New Orleans Rental Market Facing Some Troubled Economic Waters
Louisiana could be looking at the “biggest housing crunch” since Hurricane Katrina a decade ago, the Associated Press reported.
New Orleans may have been luckier this time, escaping the brunt of the devastation. But looking ahead, it has problems of its own, including an economic slowdown that is already beginning to take a toll on its multifamily housing market.
“The backsliding economic situation in metro New Orleans is disappointing,” says Kim Betancourt, director of economics for Fannie Mae’s Multifamily Economics and Market Research (MRG) group.
The city’s economy was performing “so much better just 24 months ago,” Betancourt says. But that was before the local economy felt the full effects of booming oil prices gone bust.
“New Orleans’ short-lived economic recovery is over, and the metro area is on the verge of slipping into a recession,” she says.
Job Growth Evaporating
Recent multifamily economic and market commentary from Fannie Mae cites projections from Moody’s Analytics for a 2.3 percent decline in the metro’s job growth this year, followed by a further 2.2 percent drop in 2017.
Moody’s does not expect to see a revival in New Orleans until 2019, when job growth will amount to just 0.7 percent. Suffering from lingering low oil prices and muted U.S. exports, total local employment will slide 0.4 percent over the next five years, compared to a national gain of 1.1 percent, according to Moody’s.
A sign of hard times in its energy sector, the area saw mining jobs plummet 17 percent over the past year, says Moody’s.
Tourism and the education and health sector employ 15 percent and 16 percent of the metro’s labor force, respectively. But jobs in tourism tend to be lower paying and unskilled compared to energy-related jobs.
Seeing Bright Spots
The metro does have some anchors in the job market. Its largest employer is the Naval Air Station, with more than 7,000 workers on its employment rolls. Other top employers include Northrup Grumman, the Medical Center of Louisiana, Tulane University, and Harrah’s. The Bureau of Labor Statistics calculates total employment of 572,000 in 2015.
“The news is not all bad,” observes the Fannie Mae commentary. “Oil refineries are one bright spot,” which have registered about a 6 percent gain in employment year over year, and wages are higher than average. “And the metro’s well-developed port and logistics infrastructure remains one of its strongest economic drivers.”
While New Orleans does have a robust port, exports flowing through the city were down 24 percent in 2015, according to Moody’s, as the result of weakness in the global economy.
At 89 percent of the national average, business costs are also “quite attractive” for bringing new companies to the area, says the Fannie Mae commentary. Prosperity NOLA is one example of how the city is hoping to capitalize on its strengths. More than 200 stakeholders are participating in the wide-ranging initiative to help invigorate the metro’s economy and business development.
A bit on the downside, the cost of living in New Orleans registers at 103 percent of the national average.
“A focus on more professional, scientific, and technical jobs would be a big help and could help propel the Crescent City to a brighter future in the next decade,” the Fannie Mae commentary concludes.
Barely Holding on
Despite a faltering economy, New Orleans has managed to hold on to some positive net migration — 6,000 new residents last year and a projected 5,600 people in 2016. But Moody’s expects net migration to decline through 2020.
The Fannie Mae commentary reports that New Orleans remains far behind in rebuilding its supply of apartment rentals following the loss of at least 12,000 units after Katrina, according to Reis, which provides data about commercial real estate. The metro area has added only about 3,100 units since 2012.
Dodge PipeLine shows there are currently about 1,200 units underway in the New Orleans area — an improvement over a “dismal” 700 units last year. But the Fannie Mae report notes that most of the new supply is downtown in class-A projects with high rents. It’s not the best match for a multifamily market in which jobs are evaporating and effective rent growth has staggered.
Fannie Mae’s commentary cites an estimate by Axiometrics that the metro’s rent growth turned negative in the second quarter of this year — with a decline of 0.7 percent. Concessions have remained low so far in the New Orleans market. They were down 1 percent in June, just slightly higher than the national average. But Axiometrics expects local concessions to be on the rise over the next 12-18 months.
After the Flood — Housing Market Disruption
Meanwhile, uncertainty hangs over the extent to which recent flooding has further disrupted housing in parts of the state.
The AP reported initial estimates of damage to more than 40,000 homes, and various sources — including state officials — have revised that number upwards to 60,000 or more.
In a story appearing in The Baton Rouge Advocate, housing experts suggest that the state capital is in for a “crazy” housing market — at least over the short run — as people scramble to find temporary shelter while they restore their battered homes.
The Greater Baton Rouge Association of Realtors® tells The Advocate that the inventory of homes for sale on the local market is inadequately low to meet the needs of displaced residents. Before the flooding, there were 3,382 homes on the market — only a 3.9-month supply at the current sales pace.
The story notes that 84 percent of the traffic on the website of C.J. Brown Realtors in Baton Rouge on a recent night was from people looking for rental housing, compared to 3 to 5 percent normally.
Over the longer term, some of those who are active in the Baton Rouge market expect to see housing demand shift away from flood-impacted areas to higher-elevation locations where homes avoided serious flood damage.
Opinions, analyses, estimates, forecast and other views of Fannie Mae’s Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management