[StBernard] As home values fall, owners of gutted, unrepaired homes face dim prospects for making a sale

[Westley Annis]

As home values fall, owners of gutted, unrepaired homes face dim prospects
for making a sale
Posted by kquillen August 01, 2009 20:40PM

With home values across the New Orleans area falling, one class of
properties arguably has the worst prospects of all: flooded, gutted and
unrepaired properties sitting on the market. 

Damaged homes are losing value faster than repaired homes in many areas,
with little prospect of turning around. And across Orleans Parish in
particular, damaged homes are languishing on the market.

Wade Ragas, a consultant and former University of New Orleans finance
professor who analyzes home sale trends twice each year for the New Orleans
Metropolitan Association of Realtors, said that the best flooded properties
are gone, and what remain are derelicts.


Those that sold early on, Ragas said, were ones that had good locations,
redeeming architectural features or convenience, such as an unflooded second
floor where the new owners could live while fixing downstairs. 

"I think the best of the damaged stock was bought," Ragas said. "The damaged
house purchasing activity is going to continue to have problems." 

Quite simply, with so many repaired homes on the market at falling prices,
who would want to take on a rebuilding project? With declining home values,
the prospects for repairing a property and selling it at a profit are also
diminished. 

Another obstacle is financing. Faced with a national lending crisis, banks
are cutting back on construction loans, the type of financing that would be
necessary to buy and restore a flooded property. Large national lenders have
increasingly frowned on making construction loans on flooded properties, and
many independent mortgage companies have gone out of business, leaving
small, local banks as the only options for would-be borrowers. 

"There was a time three years ago, we could finance anybody. It didn't
matter if you had bad credit, if you didn't have a down payment, we could
find an investor. Now, those days are gone," said Guy Williams, president of
Gulf Coast Bank, which is still making loans to renovate flooded properties
because of the importance to restoring the vitality of the bank's area. 

Indeed, unless buyers have plenty of cash and time to wait out the market,
purchasing flooded homes may not be a good bet. 

Real estate and land use practitioners say that New Orleans now faces the
gap-toothed "jack-o-lantern effect" that urban planners warned of in early
2006. Unrepaired homes could drain the value of occupied homes in the area,
a trend that is likely to become a political issue in the 2010 mayor's race.


"Where this issue will be of most significance is for whomever is the new
mayor of Orleans Parish," Ragas said. 

Tom Murphy, a senior fellow of urban development at the Urban Land Institute
and a former mayor of Pittsburgh, said that New Orleans needs a stronger
blight-busting plan. 

"What has been lacking in New Orleans from the beginning is a strategy,"
said Murphy, who served three terms as Pittsburgh's top public official and
who is now a board member of the New Orleans Neighborhood Development
Collaborative. "Everybody hates government to be involved until they need
it. This is a case where, without strong leadership and strong
decision-making, you start creating huge amounts of frustration for
homeowners." 

It is unrealistic to expect that individuals on their own will eventually
opt for demolition, since they would lose all value on their investment in a
home that didn't sell. And if even if they did demolish, a smattering of
tear-downs won't change the direction of a neighborhood. 

Road Home buyouts and soft second-mortgages are not enough to take care of
the problem, Murphy said. Cities like Pittsburgh, Cleveland and Baltimore
have found that it takes stronger incentives -- such as selling homes for
$1, with mortgage financing and rehabilitation money, in exchange for a
commitment from buyers to stay in the home for at least two years -- to
overcome blight. 

"What I found repeatedly is that cities need to create a market-changer,"
Murphy said. 

To formulate a plan down to the block level, Murphy said that New Orleans
also needs to collect much more detailed data about the locations of
unoccupied properties and what conditions are like elsewhere in the
neighborhood. "Part of it is a management issue for the city to have good
records and maps," Murphy said. Indeed, Ragas said that New Orleans and St.
Bernard have had very different approaches to flood-damaged properties. St.
Bernard has strongly encouraged rebuilding and demolition, while New Orleans
has taken a more laissez faire approach. Getting accurate demolition counts
in New Orleans isn't easy. Ragas believes that St. Bernard's efforts will
buoy the property values of homes that remain, and similar measures could
still help in places like eastern New Orleans. 

Claudette Reuther, a Realtor with Prudential Gardner in St. Bernard, said
that removing slabs and creating pockets of green space in neighborhoods is
better than having unoccupied homes. 

"The demolition is the best thing that can happen to St. Bernard Parish,"
she said. 

But Ivan Miestchovich Jr., director of the Center for Economic Development
at the University of New Orleans, noted that it's easier for St. Bernard to
pursue a strong demolition plan than New Orleans. 

In St. Bernard, the community and its housing stock are more homogenous, and
everyone suffered massive flooding. In New Orleans, houses endured anywhere
from six inches to ten feet of water, some houses have more historical value
than others, and the socioeconomic makeup of the community is more complex. 

"It's easier to go in and clean the slate in St. Bernard Parish,"
Miestchovich said. 

But Murphy said the fact that it's difficult is no excuse for New Orleans to
avoid the problem. "New Orleans needs to step up."