We have an old housing stock. Most of the homes on the market must be renovated. Most homes in New Orleans were purchased as a fixer-upper — that’s just our culture.
Earl Mackie, executive managing director of Mackie One Construction
Over the past two years, despite massive growth in the valuation of new residential housing units nationwide, new residential values in New Orleans metro area saw a 10.7% decline.
The value of new residential units has been on a steady upward trajectory since the collapse of the housing bubble in the mid-2000s, and the number of units currently under construction is at its highest level since the 1970s.
A new report that studied the periods of January through April for 2022 and 2021 found that across the United States, the average value of new residential housing units rose 8.4%, but in New Orleans metro they saw a 10.7% decline. Experts say addressing the issue may require “unattractive,” but necessary, long-term solutions.
Some of the reasons for the explosion in new residential real estate values are simple: with low interest rates, homebuyers were able to borrow more money and pay more for new homes, sending prices to record levels. And with values rising quickly, builders rushed to build more housing.
With mortgage rates on the rise and applications for home loans down year-over-year, the market nationwide is showing signs of slowing down this spring and summer. Additionally, as housing inventory for sale is increasing, sellers are showing more of a willingness to lower their asking prices, thereby lowering values even further.
But despite the recent signs of the market evening out, the growth it’s seen over recent years is still unprecedented. Here are some numbers to paint the picture: After bottoming out around $95 billion in 2009 after the housing bubble crash and the Great Recession, the annual value of new housing units nearly tripled over the next decade to $280 billion in 2019. The COVID-19 pandemic was like adding gasoline to an already roaring fire — new units were values at $307 billion in 2020 and jumped to $380 billion last year.
Because residential housing construction is expensive and time-consuming, large changes in the value of new residential housing units can give experts and analysts insight into local markets. More specifically, changes can signal shifts in local economics, evolving social trends, or a glut of overinvestment — which some experts say may be what’s happening here.
Some factors can help explain why the New Orleans market is lagging behind. For context, the U.S. Census Bureau’s Building Permits Survey considers the the valuation of a new residential housing unit based on the value of the new construction itself, specifically omitting the value of the land where it’s built.
“While there are certainly other factors involved, I think the potential overinvestment, combined with the demand for lower-density housing, could be strong drivers behind this trend we’re seeing in New Orleans,” said Michael Strombert, CTO at Lattice Publishing, a research company of data journalists that analyzes and collates public data.
Strombert said that on the state level, Louisiana has experienced a rapid rise in residential housing investment in the calendar years 2020 and 2021, after a half-decade of stagnant investment. In order to catch up, he said the city of New Orleans should continue to work with community, political, and business leaders to invest in financially sound, far-sighted economic expansion in order to boost new home values. But that takes time and commitment. And because of the slow-moving, reactive nature of residential housing, it’ll take time to tell if the policies are working.
There also may be cultural aspects at play here as well. Some local builders say that New Orleans shouldn’t be compared to other cities when it comes to new home values because, historically, they’ve never matched national trends.
“We have an old housing stock. Most of the homes on the market must be renovated,” said Earl Mackie, executive managing director of Mackie One Construction, a local company. “Most homes in New Orleans were purchased as a fixer-upper — that’s just our culture.”
The COVID-19 pandemic was a traumatic shockwave to the residential housing market. Analysts say we’re still sorting through all of the changes to see if they’ll stick, so New Orleans should stay optimistic and focus on stable growth. But it can be tough to persuade political leaders to stick with long-term solutions. They aren’t flashy or headline-grabbing actions, but are often in reality just bandages over a deeper wound.
“It’s human nature to overreact and overcorrect where there are insufficiencies,” said Strombert. “The residential housing market is no different. While it’s never an attractive solution, focusing on long-term, consistent growth is an effective way to smooth out these volatile swings that can occur.”
DID YOU KNOW? The percentage of Americans who own a home has stayed approximately the same since the 1960s — about 64%.
