Partner Margaret Glass recently attended the 12th Annual Economic & Real Estate Forecast Symposium at the Jefferson Parish Performing Arts Center. The presenters focused on rising interest rates, increased insurance prices and other challenges.
Panel on Economy: Trending into Uncharted Territory
- Dr. Jessica Lautz, Vice President of Demographics and Behavioral Insights for the National Association of Realtors discussed the state of the real estate market. A number of indicators show a contraction is already occurring and will continue into 2023. However, this contraction is not likely to be anything close to the Great Recession. Dr. Lautz noted that median days on market increased to 16 recently, but in 2011, home were sitting 100 days on market at times. The average number of offers is also down to the historic average of 2.5 from a high of 5.5. However, we are experiencing the lowest inventory since 1999. As such, home prices are still expected to rise. The share of distressed sales is currently 1% of all sales, while the share of distressed sales was 49% during the Great Recession. The differences between today’s market and the Great Recession arise out of tight lending standards, low inventory, and favorable demographics (millennials are at household formation age and retirees are staying in their homes longer).
- Gary Wagner, Economist for University of Louisiana Lafayette, discussed the economy generally. He noted that, at the national level, we have recently regained all jobs that were lost in the pandemic. Louisiana and New Orleans are slightly behind the national numbers but continue to recover. Locally, the service sectors have rebounded well, but oil and gas jobs have not recovered. National growth projections have been significantly downgraded, and analysts are projecting growth between 1-1.5% nationally. Louisiana is typically projected about 1% below the national level of growth, so we can expect growth to be fairly flat locally. Inflation is at a 40 year high and is expected to continue, which will likely cause interest rates to stay high. Wagner expects a 1.0-1.5 increase in benchmark interest rates this year, and he expects that these rates will continue to rise into 2023, potentially causing mortgage rates to go up to 8% and then stabilize around 7%. This will slow economic activity and cause the housing market to cool further.
The Environment: Exploring the Challenge and Costs of Long-Term Sustainability
- Jackie Dadakis, CEO of Green Coast Enterprises and Technical Chair of the Louisiana Unified Building Code Council, discussed the value of spending more on upfront costs in exchange for future benefits of resilient design. The state unified building code now contains provisions intended to help buildings withstand major hurricanes. They have also created certifications that benefit homeowners in the form of lower insurance premiums. For example, if you follow the building code requirements for fortified roofs, you can get an insurance discount of up to 25%. Dadakis also noted that if you build 1 foot above base flood elevation, the investment for that work pays for itself over the building’s lifetime. Finally, Dadakis noted that new construction with an energy efficiency certification (a home energy rating certificate) indicates a lower lifetime operating cost of the building.
- Jim Donelon, Louisiana Insurance Commissioner, discussed new legislation arising out of Hurricane Ida. The legislature has increased the amount of capital insurers must have from $3 million to $10 million, which is intended to reduce the risk of failure after a catastrophic event because the insurer will have more to lose. This motivates insurers to buy better reinsurance coverage. In order to incentivize insurers to return to our market, lawmakers also resurrected a post-Katrina program that provides insurers a grant of $5 million if they match it with their own $5 million and agree to write 50% of their new business in south Louisiana and 25% from prior Louisiana Citizens policyholders for at least 5 years. This program is not yet funded, and it requires about $45 million. The legislature also started a program providing grants for people to retrofit or build to fortifying standards, but this program is also unfunded. Donelon noted that the proposed 63% and 73% rate increases for residential and commercial Louisiana Citizens policies is due to the cost of reinsurance for those policies, which has doubled since Hurricane Ida.
Dynamic Industries: Adjusting to a Rapidly Changing World
- Chris Stelly, Executive Group Director for Entertainment and Digital Media with Louisiana Economic Development discussed Louisiana’s entertainment tax incentives, which include a 40% tax credit for movie production. These credits make Louisiana a top 5 film location destination in the country. There are also significant tax +incentives for digital development and sound recording.
- Jerry Bologna, Executive Director for Jefferson Economic Development Commission discussed bright spots in Jefferson Parish, such as increased sales tax revenue, and challenges, such as labor shortages and insurance costs. He noted major local developments include Avondale Shipyard, comprised of 260 acres on the Mississippi River, and the Ochsner’s Neuroscience Center on Jefferson Highway.
- Meghan McCormack, Chief Executive Officer of the St. Bernard Economic Development Foundation stated that St. Bernard Parish is the state’s fastest growing and highest GDP parish in the state. However, flood insurance is a major concern along with the perception of the parish being at risk for natural disasters. She noted that the container terminal being developed in St. Bernard Parish is of national significance in the supply chain.
Perspectives on the Future of New Orleans/Transformational Projects
- Tara Hernandez, President of JCH Properties, discussed the River District development which includes 40 acres on the Mississippi River intended to provide a competitive advantage for attracting conventions to New Orleans. Her group recently finalized an agreement with the convention center and should begin work in the second quarter of 2023. The River District area was formerly a cotton district and market street wharf that served as a slave market; now the development will have civil rights museum to memorialize and respect the history of the area. The developers plan to combine ground floor retail, a cultural museum, parking, 900 mixed income residential units (using low income tax credits) and office space. They plan to offer fiber internet and other advanced technology features. Construction is expected to be complete two years from commencement.
- Davon Barbour, President & CEO of the Downtown Development District, discussed his organization’s efforts to provide a safe community, attractive realm, and reliable infrastructure in downtown New Orleans. Property owners in the district pay extra property tax to run the Downtown Development District comprised of 160 blocks in downtown New Orleans. This area contains 21,393 hotel rooms, 93 residential buildings with 7,801 units and 8.9 million square feet of Class A office space. Barbour noted that the downtown population grew 91% from 2010 and has a 95% occupancy rate in residential units. DDD’s programs include business attraction, grants for restoration, retail support, market analysis, policy, and planning and development facilitation. Its “clean/safe” programs include public safety rangers, police details, private security patrol, payment for exterior lighting, litter removal, enhanced cleaning, and graffiti abatement.