[StBernard] Renovated homes are strongest sellers in N.O. market

[Westley Annis]

Renovated homes are strongest sellers in N.O. market
by Kate Moran, business writer 
Saturday January 26, 2008, 10:14 PM
The owner who walked away from a flooded house, stuck a for-sale sign out
front and crossed his fingers for a buyer in search of a bargain did not
exactly get a rush of interest last year. 

A new study of home prices around the New Orleans area shows that buyers
rewarded sellers who gambled and rebuilt in devastated areas like Lakeview,
eastern New Orleans and Chalmette. Renovated homes in those areas recovered
much of their pre-storm value last year, while prices continued to tumble on
homes that were gutted but otherwise left untouched. 

Wade Ragas, the retired University of New Orleans professor who prepared the
study, said buyers have gotten wise to the amount of money and drudgery it
takes to bring a damaged house back from the dead. Heartsick from being
displaced for two years, distrustful of contractors and insurance companies,
buyers are shopping for houses that have already been repaired for them. 

"People discovered that fixing up a damaged house is expensive," Ragas said.
"You've got to replace the electrical and plumbing and treat for mold, and
insurance companies sometimes lowball the estimate to fix those things." 

If Hurricane Katrina introduced wild swings in real estate values in late
2005, then 2007 was the year prices began to journey back to antediluvian
norms. Even as the value of repaired houses ticked up, the value of those
that never flooded began to come down from the dizzying heights they reached
after Katrina. 

Uptown New Orleans experienced its first price decline in two decades, but
Ragas said there is no reason for owners to panic. Average sale price
escalated in the tony 70115 ZIP code by $29 per square foot after the storm,
and owners have retained some of the equity they gained even though prices
have slipped by $17 per square foot from their peak. 

"We had such an uptick in valuation for so many years that we can have a
drop and still have very healthy prices," said Margie Inman, broker-owner of
Coldwell Banker TEC Realtors. 

While New Orleans has been spared the sudden decline in home values
afflicting other parts of the country, the market here has its cracks. The
supply of houses and condominiums for sale is more than double what it was
at the end of 2004 and 2005, and houses at the upper end of the price
spectrum have been slow to move as the professional class continues to
trickle out of the area. 

Ragas predicts that prices will soften across the New Orleans area in 2008
as sellers try to compete in a turgid market. Others say there is latent
demand among buyers who can afford a house but are waiting on the sidelines
for prices to come down. Interest rates, at their lowest point in decades,
could help tempt them back into the market. 

"It will be easier to sell your home in 2008 than it was in the fourth
quarter of 2007, because the mortgage market really fell into the tank in
the third and fourth quarter of last year nationwide," said Arthur Sterbcow,
president of Latter & Blum. "We see interest rates coming down on the
horizon, and that should take some of the sting out." 

'I'm disappointed' 

In a fanciful mood now and then, Voncile Lyons thinks about repairing the
home she lost on Driftwood Drive in eastern New Orleans. Then the practical
side of her brain intervenes. With her daughter off to college, she no
longer needs a three-bedroom house. She certainly does not need the hassle
of dealing with contractors. 

Rather than restore her home, Lyons pulled out the moldy walls and offered
it for sale about a year ago. She asked $75,000, then $65,000. A few offers
came in, all of them paltry, and Lyons said she refuses to give the place
away. Sometimes she thinks about pulling it off the market for a while.
Really, she does not know what to do. 

"I've tried to maintain it and cut the grass so it makes a good
presentation," Lyons said. "My neighborhood was lovely before the storm, but
I think some people are just afraid to move into the East because it's not
bustling like we thought it would be. I'm disappointed." 

For owners like Lyons who chose not to repair damaged houses, it has only
become more difficult to get an agreeable price for their property. From
eastern New Orleans to Lakeview to St. Bernard Parish, the price per square
foot of those houses has waned or eked out only small gains. 

In the 70127 ZIP code in eastern New Orleans, the price per square foot of
repaired homes appreciated by 23 percent during the past year. The price of
moldering real estate, meanwhile, grew by only 7 percent. 

The divergence in price between damaged and repaired real estate is perhaps
most pronounced in St. Bernard, where the value of renovated homes has
vaulted above their pre-storm value in all ZIP codes. In Chalmette, repaired
houses fetch $86 per square foot these days, compared with $81 per square
foot the year before the hurricane. 

"In a place that got hit that hard, that's amazing," Ragas said. "You're
seeing an enormous vote of consumer confidence that people want to go home."


Daunted by work 

Jon Luther, executive vice president of the Home Builders Association of
Greater New Orleans, said it has become more expensive for owners to repair
shattered property since the state adopted stringent building codes in 2006
designed to protect residents from the ravages of future storms. He expects
it will become more affordable to abide by the new codes once builders
become more comfortable with them, but in the meantime, the cost has helped
steer buyers to homes in move-in condition. 

"People saw there was a lot of work involved just to get them back to the
status quo," Luther said. "When somebody has gone out and already repaired a
home, it gets a buyer through the process without all of the mind-numbing
minutiae involved in trying to recover." 

If homeowners like Lyons have had difficulty unloading flooded property,
overall sales in eastern New Orleans began a dramatic rebound in the second
half of 2007. Six months ago, that area had a one-year supply of homes up
for sale. Now it has less than a nine-month supply, Sterbcow said. 

The Latter & Blum president says low interest rates have helped.
Middle-income buyers -- the sort who historically settled in the East -- are
sensitive to the cost of monthly payments and become more inclined to buy as
interest rates abate. For those willing to live amid a little devastation,
Sterbcow said the East offers large living space at affordable prices. 

"We are selling 82 houses a month now in New Orleans East," Sterbcow said.
"That is extraordinary." 

Dwight Cousin owned a condominium in eastern New Orleans that was destroyed
during Katrina. He could not wrangle enough money out of his insurance
company to rebuild the place, but he was determined to stay in the East, an
area he has "always loved." 

He bought a repaired home on East Rockton Circle for $150,000 last year, or
slightly less than he thinks it would have been worth before the storm. He
thinks he bought as prices in his neighborhood, which is half empty but
recovering, are beginning to appreciate. 

"Everywhere you go, you see construction, repairs and rebuilding," Cousin
said, noting that grocery stores and pharmacies have started to return.
"It's my opinion that the more houses are reconstructed, the more values
will go up." 

'A good investment' 

While many owners managed to recapture value by repairing their homes,
Sterbcow said prices of renovated houses will never reach their full
potential as long as they are surrounded by prairies of flooded and
abandoned property. 

In the 70124 ZIP code, which includes Lakeview and the Lakefront
subdivisions, the average sale price of renovated homes has rebounded to
$141 per square foot from $135 in the first half of 2007, but it still flits
below the pre-storm average of $158 per square foot. 

While the depressed prices work against the established homeowner who is
trying to sell, it has created an opening for others, especially for young
couples. "You ride through Lakeview, and there are a lot of for-sale signs,"
said Ivan Miestchovich, director of the Center for Economic Development at
UNO. "That being said, there is also an opportunity for people really
interested in moving into Lakeview who could not afford to do so before the
storm." 

First-time homebuyers Ashley Penot, 25, and Christian Crawford, 29, looked
in Metairie but decided to buy a flooded house in Lakeview from an investor
who had started renovating it. Not only did they get more space for their
money than they would have in the suburbs, but everything in the house, from
the roof to plumbing to the electrical wiring, will be new. 

The couple, who will marry in May, plan to close on the house next month. 

"I grew up in Lakeview, and there are lots of families and young children
there," Penot said. "There is hardly any crime. We thought the house was a
good investment. It's going to appreciate." 

Lauren and Christopher Homer, both engineers in their late 20s, also went
house-hunting in Metairie but felt that most of the interiors they saw were
dated or not ideal for cooking and entertaining. For $159,000, they bought a
gutted house on Vicksburg Street in Lakeview where they could design the
layout of the kitchen and other rooms without having to build a house from
scratch. 

While some buyers have shunned damaged houses, Lauren Homer said she and her
husband decided it would be affordable to renovate if they stuck to a budget
and spread out the purchase of some major appliances over months or longer.
Because they plan to be in the house for 10 years or more, Homer said "we do
not necessarily have to get everything we want right now." 

"Lakeview might have been affordable to us before the storm, but we would
have looked for a smaller house or been on a much tighter budget," Homer
said. "We don't want to be house poor." 

Overstock on north shore 

The resurgence of neighborhoods like Lakeview has begun to dampen demand on
the north shore, especially for newly built homes. 

St. Tammany experienced a rush of new home construction in late 2004, as
builders scrambled to avoid fees that the parish attached to housing permits
starting in 2005. The boom continued as south shore residents fled across
the lake after Katrina. 

Market watchers say the parish has been overbuilt. Sterbcow said there is an
11.6-month supply of homes for resale in the Mandeville area right now,
compared with a 13.2-month supply of new homes. 

"A lot of homes in Mandeville are only 2 or 3 years old anyway," Sterbcow
said. "They're not much different from new construction, except that they
already have lawns, neighbors have moved in next door, and you're not
worried about noise from more construction." 

Builders recognize the excess and have pulled back on new housing starts.
Sidney Fontenot, director of planning for St. Tammany, said the parish
issued nearly 1,310 permits for new single-family home construction last
year, down from 2,200 in 2006. 

"I wouldn't say there is a wholesale switch away from developing, but it has
slowed considerably," said Clifton Siverd, president of the St.
Tammany-Washington Parish Home Builders Association. "Everybody has pretty
much put the brakes on and allowed the inventory to be absorbed." 

Kate Moran can be reached at kmoran at timespicayune.com or (504) 826-3491