After Katrina hit in late August 2005, the real estate market in southeast Louisiana did not behave as it did in the rest of the nation. Once it came to terms with the destruction, the region attracted a substantial amount of public and private capital, and a period of rebuilding and growth in the housing sector ensued. Meanwhile, other events played out in the region that had some effect on the real estate market: in April 2010, the BP oil spill took place and the region began to experience an energy boom. Both of these occurrences attracted additional capital into the region.
With this as context, the Regional Economic Information Network at the New Orleans branch of the Atlanta Fed thought it would be helpful to touch base with residential real estate contacts to see how housing markets in the region are faring these days.
In general, contacts characterized the current state of the regional housing market as “healthy.”
Existing home inventories in the area have returned to, and often fallen below, levels associated with market equilibrium. Business contacts indicated that declining inventories were being driven by greater absorption, a decline in the number of distressed properties moving through the pipeline, and hesitancy on the part of existing home owners to place their homes on the market. Time on market has declined for existing, move-in-ready homes in desirable neighborhoods while the number of offers for these properties has increased.
Contacts also reported that the rising interest rate environment has not yet had much of an effect on home sales. In a few cases, borrowers have had to adjust their price point in order to maintain affordability. Move-up buyers tend to account for a larger share of home sales; contacts noted that most first-time homebuyers are still struggling to return to the home-buying market due to tight credit conditions and declining affordability.
Appraisal difficulties have somewhat subsided, according to contacts, though difficulties still exist. One persistent problem is that appraisal management companies continue to send out-of-market appraisers. However, a noted improvement was mostly attributed to savvy, proactive agents, who now bring appropriate comps (comparable properties) to the attention of these out-of-town appraisers.
On the new-construction side, contacts noted that larger national and regional builders are gaining market share in southeast Louisiana housing markets. Vacant developed lot inventories are dwindling, as they are in many other Southeast markets, and there still is not much appetite for lending on land acquisition and new development. Unlike in many other Southeast markets (particularly in Florida and Georgia), community banks in this region tended to fare better throughout the financial crisis, according to contacts. As a result, they have been able to continue lending to small, local builders for vertical construction on existing lots based largely on relationships and track records.
So to wrap up, while there are still some aspects that are unique to the region, residential real estate conditions in southeast Louisiana for the most part seem to be in line with those of the Southeast and the nation. Contacts expect the energy renaissance to persist and predict that housing demand will remain strong as businesses continue to move executives and staff into the region. They expressed some concern about local regulations governing the development process and financial regulation governing lending, but their overall outlook for the regional housing market was fairly optimistic.
By Jessica Dill, senior economic analyst in the Atlanta Fed’s Research Department and
Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch