Early this year, Gentilly resident Courtney Latiker felt excited that she and her two teenage daughters, who live in a rented home in the Milneburg neighborhood, might soon settle into a home of their own.
She secured a mortgage lender, enrolled in a program for first-time buyers and pre-qualified for a loan. She found a three bedroom near Hayne Boulevard in New Orleans East that had the features she wanted, including good closets.
Then, a big shoe dropped: “Insurance prices went sky high,” she said.
Even though her target home was in an area at low risk for flooding, Latiker’s purchase effort snagged on FEMA’s new flood insurance rate structure, which increased her projected premium and pushed her total cost above what her lender had authorized.
“The rising costs knocked me out,” Latiker said.
At a time when the most obvious challenge to New Orleans area home buyers may seem to be rising mortgage rates, local agents say multiple issues are threatening to cool what has been a hot housing market.
Mortgage rates haves soared, but so have the costs of homeowners and flood insurance for many areas. At the same time, inflation is eating into nest eggs. All told, it’s become what one agent called a nightmare situation for area residential real estate.
“We’re getting hit from every direction,” said Realtor Bryan Jourdain.
The latest figures from the Gulf South Real Estate Information Network, which tracks regional home sales, showed that homes were selling fairly quickly in the 10-parish metropolitan area during May, with homes moving off the market in 25 days on average, down from 35 days in the same month a year earlier. The median sale price this year, through the end of May, is $278,000, roughly 9% above last year.
But the report doesn’t cover June, when the U.S. Federal Reserve’s 75 basis point hike turned up the heat on mortgage rates. And one piece of monthly data offers a warning sign. The number of closings in May fell 7.4% from a year ago, and closings are down more than 8% year to date.
Meanwhile, market watchers say some parts of the residential sector have already started to cool.
David Favret, president of the New Orleans Metropolitan Association of Realtors, predicts that higher mortgage rates “may have a chilling effect” on the market. So far, the impact on prices has been limited, and he’s expecting a “soft landing.” But he expects that the higher end of the residential market will be the first to feel the effect of higher mortgage rates.
“Home prices above $800,000 are starting to soften, so I predict we’ll see the impact first in the luxury market,” he said.
Jourdain, a New Orleans agent who recently has sold several properties in Slidell, said that if higher borrowing rates are making buyers nervous, insurance costs are taking their breath away.
Four hurricanes have made landfall in Louisiana since 2020, producing more than a half-million claims. 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 would-be homeowners with fewer options and soaring premiums.
In addition, more than 13,000 people have moved on the rolls of Louisiana Citizens Insurance Corp., the state’s insurer of last resort that must charge more than private market coverage.
“I just had a client get a $10,000 quote on homeowners insurance,” said Jourdain. Before his client made an offer on the target house, Jourdain met with the existing owners and learned that they were paying $2,800 annually for coverage.
“I knew the buyer would have to pay more, but I guessed that the premium might be around $5,000,” he said. “$10,000 is ludicrous.”
For buyers who can afford such surprises, the jumps in cost probably won’t come between them and a new home. But for first-time buyers like Latiker and others who must rely on loans to close deals, such unexpected cost hikes can be deal killers.
While acknowledging that higher interest rates are probably necessary to help fight inflation, Jourdain said rates have climbed too quickly. “It’s not that long ago that some of my clients could get a 2.5 percent mortgage rate, and to now have rates in the 6 percent area is just too fast,” he said. “We actually had to get some of our clients re-qualified (for a mortgage) because the new interest rate pushed them out of what they could afford.”
Agents recognize that low interest rates of the past could not last indefinitely, but they say both buyers and sellers need a measure of predictability that’s lacking in the current market.
“You can work with the system if you know where it’s going, but when rates go up dramatically, that hurts people in a lot of ways, and not just in home-buying,” said Jim Kerrin, a Realtor with Latter & Blum in New Orleans.
Kerrin points out that everyone is dealing with higher costs for food, transportation and services stemming from rising inflation.
In addition, many Louisiana residents soon will face higher electricity bills due to a recent rate increase by Entergy Louisiana. And Orleans Parish homeowners may see higher property taxes as a one-year reduction related to last year’s Hurricane Ida expires and many homes return to their pre-Ida assessments.
Tough for first-timers
Belle Chasse-based agent Bonnie Buras, who terms the triple whammy of mortgage rates, flood insurance and homeowner coverage “a nightmare,” said that buyers who truly want to move are finding ways to do so.
She points to one couple she worked with who had written six different offers but failed to snag a home because the offers had to be predicated on them selling their existing house.
“They finally just sold their house and moved in with their son,” Buras said. “Then they were able to make an all-cash offer on a new purchase, and we got them a house.”
But for buyers who do not already own a house, the going may be tougher. Kerrin noted that in the past, first-time buyers often found that purchasing a double was a good way to get into the market, because they could live in one side of the home and use rental income from the other side to cover their monthly note.
“Last year people were doing that like crazy,” he said. “But now that (interest) rates are through the roof and insurance is so high, they can’t qualify for those houses anymore.”
Still, Kerrin said would-be buyers shouldn’t give up their dream. “It may take a little while for the market to settle down, but there’s going to be another deal around the corner,” he said. “You can’t just hibernate for six months, because you might miss something – you’ve got to keep looking, keep an eye on what you qualify for and just be more realistic.”