New Orleans Real Estate
As we close in on the end of the year, it’s time to take a look at the most important events in 2016 New Orleans real estate.
Short Term Rental Concerns
To say that Airbnb caused an uproar this year would be an understatement. One one side are the owners that hold firm beliefs that they should be able to use their property any way they like. Even in violation of a city ordinance that hasn’t been enforced in years.
On another side are residents that feel their neighborhood has been turned into hotel row, with a revolving cast of visitors and absentee landlords that don’t contribute to the quality of life. In fact, they vocally protest, the vibe of entire neighborhoods is changing as fewer full time residents can be found. As more of their neighbors are replaced by weekenders, the people left behind say short term rentals are nothing but a disaster.
On December 1st, the City Council adopted a convoluted series of ordinances addressing short term rentals and creating a licensing process.
It’s interesting that one of the general guidelines reads as follows:
“Short Term Rentals shall not adversely affect the residential character of the neighborhood nor shall the use generate noise, vibration, glare, odors, or other effects that unreasonably interfere with any person’s enjoyment of his or her residence.”
We can’t wait to see how many complaints the city receives about adverse affect on the character of a neighborhood. It’s subjective, at best, and will likely result in the same non-enforcement we’ve seen in the past.
Condo market changes
Condo prices across the parish have begun to stabilize, with a very slight dip in average sold prices from 2015 to 2016. While prices are stable, the number of units sold has declined by 27.5%.
Where are the biggest changes?
The number of French Quarter condos for sale now stands at over 2 years worth of inventory. Prices have declined slightly and the number of sales is down from 126 units in 2015 to 72 units at November 30th of this year.
Garden District condo sales are projected to decline by about 9% by the end of the year, as inventory has increased.
The CBD/Warehouse condo market is stagnant in the number of sales, while prices have softened. In 2015, the average condo in this area sold for $546,115. The 2016 year to date average is $488,670 – a 10.5% decline in value.
Rising interest rates
Since the election, mortgage interest rates have gone up by more than 1/2% and are projected to climb again over the next couple of months, marking the highest rates we’ve seen since October 2014.
According to the Wall Street Journal:
“…The latest bump boosts the monthly cost of owning the typical U.S. home by more than $70 a month, or about $26,000 over the life of a 30-year fixed-rate mortgage.”
While a 1/2% may not seem like much, when borrowing becomes more expensive, potential move up buyers dig in. They have a tendency to stay in place rather than take on a mortgage at a higher rate. This could lead to a constriction of inventory, which is good for sellers.
However, as interest rates rise, affordability is reduced. This pushes buyers into lower price ranges in order to remain within their budget. This could, in turn, lead to a depression in prices, good for buyers.
Rental market changes
High end rental market
The number of luxury rentals has exploded over the last couple of years, with new construction creating the South Market District. Apartment conversions in and around the CBD are attracting residents with the ability to pay for the amenities that they were accustomed to in large, urban cities like New York.
But, the increase in the number of units has had a negative impact on the high end rental market in older developments such as the Cotton Mill.
If a landlord bought at the height of the condo market and is now renting, it won’t take long for monthly costs such as insurance, taxes and condo fees to outstrip the demand for housing at the price needed to make a profit.
Affordable rental market
While it’s taking longer to rent high end properties, there is still a shortage of affordable rental properties. Many people are placing their name on waiting lists, hoping that a place becomes available. Toss in the number of short term rental properties that have been removed from the rental market. Mix it together and create an opportunity for investors who want to play in the affordable market.
What will 2017 bring?
What was that old magic 8 ball answer…”reply hazy, try again.” But we’ll take our best guess and offer a couple of predictions.
Continued demand and even slightly higher prices in the lower rental market, while prices will decrease on the upper end.
Buyers opting for more suburban neighborhoods like Gentilly and Algiers. As buyers are priced out of Uptown and Lakeview, the ‘burbs start looking more attractive.
Short term rentals as an out of town investor buying strategy may dwindle. More residents become vocal in their opposition and go after the city for non-enforcement of the guidelines. The more heat put on short term rental landlords, the less attractive those investments become.
No matter what, there are sure to be changes in the New Orleans real estate market in 2017.