I’m just going to come right out and say what everything is thinking: What the @#$% is going on with home prices in Orleans Parish?
It’s getting crazy out there. I’ve been seeing listings of renovated homes for over $300 per square foot on the edge of Central City. A “fixer-upper” needing a “total renovation” on the edge of City Park recently hit the market for $700,000.
Some of this extravagance is probably the result of wishful thinking on the part of sellers, but it’s substantive as well. Uptown, the Marigny and the Bywater show the most dramatic increases. For zip code 70115 in the heart of Uptown, the average price per square foot went from $173 before Katrina to $247 in the first four months of 2014.
The Bywater is even worse. Prices have gone from $75 per square foot before Katrina to $131 today, an increase of nearly 75%. Even less desirable locations in New Orleans have started to match their pre-Katrina values, while more central locations have become absurdly unaffordable.
It’s difficult to see exactly what has precipitated this high-priced market. There is still a ridiculous number of vacant and blighted properties out there. Moreover, New Orleans is hardly a wealthy city. Our economy has improved somewhat, but people generally aren’t flush.
Furthermore, stricter Fannie Mae/Freddie Mac rules enacted following the real estate crash of 2008 have restrained the mortgage market. The freewheeling days of people with bad credit and little income getting huge mortgages is basically over.
So who is buying these homes? Blogger Jeff Bostick is as confused as I am. “Every personal story I come across has to do with friends or acquaintances being priced out of neighborhoods not buying into them,” Bostick writes. “So, who is buying in?”
“We can talk about our pet theories of gentrification all day long. Are the majority of these huge sale prices investment properties? Are they full time homes or vacation rentals?”
Unfortunately, I don’t have the answer to that. It’s difficult to see who is buying these homes, or why they’re paying such high prices.
Regardless of where the market for these houses is coming from, I do fear we’re seeing a local real estate bubble developing. These prices can’t be sustainable in the long-term. As of 2012, the median household income for Orleans Parish was $34,361, compared to $44,379 for the metropolitan area and $51,371 for the U.S. as a whole. Those incomes can’t support this housing market.
A recent study by the finance website WalletHub.com bears this out. Among the 300 largest cities in the U.S., New Orleans ranked 4th in terms of the health of the real estate market. However, it ranked 240th in terms of affordability.
Making matters worse is the fact that the overall cost of living has been ever increasing. While Mayor Landrieu pitches major tax increases, citizens are facing ever-increasing homeowner’s insurance rates. This means higher mortgages and higher escrow payments to boot.
Finally, this all trickles down to the rental market. There doesn’t appear to be any ceiling on how high rent can go, and in a city that depends so much on tourism with a sizable employment base in the service industry, one wonders who can afford these excessively high rents.
Although I’m a homeowner myself and rising home values certainly benefit me personally, I don’t think the values are real. Unless we make real headway on improving the local economy, this can’t hold in the long term. After all, it’s in the nature of bubbles to burst.
Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.