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Bubble Trouble

New Orleans real estate might not be expanding at the rates of other markets, but buyers need to put some work into finding low-cost homes.

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Many real estate experts say our naturally isolated geography, historic housing stock, and unique market forces will insulate southeastern Louisiana from the bubble problem. "There's only one New Orleans in the world," says Chris Smith, a Realtor with Prudential Gardner.

Andrew Polmer, owner of Louisiana Real Estate Inspection, sees a more diverse type of homebuyers who are coming to the process more prepared than ever. He credits the training offered by nonprofit organizations. "It's such a wealth of knowledge," he says. Nearly every homeowner in every part of the New Orleans metro area has enjoyed a boost in his or her economic portfolio in recent years. While an increase in property value doesn't always translate into more cash on hand, a rock-solid real estate market has been a key cornerstone to the local economy since the late 1990s.

According to the National Association of Realtors, housing values have appreciated by a national average of 15 percent in the last 12 months, while in 2004 the increase was around 10 percent. The group also reported that its last survey indicated that the national average value of a house broke $200,000 for the first time. This quick spike in value has many in the real estate industry speculating that we're in the midst of a bubble market, a name derived from the fear that the bubble-like expansion of property values -- rising quickly, but with a thin and outstretched foundation -- will eventually burst, with people's personal fortunes bursting along with it.

Concerns over a bubble market has homeowners in markets such as Boston and suburban New York placing their properties on the market for sale at a brisk pace, hoping to take advantage of the current high prices before the market pops -- to take the money and run. However, many real estate experts in New Orleans believe that our area, so different and separated from the United States in many facets, is immune from this bubble-market anxiety. They say our naturally isolated geography, cherished and in-demand historic housing stock, and unique market forces will insulate southeastern Louisiana from the problem.

"I don't feel we're in one of those so-called bubble markets," says Chris Smith, a Realtor with Prudential Gardner specializing in the Uptown area. "New Orleans is very protected in that sense. We're surrounded by water so we're not going to over-expand, our houses are 100-plus years old. Plus, there's only one New Orleans in the world."

Statistics support this assertion. Earlier this month, the national PMI Mortgage Insurance Corp. released its PMI Risk Index, which ranked metropolitan areas across the country in terms of risk of decreasing housing prices. Boston and its suburbs scored the highest on the index with a rating of 55.3. Generally speaking, the Northeast has the most at-risk housing markets, followed by the West Coast and then the Midwest. The South, not surprisingly, has much lower scores across the board than any other region. Good news for local homeowners: the combined market of New Orleans, Kenner and Metairie, according to the PMI Risk Index, scored a 7.1 rating, one of the best areas of the country surveyed in the study. The only major Southern areas with a lower risk rating were Memphis and Nashville, with scores of 5.8 and 6.4, respectively. The Southern high was Fort Lauderdale with 21.9.

But despite the survey's prediction of stability in the local market, there's no doubting that property values have skyrocketed across New Orleans. In the metro area, Orleans Parish has experienced the biggest jumps in property values in recent years, a gain fueled by inner-city historic housing being renovated and sold for profit. Plus, the city is seeing an overall trend of people forsaking the suburbs for life in the city. The average price of a house in New Orleans is nearing the $200,000 threshold, a figure far increased from an average value of just $90,000 a decade ago.

Some locals are concerned that the increased property values will further disenfranchise low- and moderate-income citizens who will become less able to achieve the American dream of homeownership -- arguably the easiest, most pragmatic and ensured method to acquire wealth in our society. Yet, some housing advocates say that a number of new financing options, plus efforts to educate future homebuyers on the process, has opened to door to homeownership to an unprecedented number of people.

"We are working to address the affordability gap," says Lauren Anderson, executive director of the Uptown-based nonprofit Neighborhood Housing Services. "It is becoming increasingly difficult to find affordable housing in the metro area."

Anderson says that a bi-annual report released by the University of New Orleans' Real Estate Market Data Center is an excellent resource to use in evaluating local market trends. Anderson says that the most recent guide showed that only five neighborhoods in New Orleans featured an average sale price less than $100,000 --Êa benchmark for low- and moderate-income buyers, according to the Neighborhood Housing Services.

These increased values affect not only sale prices, but rent prices imposed by landlords as well, a double threat to poverty-stricken New Orleanians. Anderson provides statistics revealing that someone earning minimum wage can afford to spend $268 a month on housing. The average rent price in New Orleans for a two-bedroom apartment is around $675. A minimum-wage worker would have to work 101 hours a week to afford that rent price, according to the National Low-Income Housing Coalition.

While the problem of affordable housing in New Orleans is one of "magnitude" in comparison to the sheer number of poor people in the city, Neighborhood Housing Services recently expanded to also work in St. Tammany Parish, where Anderson says she was surprised to discover "pockets of serious poverty." She said the Northshore also suffers in availability of work-force housing, meaning there's a major disconnect between the wages earned by people working in the area and the housing they can afford, a factor that has countless people commuting to jobs in Mandeville from Mississippi.

Yet, the nonprofit group is finding homes for its clients through several programs geared toward first-time homebuyers and even current homeowners through a foreclosure-prevention program and reverse mortgages for senior citizens -- loans for cash or improvements to be repaid after the owner has deceased.

"What we're finding is that more and more people are qualified to own a home," Anderson says.

To help with this growing group, Neighborhood Housing Services -- along with other area nonprofits such as ACORN and Total Community Action (TCA) -- provides four services: individual counseling for establishing credit and savings, a 12-hour financial fitness class, assistance in finding low-interest loans, and construction management if a house requires renovation. Anderson adds that the City of New Orleans offers soft second mortgages, which are loans running from $10,000 to $25,000 that only have to be repaid if the house is sold in the next five years. Those mortgages, plus the federal Section 8 program (which can be applied to mortgages and not just rent) are examples of public subsidies that help place people into homes they own. This has a dual effect: it helps lower-income citizens gain some economic stability and it also bolsters the city's often-rough neighborhoods by providing financial investment and continuity of residents.

With 30 years experience in the real estate business, Andrew Polmer, owner of Louisiana Real Estate Inspection, doesn't get skittish with sudden changes in the market. "It's always an interesting mix of what happens," he says. "When rates go down, prices go up. When prices go down, that means interest rates are going up. So it always seems that the buyer is paying the same amount."

A change Polmer has seen in recent years is an increased number and a more diverse type of homebuyers, and they're coming to the process more prepared than ever -- "probably way more prepared than existing homeowners," he says. He credits the training offered by nonprofit organizations, noting that mortgage companies often provide a better rate to homeowners with such knowledge. "But you should want to do that anyway, because it's such a wealth of knowledge," Polmer advises of homebuyer-training classes.

Polmer says that New Orleans has traditionally had an owner-renter ratio of 40 to 60, one of the worst in the country, but recently that figure has been ticking closer to 50/50, he estimates. He says that increase in owners is helped by new programs such as one from the Federal Housing Authority called 203k, which is basically a loan that accommodates a renovation project and only requires a 3 percent down payment. "That's great because more and more first-timers are buying into the neighborhoods their families grew up in instead of the suburbs," Polmer says. "They all want the little cottages like grandma used to have."

Smith, with Prudential Gardner, predicts that if the real estate-market bubble were to pop, its effects would be felt first in the Northeast and California well before they would reach south Louisiana. He says that in the local market, first-time homebuyers are opting for condos because of the lower price and the no-maintenance amenities. As far as the jump in selling prices for local homes, Smith says there's still plenty of opportunities --Êbut buyers just might have to dig a little bit more.

"They might have to go into neighborhoods that they might not have thought of before, as those houses often offer the best buy for the money and great amenities. Our neighborhoods are changing dramatically Uptown, not just in the Irish Channel, but all over."

"I'm a positive, glass-is-half-full person," Smith says. "My clients are finding much success. They're still finding good buys with a good value and good appreciation."

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