.
Brewster, of Reve Realtors, also felt that there is more inventory available for people who are willing to do a little work, or to accept properties that might not have every preferred amenity such as a large yard or a swimming pool. “New Orleans homes are so unique,” she observed. “We’re not full of subdivisions, every home is different.”
Brewster did make a point about first-time buyers that several others echoed. “Younger buyers, young families want a place they can move into immediately,” she stated. “Plus with the higher prices, these buyers are left with fewer resources to do some fixing up.”
“Renters are often not used to having to maintain their homes,” explained Nierman, “so first-time buyers are looking for move-in ready properties with no major projects coming up in the foreseeable future.”
Unfortunately for these buyers, “For anything that’s in move-in condition, prices are at $400 per square foot and up in most of the historic neighborhoods,” Rector reported. This obviously favors buyers with more resources; competition drops, and availability increases, for properties starting around $800,000 to $1 million.
“The highest demand is for three to four bedrooms with two baths,” said Buxton of NOLA Living Realty. “But it’s like a needle in a haystack to find one that’s affordable and move-in ready.”
This has spurred a growing trend, especially among the younger and new buyers, to consider parts of the city and region that were often overlooked in the past. Buxton particularly experiences this in her area of focus. “I’m seeing a lot of interest in Algiers and the Westbank,” she recounted. “Properties are more affordable, and most of the military facilities are in the area. But even Algiers prices are going up, by 16.5% since 2018.”
This is still less of an increase than in New Orleans, where the year over year increase in prices was 18% in the most recent analysis.
“Each year, I see people moving into areas that they wouldn’t have before,” related deKay. This may mean going well outside the city – along with the Westbank, Buxton has clients looking at Slidell and Covington, for example – but it also includes neighborhoods in New Orleans, such as Holy Cross, Leonidas or Black Pearl, that were largely off the radar just a few years ago.
“Previously uninteresting neighborhoods are becoming attractive” was Morris’ dry observation.
“As people are getting priced out of certain neighborhoods, those surrounding areas will see more renovations and price increases,” explained Nierman, who as a native New Orleanian has seen these trends repeat in a variety of locations.
This has negative as well as positive consequences. “I’m thrilled for the fact that property values are increasing, that’s how a city grows. But I don’t want our culture to change,” mused Brewster. “It’s becoming difficult for people in some industries to live here. We still have so much of the city where more infrastructure could go in, more restaurants could go in, there could be more job opportunities and the neighborhood could grow.”
While higher prices and more people buying homes in a neighborhood increases ownership equity, which is generally a plus, it decreases accessibility and can lead to the displacement of long-time residents. In this context, Morris affirmed the need to balance growth with preserving neighborhood character, again with a focus on programs that would enable current residents to buy in their neighborhoods. She also emphasized the need for buyer support programs to make ownership not just affordable but sustainable, meaning that properties can be passed down to the owners’ heirs. “Homeownership isn’t successful unless it is generational,” she said firmly.
Renting vs. Buyer’s Market
Despite all this – or perhaps in part because of it – at the more moderate price points, it can be less expensive to buy than to rent. Rents have increased as fast or faster than purchase prices; according to a study published in January on Realtor.com, the mortgage payment on a $320,000 house (the average price point across the city) would be $1,401 per month. The same study found that average rents in New Orleans were $1,545 monthly.
There is one other current factor that is a big plus for potential buyers: “We have some of the lowest mortgage rates in history,” noted deKay, “and we should continue to see rates around three to three and half percent throughout 2021.” She cited a study by the Mortgage Brokers Association indicating home purchases are up about ten percent this year over last, attributed largely to the low interest rates.
The low rates can serve as something of a counterbalance to the high purchase prices, especially when it comes to taking on a house that needs some repairs. Said Nierman, “The low interest rates are a plus for buyers because it means they can afford to spend more for a property.”
While no one anticipates a repeat of the 2008 housing crash, or for that matter, even a downturn in the prices, there was consensus that conditions are likely to ease somewhat for buyers through the rest of this year and early into 2022. This starts with the ongoing low mortgage rates, but other factors will also play a role. Credit remains generally accessible for people with good histories, especially from local lenders.
Buxton cited the historic trend of the second half of the year being slower than the first, and felt it would repeat this year. deKay and Roman foresaw more inventory becoming available, especially as the waning of the pandemic reduces uncertainty.
With the remote work model, where people are able to work from anywhere, people are able to move to where they want to live rather than where they need to for work. Kate deKay
With the remote work model, where people are able to work from anywhere, people are able to move to where they want to live rather than where they need to for work.
“The city is opening back up, which should boost the economy and loosen up the market a little,” Roman elaborated. “I feel pretty good about the market overall.”
“Don’t get discouraged,” counseled Rector, who also anticipated that the traditional summer slowing in the market would kick in this year. “Market trends shift. Explore new areas, open up your options. Right now may not be the perfect time to buy that dream house, but it could be right around the corner.”
Rector himself seized such an opportunity, relocating to Arabi after looking all over New Orleans. “I got better quality and more bang for the buck in Arabi. There was a wider selection, a number of options.”
Patience and Planning
Overall, homebuyers need a lot of Ps. Patience is the first – people shouldn’t overspend just because they are eager to buy a house. With that comes perseverance; as the experts recommended, keep looking all over town (or farther afield if that is a viable option), and be flexible in terms of what comprises a good house. Features and amenities can always be added along the way.
Planning is also vital. Building up one’s credit score lowers mortgage rates, making higher-priced properties affordable. Getting pre-qualified from a reputable local lender provides a valuable tool in the bidding process. Renters should avoid getting locked into long-term leases that will anchor them to their current residences.
On the other side of the equation, sellers certainly have the opportunity to maximize what their houses can realize on the market. Dreams of riches should be tempered, however, with the realities of what comes after the home has been sold. While prices may not continue to accelerate at the current pace, they are not coming down any time soon either. The decision to sell is a huge one, and should be made after full and careful consideration.
For the city and region overall, growth is good, but as noted earlier, it cannot come at the cost of our amazing culture and character. All parties and sectors must come together to ensure that the rising tide of rising prices does indeed lift as many boats as possible. There are good models from other cities that can be adapted and combined with local innovations to make the housing market inclusive as well as profitable.
The opportunities are definitely there; they simply need to be managed, nurtured and seized. In the words of Caitlin Brewster, “the future is bright for New Orleans!”