The fourth quarter is here friends, and before we sit down with friends and family thankful for the year that was, I want to discuss our take on the real estate market and what I’m hearing, seeing, and concerned about.
National and Global Politics
New Orleans real estate typically does not see the high highs and the low lows that the rest of the country experiences. There are few national or global issues that impact New Orleans real estate pricing for any period of time, but there are a few out there right now that could affect us. I felt they should be mentioned, as any of these happening would more than likely change the ball game. They are: North Korea launching a nuclear weapon toward the U.S. or a U.S. ally, and the U.S. getting into a trade war with China. Both of these items I hope are unlikely, but we should all be paying attention to these issues.
Interest Rate Trends
Low-interest rates (about 3.76 percent at the time of publishing) are the lowest they have been all year and are near the lowest rates we have seen in the past decade. These low rates combined with relatively available lending for home buyers are keeping home values high. My banker friends have been telling me for nearly five years that rates must go up. And even though the Federal Reserve has raised the overnight rate and stated this summer they will begin to reduce the $4.5 billion of bonds on their balance sheet, mainstream economists still say this will cause rates to go up and the stock market to go down. The stock market is near all-time record highs, and interest rates are near record lows. While I listen to economists, I believe the Fed will go about this process slowly and methodically to limit the negative impact that the unwinding could have on the economy. A garden-variety 10 percent correction in the stock market wouldn’t surprise me and would give me more confidence that the bull market in stocks and real estate will continue in 2018.
New Orleans Home Prices
We look at a large portion of the New Orleans area in our statistics that reflect our core service areas. Home prices are down about 4 percent year over year while the average for sale price is up 6.4 percent. These numbers reflect what we see and hear every day. Clients are relying on stories of high priced sales they heard about in the neighborhood that, even if they did happen, it is because the home they are thinking of had exceptional features, lot size, etc. These become fish stories that we have to research meticulously.
Short Term Rental Policies
No matter how you feel about short-term rentals (Airbnb, VRBO, etc.), they have had an impact on New Orleans real estate. In a city where it’s cheaper to buy than rent, and the city’s hotel rooms are nearly fully booked every weekend, short-term rentals exacerbate the price spread making rental rates even more expensive. Recent policies in New Orleans have reduced the number of short-term rentals in the city. The rules have limited the number of nights investment property owners can rent their units in most of the city, which completely changes the economics of short-term rentals and, in our view, makes it almost not worth the hassle. In a few more months, we should be able to see data reflecting that view.
I recently heard a joke that a Barista uptown is looking to start flipping houses in the Marigny. While I am mostly sure that was a joke, there certainly are a lot of flippers around the city right now convinced their tiny sinks and cheap finishes are worth top dollar. A year and a half ago, those homes were moving pretty fast, but for the last year, we are seeing them sit until the prices come down. Colleagues I speak with agree that our buyers aren’t going to spend top dollar for plumbing fixtures that are internet knockoffs, no-name ranges, and low-grade engineered flooring. I would suggest that we are seeing less experienced flippers not seeing the returns they heard others were getting.
Institutional lending is not helping, either. It is still difficult for a relatively new flipper to buy a property with traditional financing. As long as buyers are discerning and institutions are heavily scrutinizing loans for flippers, I remain confident that our bull market in housing will continue.
Where Do We Go From Here?
We love data and look at the numbers daily. Almost just as important is what I hear from others in the industry, professional investors, and members of the New Orleans community. The sentiment is certainly mixed—some say it has to end, others see no end in sight. Our outlook for the next 12 months is that a strong real estate market will continue in the New Orleans area. Prices will appreciate a little, and days on the market will remain less than 30 days when the property is priced properly. We may see a month or two where the bull stretches its legs and lets up a little, but overall, the remainder of 2017 and 2018 should be a great year for real estate! Looking to buy in New Orleans? Reach out to me anytime at 504-321-3063.