Associate Margaret Glass recently attended the 10th Annual Economic & Real Estate Forecast Symposium, presented by Gulf Coast Bank, in partnership with New Orleans Metropolitan Association of Realtors (NOMAR). The theme was “The New Orleans Economy: Pivoting to the New Normal,” and the presenters focused on the local and national impacts of the Coronavirus.
The Forecast for Real Estate in America
Lawrence Yun, Chief Economist and Senior VP of Research at the National Association of Realtors, discussed the forecast for real estate in America:
- Incomes have been rising slightly, but spending is down due to restrictions on social activities and consumers’ desire to save money. This could result in high spending once a vaccine is available. Spending is occurring in online stores, liquor stores, and sporting equipment and home goods stores. Spending on restaurants, bars and clothing is declining.
- Rent payment has been occurring on time for the most part (88%) despite impacts on businesses and jobs from the virus.
- Commercial transactions have declined in volume significantly but prices (a lagging indicator) have remained high. A future decline in prices is anticipated, but recent significant increases in prices should offset this.
- Home sales have increased significantly over the last year despite the pandemic, and applications for mortgage approvals are also up 20-30% from last year, indicating many buyers are in the market. There is not enough inventory to satisfy demand. Suburbs, vacation markets and rural areas are also increasing in popularity, likely due to fear of the virus and ability to work from home.
- Yun sees opportunity for suburban retail spaces due to people working from and staying close to home, and he sees opportunity for developers to repurpose vacant mall spaces for fulfillment centers or online retail warehouses.
The Forecast for Real Estate in New Orleans and South Louisiana
Professor Gary Wagner, Economist at University of Louisiana Lafayette, discussed the forecast for real estate in New Orleans and South Louisiana:
- Recovery is currently robust and expected to stay strong over the next year. However, we have a long way to go to get back to pre-pandemic jobs numbers and may not see a full recovery of jobs until 2022 or 2023. In Louisiana metropolitan areas, the most significant losses in jobs have occurred in Lafayette and New Orleans. Recovery has been rapid in Baton Rouge.
- Economists are not projecting a deep or long recession. Consumer spending in the second quarter of 2020 was down 35% from 2019, but spending on housing has been increasing. Debt-to-income ratio metrics are also at or near an all-time low, which means households are in good financial positions to weather the economic downturn. The interest rate environment is also expected to be favorable for a long time, which is a reason to be optimistic about recovery. Home price growth has been solid despite the pandemic and is supporting recovery across the country.
- Locally, New Orleans area growth is around 4% annually, which is good. The Louisiana economy is more volatile than other areas of the country due to our cyclical industries (oil and gas and hospitality) and is estimated to grow at 75% of the national pace. Downside risk is that the unpredictability of COVID-19 and increases in housing inventory will cause prices to soften, and with respect to New Orleans specifically, the publics’ desire to travel is uncertain, making it hard to predict how recovery will proceed.
Changing Climate of Business and Politics in Louisiana
Stephen Waguespack, President of the Louisiana Association of Business and Industry, discussed the changing climate of business and politics in Louisiana:
- Priorities for Louisiana politics include tort reform and making the legal climate more business friendly, making the tax structure more competitive with other states, improving education and promoting quality of life items such as safety.
- Big recent bills include limits on the governor’s emergency authority and an unemployment trust fund freeze to give the legislature time to find funding.
The Impact of National Politics on Real Estate Industries
A panel of National Association of Realtors lobbyists discussed national politics and the impact on real estate industries:
- Discussions regarding additional COVID-19 relief are progressing slowly. The senate will be voting on a second round of Paycheck Protection Program funds soon, and all sides seem to acknowledge that it will not pass. Some lobbyists are therefore focusing on simplifying the forgiveness process for PPP and working on tax reform legislation.
- Concern is increasing regarding the negative impacts of the CDC eviction moratorium on landlords and most politicians seem to agree that landlords need assistance. As such, rental assistance has been included in all proposals for COVID-19 relief packages, but the method of providing such assistance is not clear. Lobbyists are exploring the ability to use existing programs to provide assistance in the interim. Landlords are also separately exploring legal challenges to the eviction moratorium.
The New Economy in New Orleans
Steven Sheffrin, Professor of Economics at Tulane University, discussed the new economy in New Orleans:
- New Orleans is recovering much more rapidly from COVID shutdowns than it did from the great recession. For all of 2020, GDP is projected to fall only about 4%. However, smaller firms have been harder hit than larger companies.
- Large retail stores will likely be replaced with smaller token stores with minimal inventory. Conferences and continuing education events may move permanently toward online options.
- Job reallocation is expected to double, and in connection with that, the general unemployment rate is expected to be higher (closer to 5-6% than 3-4%) in New Orleans.
- Louisiana has had significant fiscal disruption as a result of COVID-19 in comparison to other states, and New Orleans is one of the cities expected to face the most disruption due to its reliance on tourism and entertainment.
- Debt and deficits have been increasing for years already, and COVID-19 has increased this trend. We can expect government fiscal action to cope with this, which may lead to inflation and/or higher taxes.
- New Orleans should prepare for a few slow years, but people still want to travel.
Banking in the Post-COVID Environment
Joe Uzee, Vice President at Golf Coast Bank and Trust, and John Zollinger, Market President of Home Bank, discussed banking in the post-COVID environment:
- Historically low rates have resulted in high and increasing numbers of transactions, which is great for the real estate industry. Online banking and mail away closings are becoming more prevalent. Mortgage lenders are busy, and capacity is limited.
- In New Orleans, inventory is limited, and properly priced homes are selling quickly. Limited inventory is also causing people to refinance or use home equity lines of credit to renovate.
- Going forward, there is a bit more concern among lenders regarding the possibility of defaults because increased unemployment benefits and paycheck protection program loans are dropping off. However, banks have increased reserves to address this. Foreclosures may drive prices down, but interest rates should balance this. Currently, lenders are giving borrowers time to catch up if they can at least pay interest.
- It has become more difficult to qualify for a loan in certain circumstances. There are particular credit concerns with respect to oil and gas and tourism and hospitality. Short term rental loans are less desirable. Lenders have less appetite for risk and want more cash equity, a proven track record and liquidity in deals.
- Affordable housing, healthcare, residential home building and owner-occupied rentals as well as warehouse and distribution are seen as areas of interest, safety and opportunity.
Innovation and Best Practices in Development
Alejandra Guzman of New Orleans Business Alliance, and Walt Leger of New Orleans and Company, discussed innovation and best practices in development:
- In 2019, New Orleans welcomed 19.75 million visitors who spent $10 billion in direct spending, which created significant tax revenue. Group travel has significantly decreased in 2020 as compared to 2019, and airport travel is down 60% in September, 2020 from September, 2019 despite excellent reviews of the new airport. However, interest in travel is increasing, particularly from drivable locations, and this is expected to continue.
- New Orleans has lost its reputation as a virus “hot spot,” which indicates that mitigation efforts are working. Tourism marketing is being reimagined to remind people of the diverse options New Orleans offers and to emphasize safety. New campaigns include a drive market campaign for people who can visit without flying and a fall restaurant-focused campaign.
- Tips for creating value in real estate during this complicated time include leveraging opportunity zones, focusing on equity and diversity, using data to determine needs in real time, and promoting relationships with community leaders.
Removing Barriers to Affordable Housing
The Principal Planner for the New Orleans City Planning Commission (CPC) discussed the Housing Opportunity Study ordered by Mayor Cantrell to explore how to remove barriers to affordable housing:
- 37% of households are paying more than 50% of their income for housing, and 56% of renters are otherwise cost-burdened by housing, demonstrating a clear need for more affordable housing. New Orleans has become less dense over time, due to decreased population after Hurricane Katrina but also due to suburban sprawl arising from lack of affordability in the City.
- Inclusionary zoning, discussed in this prior article, “Affordable Housing Perks and Pitfalls,” is not going to solve all of the City’s affordable housing challenges. Therefore, Mayor Cantrell asked CPC to consider other ideas to increase housing options such as allowing conversion of existing properties to new uses, using public land, adjusting bulk and yard regulations, using accessory structures for dwellings, using blighted and vacant properties and allowing tiny homes, particularly for substandard lots.
- The study’s goals include providing safe, affordable, accessible housing for all, removing unnecessary and exclusionary regulatory impediments to affordable housing, providing a diverse range of development options, streamlining regulatory processes, establishing affordable housing incentives and expanding community engagement.
- The study is not yet complete due to a need for input from other agencies, but CPC hopes to have the key findings and recommendations published by the end of 2020. Then the next step will be crafting legislation for approval by City Council.