With the floodwaters gone, many are wondering what lies ahead for home sales and prices.
The devastating flood of 2016 laid waste to much of central Louisiana, on a scale not seen since Hurricane Katrina 11 years ago. More than 80% of the structures in Livingston Parish sustained flood damage, and 35% of those in East Baton Rouge. Other nearby parishes were severely affected as well.
As you may have seen in our 4-part series on flood insurance and related issues, our former home in St. Bernard Parish was completely flooded and lost to Katrina. While there are indeed differences between the flooding from Katrina and this year’s flood, there are many similarities as well. Just as in Katrina, entire neighborhoods have been devastated, and many thousands of homes have been made unlivable. As it was back then, everyone is asking with regard to houses: “Now what?”
There is no simple answer to that question, because issues such as FEMA payments, rebuilding requirements, and others remain unsettled. However, based upon our research of what happened in the years following Katrina, and our knowledge of the market, we can offer some informed analysis.
The main factor is that the supply of habitable houses is down, at least temporarily. There was already a shortage of available homes prior to the flood, and with tens of thousands damaged, that supply has now shrunk incredibly. The law of supply and demand will definitely apply, though with some limitations.
After Katrina, I saw some people raise the price of their undamaged houses ridiculously high just days after the storm, hoping to “cash in” on the sudden demand. However, since most home sales are financed, the price MUST be supported by an appraisal. This fact kept rampant price gouging to a minimum. At the same time though, there WAS a legitimate shortage of homes. Plus, buyers who had cash could afford to pay a reasonable premium to quickly get a house untouched by the hurricane. So, home prices indeed rose.
Danielle and I remain members of the New Orleans MLS, so I did some in-depth research of home prices before and after Katrina. I chose to compare homes which sold at a price of $250K or less; were in Very Good or Excellent condition; and were not foreclosures. I excluded St. Bernard Parish from the initial search, since EVERY structure in the entire parish (including our house) was declared uninhabitable after the storm.
From January 1, 2005 through August 28, 2005 (the day before Katrina) sales of homes meeting my search criteria averaged $92.59 per Square Foot of Living Area (SFLA). In this period, 4,309 such homes were sold.
I then ran the exact same search, for the same period 1 year later, in 2006. The average sales price per SFLA was $105.85. The number (volume) of sold homes increased to 4,487.
So, the average sales price per SFLA for these homes increased by 14.3% after Katrina, with the sales volume going up about 4.1%.I went back and applied the same search criteria to St. Bernard Parish. Prior to the storm, from 1/1/2005 through 8/28/2005, there were 246 sales, averaging $82.71 per SFLA.
Due to the utter devastation in the parish, it took a long time for rebuilding to begin, so only 7 (SEVEN) houses meeting my criteria were sold there in all of 2006! I therefore extended the post-Katrina comparison period through the end of 2007. During this time, 131 such homes sold, at an average price per SFLA of $92.28.
While the number of sales fell by 46.7%, the average price of those sales was 11.6% higher! It makes sense that the volume was down, since literally EVERY house had been damaged. It also stands to reason that prices went up, due to the low number of available homes. It is encouraging that even homes in an area which was completely destroyed, all of which had to be repaired, still sold on average for 11.6% more than before the storm.
In my opinion, our part of the state after the 2016 flood is a lot like New Orleans and its surroundings were after Katrina. Some areas were completely flooded, while others were untouched, and yet others fell somewhere in between. I think we will see a similar trend in prices, with non-flooded homes, and later, homes which flooded once and were well-repaired, increasing in price somewhere in the 10%-15% range. This estimate will NOT apply to homes which were heavily damaged and/or lie below Base Flood Elevation (BFE). Those will not fare so well, unfortunately.
The road back to full recovery from this disaster will be long and difficult. If you’d like to ask our opinion on your specific situation, we’ll be glad to do so. Just give us a call or send an email.
In my next article, I’ll talk about some of the issues, challenges, and opportunities you can expect with regard to real estate in the coming months.