The story of a New Orleans’ frenzied house market and first-time buyers getting squeezed out!
In the frenzied New Orleans housing market, there is little sign yet that the supply drought, which has pushed prices dramatically higher during the pandemic, will end anytime soon.
In June, the market continued to sizzle under the same pressures that developed in late spring 2020, when the coronavirus threat first emerged and homeowners who might otherwise have been looking to move were reluctant to put their houses on the market given the uncertainty over the pandemic's economic threat.
Now 16 months into the crisis, would-be sellers are still hesitant because they're not sure when the surge in house prices will subside.
At the same time, many of those who could afford to do so have been seeking to trade up, often to find more space where they could work more comfortably from home. The labor shortage in sectors such as retail and hospitality, which has pushed up wages and bonuses to attract workers, has meant that more buyers have joined the fray at the lower end of the market in recent months.
The result can be seen clearly in the latest data: Across the New Orleans area, median house prices were up 17% in June compared to a year earlier. That reflected a 45% decline in the number of houses for sale compared with June 2020, when already there were 20% fewer houses for sale compared with the previous year.
Demand has kept chugging along, with the number of houses sold this June up almost 12%.
Buyers at both ends of the market have been facing fierce competition, often resulting in bidding wars as soon as properties come onto the market.
It has been particularly tough for first-time buyers such as Christopher Anderson, a 32-year-old manager at Walmart in LaPlace. Even before the pandemic, first-timers struggled to find starter homes in decent condition within their price range.
The median price for a house in St. John the Baptist Parish, for example, was around $150,000 before the pandemic. But this June, it had risen to $205,000.
"I had felt like it was just not going to happen for me, and I was ready to give up," said Anderson, who over five months of house-hunting earlier this year was outbid on numerous properties.
"I just wanted a nice little house, three rooms or whatever, where I could be comfortable with my dogs and my cat," he said. But every time he found a suitable place and made an immediate offer, he was told it already had gone at a higher price.
It's been the same for pricier properties in Orleans Parish, too.
Beth Giovannetti and her wife, Donna Negrotto, were selling their property this spring in the sought-after Bayou St. John area, after they bought a larger house nearby. The 3,000-square-foot converted corner store at 3200 Dumaine St. in New Orleans' Bayou St. John area sparked a 'buying frenzy' when owners Beth Giovannetti and Donna Negrotto put it on the market. It attracted nine offers within the first 24 hours.
"It's was a frenzy both times," Giovannetti said.
When they were looking to buy the house at 1455 Moss St. in November and put in an offer as soon as it it came on the market, their agent, Andrew Sheppard at Crane Brokers, told them a better offer had already come in.
Giovannetti said they felt lucky to get the property for more than $1.5 million, more than double what the house fetched just five years earlier at $729,000.
Selling their house at 3200 Dumaine St. was even more fevered. The converted corner shop was put on the market at $825,000 in May and immediately got nine offers, including one, from the eventual buyer, with an "accelerator clause" that stipulated the buyer would pay 20% above any bidder up to $910,000. The property is now under contract at $882,000, or 107% of the asking price.
"It's insane," said Giovannetti, a retired education consultant. She said she and her wife, retired from working as a top corporate lawyer for the casino company Pinnacle Entertainment, know they're lucky to be able to trade up to their dream house.
"For those who are having to target a specific price point, I can imagine this is a really difficult market to buy into," Giovannetti said.
Indeed, the trends that had been squeezing the lower end of the market in recent years have been accelerated by the pandemic. A report this year by the Reinvestment Fund, a public policy consultant, found that while home prices rose 12% across New Orleans from 2018 to 2020, to reach an average of $224,600, they almost tripled over the same period in more affordable areas such as New Orleans East, the Lower 9th Ward and Algiers. That has made it even harder for people who want to transition out of affordable rental developments, such as the Banks Apartments in Algiers, into their first houses, said Michael Merideth, CEO of VPG Construction.
"If we could get land at zero dollars, we still couldn't build it cheap enough to provide it at affordable rates without additional subsidies," said Merideth, whose firm built the 116-unit Banks Apartments with help from government and private agencies.
"There is just a lot more dollars available for renters than for homebuyers," said Merideth, who is trying to put together a fund to finance affordable housing in New Orleans. There are few affordable housing units in the New Orleans metro area, especially in Orleans Parish, like those at Banks Apartments in Algiers. There are even fewer new-build houses for tenants looking to get onto the property ladder, says Michael Merideth, CEO of VPG Construction.
"In the greater metro area, new-build houses are going to start in the $250,000-to-$275,000 range, and that is going to be super-competitive," he said. "So, people in the affordable categories don’t get a shot at those properties, even if they can get together the financing with the help of government programs, because market-rate builders are going to go with regular buyers who can close in under 45 days."
Deborah La Franchi, managing principal of American South Fund Management, which provided equity to VPG to help fund the Banks Apartments and six other New Orleans developments, said the chronic supply shortage at the lower end of the housing market won't ease without government help.
"We can all read the stats and see who is being impacted," La Franchi said. "At the lower end of the income spectrum, it has gotten worse. And it is not unique to the South; it is across the country. "There is a lack of supply of affordable housing, and it is decades from being met if states and communities don't start building" houses that can be afforded by people of lower and moderate incomes, she said.
Meanwhile, there is an early hint that some pockets of the New Orleans real estate market might cool off in coming months.
Cheryl McAdam, vice president in charge of the residential division at Latter & Blum, said her brokers have started to notice appraisers rejecting more valuations, especially in the $300,000-to-$350,000 category, under pressure from lenders who are balking at suddenly inflated prices.
"We might just be on the very, very front end of things slowing down a bit, but the trend isn't there yet," she said.
Aaron Dare, a broker at Crane, said another pocket bucking the trend is French Quarter and Warehouse District condominiums, which had seen a surge in supply before the pandemic. "It's been that way for some time now," said Dare. "Condos are selling, just not at the same clip as houses."
But like others in the real estate market, Dare said the hyper-competition in the market is most intense for the more affordable properties.
"The lower you go the more competitive it gets; there's just a bigger buyer pool," he said. "Folks are just having to be persistent and keep after it. It becomes like their second job, making three or four offers that maybe don't get accepted."
Jolì Tolbert-Burrell at RE/MAX Affinity, who was Christopher Anderson's broker in his hunt for a house in St. John the Baptist Parish, advised him to persevere, even after his string of disappointments. "Navigating the market as a first-time homebuyer, or really anyone in the market right now, you have got to be in it for the long haul," she said." I encouraged Christopher not to give up and to be prepared for a $3,000-to-$5,000 increase" over initial offer price within his range. Eventually, Anderson found a 1,500 square foot, three-bedroom house on a spacious lot that was within his price range at $156,000. It's close to where his mother lives and within a couple miles of his job. After he finally closed the sale, he said, "I started screaming. I had tears and everything. I picked up my dog.
"It was a whole emotional setup. I just didn't know I could get to this point on my own with what I had going on."