New Orleans Real Estate Market Thriving

If you were housing hunting and found a nice three-bedroom, two-and-a-half bath, 2,200 square foot home for the bargain price of $175,000, you might be doing cartwheels. Unless, say, the home had been completely gutted and had no drywall, wallboard, or fixtures.

Welcome to the New Orleans real estate market, which was stagnant six months ago and is now in the midst of a full-scale boom. Homes all over the previously elegant neighborhoods of the city were ruined by Hurricane Katrina, but they’re now being stripped and dried out and put back on the market in hopes that people will come in turn them into dream homes.

The pitch is less far-fetched than it may seem.

Although vast swaths of the hurricane-battered city are still without power and basic services such as health care, residential real estate sales are at a fever pitch — a bright spot in an otherwise struggling economy. For the first quarter of the year, single-family home sales in greater New Orleans zoomed to $826 million, a jump of 60 percent over the first quarter of 2005, according to the New Orleans Metropolitan Area Realtors.

A total of 3,829 residential units were sold, 960 more than the same period in 2005. Industry analyssts say there’s nothing to be surprised about, and that a great irony of natural disasters is they’re often good for the real estate market. Professionals witnessed a similar Florida real estate trend after Hurricane Andrew in 1992. Los Angeles experienced much the same thing in the aftermath of its Northridge earthquake.

“To use a terrible analogy, it’s like watching ‘Gone with the Wind’ for the fifth time,” said Arthur Sterbcow, president of Latter & Blum Inc., a 90-year old real estate firm in New Orleans. “It’s completely predictable. The market reacts the same way each time. It’s like watching a football game and having the play book in your hands.”

Last year unfolded like this:

• As Hurricane Katrina bore down in late August, thousands fled.
• In an effort to remain somewhat close to home, many settled temporarily in nearby communities like Baton Rouge, where evacuees pushed up residential sales 48 percent to $1.2 billion in 2005, according to the Greater Baton Rouge Association of Realtors.
• Since the pull of home is strong, many evacuees have returned to their flooded city since then.
• Some were lucky enough to find their homes intact, and needing only minor renovation. At the other end of the spectrum were people whose homes took on nine feet of water.

Jim Peckenpaugh, 60, was on the latter end. He initially tried to find a dry house, but those in his Lakeview neighborhood were selling for more than $400,000 — effectively pricing him out of his own neighborhood. He found a bargain instead: a three-bedroom home in Lakeview, selling for $250,000. Why so cheap? It swallowed only 3 inches of water.

“At night, as I was driving around looking at houses, I would see people with flashlights doing the same thing,” said Peckenpaugh, who lost out on his first choice of a flooded house when it was snatched up by a more aggressive buyer.

Most returning homeowners bought dry properties in the unharmed periphery of the city. As those homes became scarce, homeowners and investors inched their way closer to the core of the city, according to real estate agents and developers. National homebuilder KB Home has acquired 58 finished lots in New Orleans, as well as a 3,000-acre parcel in the Jefferson Parish, a neighboring suburb.

“You hate to say it, but these disasters tend to spark an energy that people have to respond to. Immediately after, what you see is this sense of, ‘Oh my God, it’s a disaster. What do we do?’ And then people’s lives get back to normal and they say, ‘OK, I have a home. Do I repair it? Or do I sell it and buy another?’” said Thomas Stevens, president of the National Association of Realtors.

Without a doubt, the real estate picture is far from even in the Big Easy. Areas like St. Bernard Parish, which took the brunt of last summer’s storm, are still dormant. Not a single house sold in the first three months after the storm, and only one sold in the fourth month, fetching just $11,000 in an area where the average home once sold for $109,000.

Other heavily damaged neighborhoods are still in limbo because of insurance. In order to get a company to cover them, some homes will have to be raised as much as three feet, an expensive proposition. So rather than going through the expense (and hassle), many homeowners are choosing to buy homes in the city’s less damaged areas, fueling sales there.

But even as transactions in many Gulf Coast firms are setting records, the road to ownership is rough, especially on the insurance front. Both State Farm Insurance and Allstate, the nation’s top pair of insurers (that together controlled over half the homeowners insurance market in Louisiana pre-Katrina), have stopped writing new policies in New Orleans. As with the storm weary Florida property insurance market, finding affordable coverage is a struggle.

“I went down the list and called every single insurance company I could find. No one is writing in Orleans Parish right now,” said Robert Boulanger, in the process of closing on an unflooded house just outside the French Quarter, one of the city’s most desirable neighborhoods and one that dates back to the 1700s.

With private insurers pulling out, buyers are overwhelmingly forced to seek coverage from the state-run Louisiana Citizens Property Insurance Corp. The agency charges higher rates than its private-sector competitors, and for the 28-year old Boulanger, a construction manager, that means he’ll pay more than $4,000 this year to insure a home he’s buying for $240,000.

“It’s really pushing the envelope of what I can afford,” he said.

In flooded neighborhoods throughout New Orleans, “For Sale” signs adorn gray lawns alongside mounds of stripped wallboard. With doors punched in, Realtors advise prospective buyers to simply walk in. “Easy to show. Door is open,” says one ad for a flooded home. Other ads promise the chance to own “the house of your dreams.” You just have to make it that way.

“Before the storm, I could never have afforded a house like this. It’s the house I’ve always wanted and now I can afford it,” said an exuberant young woman who purchased one of the bargain basement flooded properties. “I have to do the work, but in a sense that’s even better because I can put myself into it. I’ve already sort of moved in in my heart.”