It wasn’t very long ago when the real estate market on the northshore was booming Post-Katrina. The New Orleans area was devastated. The worst natural and man-made disaster that struck the United States was right here - in our back yard. Thousands of homes were lost and many displaced citizens from the southshore were busy buying everything and anything in sight.
The northshore was the high ground they were seeking. Both St. Tammany and Tangipahoa Parishes were inundated by the change Katrina brought. Gasoline prices skyrocketed and sales tax collections were off the charts. Historically, there was never a better financial reward for the northshore.
For nearly three years, money flowed generously, and not so generously, from insurance companies and the federal government. Much of it was reinvested on the northshore and businesses directly tied to the real estate market were busier than ever. Developers, builders and sub-contractors couldn’t find enough labor to keep up with market demand. Although federal dollars are still flowing to the Southeast Louisiana area today, the national economic recession’s sting has subdued the real estate market and slowed its growth in dramatic fashion.
RESIDENTIAL
Fortunately, there is an upside to all of this.
Terry Moore, Broker and Northshore Branch Manager of Latter & Blum, said that Louisiana, and more specifically the northshore, is doing much better than other areas of the nation. “The good news is in what is actually selling. Our research division has found the average prices on homes sold has held steady for the first six months of the year compared to the prior year. Based on homes that are selling (all sales), the average home price has remained surprisingly strong,” said Moore. “Based on the price per square foot on all price ranges, there has not been a major reduction in volume (units sold). It is down right at 10 percent on everything that is selling.”
Tom Giroir, Broker at ReMax on the northshore, said that is exactly right. “I think we have been spared the foreclosure run that we see in other areas in the nation. We have been fortunate we don’t have the strong “peaks and valleys” like the State of California has seen. The northshore has remained somewhat steady,” said Giroir.
Average home sales price based on all sales in St. Tammany
2009 - $253,167
2008 - $253,700
2007 - $254,575
What has affected the volume of sales on the northshore is the top end of the market. Moore says, “The $400 to $500 thousand average home price range (on homes sold) has decreased by a three-percent margin (based on price per SF), but the number of units sold is down dramatically at 26 percent. The $350 to $400 thousand price range has been at about break even and holding its value, but the number of units is down considerably at 42 percent.”
Tom Giroir says the market has been unpredictable this year. “We were lean in the early part of the year (1Q09), but then we saw June and July become a bit stronger.
Have we seen the bottom of the market?
“I hope so, but the top end of the market needs to pick up. For the five months remaining in 2009, I think sales will continue to be about the same as we have seen the past 90 days. We are trying to keep deals together but consumers are under stress. For most, it has affected people for some time, but for others, it has culminated at this time,” said Moore.
Giroir agrees. “I think we have seen the worst, I hope. There has been some hesitation and worry to jump in the market due to unemployment, as consumers are afraid the shoe may drop on their job or they will see a cut in pay. But, from now until the end of the year, we may see a slight up-tick in sales. I just don’t see a major swing ‘up or down’ on the amount of units sold from now until the end of the year,” said Giroir.
With mortgage interest rates still at historic lows, now is the time to act. Giroir says people think there is a great inventory of houses on the market and they can wait for a unique or special deal in time. “An increase of a half percent can be dramatic for some, so act now. I strongly encourage people who are in a position to buy a home to get out there a make a decision soon.”
COMMERCIAL
The commercial market has become somewhat cool over the last six months, but there are deals being made in specific areas. Michael Saucier, President of Gulf South Real Estate Services, said “The ‘build it and they will come’ mentality is over. There is a proliferation of retail strip shopping centers that have units remaining vacant. Although there is a demand in some areas of St. Tammany, you need capital on both the landlord and tenant side. Instead of three month cushion, you need perhaps 10 to 12 months of start-up capital.”
Marty Mayer, President of Stirling Properties, concurs. “Getting a multi-tenant project started today is very difficult. The availability of capital puts a choke hold on projects like this,” said Mayer
Saucier believes that we are experiencing a “third wave” of commercial construction post-Katrina. “On the commercial side, we are executing leases for oil services companies. They (Oil Companies) are relocating for strategic reasons because of Katrina. Mean sea level, proximity to Chevron (with international headquarters now on the northshore), and convenience for employees has been a major factor in their decision-making process to relocate to the northshore,” said Saucier.
The northshore has become a tenant’s market,” said Mayer. “We are starting to get calls from national retailers asking for rent reductions. Their sales don’t justify that, but it is a reality.” Mayer says, on the lending side, commercial properties have loans that are maturing in the next few years and most of these loans are short term. “It’s a huge problem nationally and it is starting to become evident locally. It’s difficult to find lenders to refinance them. The more distress in the market, the more distressed owners of properties become - and that creates real opportunities to acquire properties and turn them around.”
Due to this stress in the market, there are some buyers sitting on the sidelines waiting for prices to come down. “We have not seen the worst yet from a commercial standpoint. There needs to be more price stabilization before we see any significant or real activity start again,” said Mayer.
Although the restaurant and food services industry is flat, the grocery store activity is growing. Wal-Mart is expecting to open its neighborhood grocery in Mandeville (at East Causeway and U.S. Highway 190) in the fourth quarter of this year. Albertson’s is coming back to the northshore by opening its store in the Premiere Shopping Center in Mandeville. Winn-Dixie is building a new store on U.S. Highway 21, north of Interstate 12 in Covington to meet the growth needs in that area. “The grocery or food stores buildings are becoming smaller and more efficient to meet the needs of the consumer,” said Saucier.
“There has been a good bit of interest and construction supporting the medical community along the U.S. Highway 21 to support St. Tammany Parish Hospital and Ochsner,” said Saucier. “Institutional activity (school construction) will continue for a few more years.”
In regard to what will happen over the next five months, Mayer believes that we are going to bounce around for the remainder of the year. “We may have a few good months with a couple of bad ones. “The wild-card is in the lending and banking system. If they loosen up, we will see an immediate up-tick.”
Saucier agrees. He feels there is no clarity on what will happen from now until the end of the year. “Until we see some big ticket government issues (deficit and interest rates) that are still ‘up in the air’ resolved, things will remain uncertain and unpredictable,” said Saucier. “Hopefully, at the beginning of 2010, we will start to see some things more clearly.”
The Economic Development Foundation’s quarterly Trends Report released on June 19, 2009 reveals data from the first quarter of 2009 that show several strongly positive indicators. While unemployment in St. Tammany Parish rose to 4.2 percent from 2.9 percent in the first quarter of 2008 (1Q08), the higher number is a very positive sign.
“Economists believe unemployment rates that hover near 5 percent are a healthy economic indicator,” said Brenda Reine-Bertus, executive director of the St. Tammany EDF. “For companies seeking to locate here, the availability of labor is a significant draw. Lower unemployment rates discourage site-selectors from considering or choosing a location for development or expansion.”
The state’s unemployment rate was 5.4 percent in 1Q09 and the national rate was 8.2 percent. St. Tammany’s rate is perfectly positioned in comparison to state and national levels.
While residential building permits fell more than 50 percent in quarter-over-quarter comparisons, commercial building permits rose by 41.2 percent, from 85 permits in 1Q08 to 120 permits in 1Q09, indicating the market for commercial development remains strong. In previous quarters, strong commercial construction projects were attributed to existing developments that had been permitted before the banking crisis and tightening credit markets that came about in 3Q08. “That commercial permits have risen so sharply in the first quarter of this year is an extremely encouraging sign, showing that new projects are underway that have been launched subsequent to the credit crisis,” Reine-Bertus said.
New business starts were also positive, up 24.9 percent, from 507 in 1Q08 to 633 in 1Q09. “Entrepreneurs continue to find St. Tammany Parish is a business-friendly environment, with a diverse economy that supports a broad spectrum of enterprises,” Reine-Bertus said.
Retail sales fell 8.2 percent in quarter-over-quarter comparison, but the drop was .2 percent lower than in 4Q08, suggesting a slow movement towards recovery in local retail markets.
New announced projects in 1Q09 will bring more than 200 permanent jobs with an estimated $11 million annual payroll. “In the big picture, St. Tammany is faring very well and is very well-positioned in the current economy,” Reine-Bertus said. “We continue to draw site selectors and corporate visitors to our community, and expansion projects and new investments are continuing to visit and ultimately choose St. Tammany for relocation.”