Earlier this year, Gentilly resident Courtney Latiker was excited that she and her two teenage daughters, who live in a rental house in the Milneburg area, could soon be settling into a home of their own.
She secured a lender, enrolled in a first-time buyer program, and pre-qualified for a loan. She found a three-bedroom apartment off Hayne Boulevard in East New Orleans that had the amenities she wanted, including good closets.
Then a big shoe fell: “Insurance prices went up,” she said.
Although her target home was in a low-flood-risk area, Latiker’s purchase effort stalled because of FEMA’s new flood insurance rate structure, which increased her projected premium and pushed her total expense beyond what her lender had approved.
“I was blown away by the rising costs,” Latiker said.
At a time when the most obvious challenge facing home buyers in the New Orleans area seems to be rising mortgage rates, local realtors say several issues are threatening to cool the hot housing market.
Mortgage rates have skyrocketed, but so have homeowner costs and flood insurance for many areas. At the same time, inflation is gnawing at nest eggs. All in all, it has become what one agent called a nightmare situation for residential real estate in the area.
“We’re being hit from all directions,” said real estate agent Bryan Jourdain.
The latest figures from the Gulf South Real Estate Information Network, which tracks regional home sales, showed that homes in the 10-community metropolitan area sold fairly quickly in May, with homes off the market in an average of 25 days, compared to 35 days in the same month a year earlier. The average selling price this year through the end of May is $278,000, up about 9% year-on-year.
But the report doesn’t cover June, when the US Federal Reserve’s 75 basis point hike sent mortgage rates higher. And some of the monthly data offers a warning sign. The number of closures in May is down 7.4% year-on-year, and closures are down more than 8% year-to-date.
Meanwhile, market watchers say some parts of the residential sector have already started to cool down.
David Favret, president of the New Orleans Metropolitan Association of Realtors, predicts that higher mortgage rates could have “a chilling effect” on the market. So far, the impact on prices has been limited and he expects a “soft landing”. However, he anticipates that the higher end of the housing market will be the first to feel the impact of higher mortgage rates.
“Home prices above $800,000 are starting to fall, so I expect we’ll see the impact in the luxury market first,” he said.
Jourdain, a New Orleans realtor who recently sold several properties in Slidell, said when higher lending rates make buyers nervous, insurance costs take their breath away.
Four hurricanes have made landfall in Louisiana since 2020, causing more than half a million dollars in damage. The fallout has put more financial pressure on insurance companies to cover losses. Seven companies with policies in the state have failed and about a dozen others have pulled out of the state, leaving prospective homeowners with fewer options and rising premiums.
In addition, more than 13,000 people are on the Louisiana Citizens Insurance Corp. passed to the insurer of last resort for the state, which has to charge more than private market insurance.
“I just had a client who got a $10,000 quote on home insurance,” Jourdain said. Before his client made a bid on the target home, Jourdain met with the existing owners and learned they were paying $2,800 annually for coverage.
“I knew the buyer would have to pay more, but I estimated the premium could be around $5,000,” he said. “$10,000 is ridiculous.”
For buyers who can afford such surprises, the jump in costs probably won’t come between them and a new home. But for first-time buyers like Latiker and others who rely on credit to close deals, such unexpected increases in costs can become a deal-killer.
The prices are rising
Jourdain, while acknowledging that higher rates are probably necessary to fight inflation, said rates have risen too quickly. “It wasn’t long ago that some of my clients were able to get a 2.5 percent mortgage rate, and to have rates in the 6 percent range now is just too fast,” he said. “We actually had to requalify some of our customers (for a mortgage) because the new rate was pushing them out of what they could afford.”
Agents acknowledge that past low interest rates could not last indefinitely, but they say both buyers and sellers need a level of predictability that the current market lacks.
“You can work with the system if you know where it’s going, but when interest rates go up dramatically, it hurts people in many ways, and not just when it comes to home buying,” said Jim Kerrin, a realtor at Latter & Blum New Orleans .
Kerrin points out that everyone is facing higher costs for food, transportation and services that are a result of rising inflation.
Additionally, many Louisiana residents will soon be facing higher utility bills due to a recent Entergy Louisiana price increase. And Orleans Township homeowners could see higher property taxes as a year-long rebate related to last year’s Hurricane Ida expires and many homes return to their pre-Ida ratings.
Hard for beginners
Belle Chasse-based broker Bonnie Buras, who called the triple whammy of mortgage interest, flood insurance and homeowners coverage “a nightmare,” said buyers who really want to move are finding ways to do so.
She points to a couple she worked with who had written six different offers but couldn’t get a home because the offers had to be based on selling their existing home.
“They ended up just selling their house and moving in with their son,” Buras said. “Then they could make a cash offer to buy a new one, and we got them a house.”
But for buyers who don’t already own a home, things can get trickier. Kerrin noted that in the past, first-time buyers often found buying a semi-detached home a good way to enter the market because they could live on one side of the home and use the rental income from the other side to help cover their monthly bill.
“People did it like crazy last year,” he said. “But now that (interest) rates are through the roof and insurance is so high, they can no longer qualify for these houses.”
Still, Kerrin said prospective buyers shouldn’t give up on their dream. “It may take a while for the market to settle down, but there will be another deal around the corner,” he said. “You can’t just hibernate for six months because you might miss something — you have to keep looking, keep an eye on what you qualify for and just be more realistic.”