Local homebuyers ‘get hit from all sides’ as mortgage and insurance costs soar | Economic news
Earlier this year, Gentilly resident Courtney Latiker was thrilled that she and her two teenage daughters, who live in a rented house in the Milneburg neighborhood, would soon be able to move into their own home.
She secured a mortgage lender, enrolled in a first-time buyer program, and prequalified for a loan. She found a three-bedroom near Hayne Boulevard in New Orleans East that had the features she wanted, including good closets.
Then a big shoe fell: “Insurance prices skyrocketed,” she said.
Even though his target home was in a low flood risk area, Latiker’s buying effort clung to FEMA’s new flood insurance rate structure, which increased his projected premium and pushed his total cost above what his lender had authorized.
“Rising costs knocked me out,” Latiker said.
At a time when the most obvious challenge for New Orleans-area homebuyers may seem to be rising mortgage rates, local agents say multiple issues threaten to chill what has been a housing market. boiling.
Mortgage rates have soared, but the costs of homeowners and flood insurance have also increased in many areas. At the same time, inflation eats away at the woolen stockings. All told, it became what one agent called a nightmare situation for residential real estate in the area.
“We are hit from all sides,” said real estate agent Bryan Jourdain.
Latest figures from the Gulf South Real Estate Information Network, which tracks regional home sales, showed homes were selling fairly quickly across the 10-parish metro area in May, with homes going off the market in 25 days on average, compared to 35 days of the same month a year earlier. The median selling price this year, through the end of May, is $278,000, about 9% higher than last year.
But the report does not cover the month of June, when the US Federal Reserve’s 75 basis point hike put pressure on mortgage rates. And monthly data offers a warning sign. The number of closures in May fell 7.4% from a year ago, and closures are down more than 8% since the start of the year.
Meanwhile, market watchers say parts of the residential sector have already started to cool.
David Favret, president of the New Orleans Metropolitan Association of Realtors, predicts that higher mortgage rates “could have a chilling effect” on the market. So far, the impact on prices has been limited and he expects a “soft landing”. But he expects the high end of the residential market to be the first to feel the impact of rising mortgage rates.
“Home prices above $800,000 are starting to drop, so I predict we’ll see the impact in the luxury market first,” he said.
Jourdain, a New Orleans agent who recently sold several properties to Slidell, said while higher mortgage rates are making buyers nervous, insurance costs are breathtaking.
Four hurricanes have made landfall in Louisiana since 2020, producing more than half a million claims. The fallout has put increased financial pressure on insurance companies to cover losses. Seven companies with in-state policies failed and a dozen more pulled out of the state, leaving would-be owners with fewer options and skyrocketing premiums.
In addition, more than 13,000 people have moved onto the rosters of Louisiana Citizens Insurance Corp., the state’s insurer of last resort that must charge more than private market coverage.
“I just asked a client to get a $10,000 quote on home insurance,” Jourdain said. Before his client made an offer on the target home, Jourdain met with the existing owners and learned that they were paying $2,800 a year for coverage.
“I knew the buyer would have to pay more, but I assumed the premium might be around $5,000,” he said. “$10,000 is ridiculous.”
For buyers who can afford such surprises, price jumps are unlikely to separate them from a new home. But for first-time buyers like Latiker and others who must rely on loans to close deals, such unexpected cost spikes can be fatal.
Rates are rising
While acknowledging that higher interest rates are likely needed to fight inflation, Jourdain said rates had risen too quickly. “It wasn’t that long ago that some of my clients could get a mortgage rate of 2.5%, and now getting rates around 6% is just too fast,” he said. declared. “We actually had to requalify some of our customers (for a mortgage) because the new interest rate pushed them out of what they could afford.”
Agents acknowledge that the low interest rates of the past couldn’t last forever, but they say buyers and sellers need a measure of predictability that’s lacking in today’s market.
“You can work with the system if you know where it’s going, but when rates go up dramatically it hurts people in a lot of ways, and not just in buying a home,” said Jim Kerrin, realtor at Latter & Blum in New Orleans.
Kerrin points out that everyone faces higher costs for food, transportation and services as a result of rising inflation.
Additionally, many Louisiana residents will soon face higher electric bills due to a recent rate increase by Entergy Louisiana. And homeowners in Orleans Parish may see higher property taxes as a one-year reduction related to last year’s Hurricane Ida expires and many homes return to their pre-Ida assessments.
Difficult for beginners
Belle Chasse-based agent Bonnie Buras, who calls the triple whammy of mortgage rates, flood insurance and homeowners coverage a “nightmare”, said buyers who really want to move are finding ways to do it.
She points to a couple she worked with who had written six different offers but failed to land a house because the offers had to be based on the sale of their existing home.
“They eventually sold their house and moved in with their son,” Buras said. “Then they were able to make a cash offer on a new purchase, and we bought them a house.”
But for buyers who don’t already own a home, things can be trickier. Kerrin noted that in the past, first-time buyers often found buying a double bedroom a good way to enter the market, as they could live on one side of the house and use the rental income. on the other side to cover their monthly bill. .
“Last year people were doing it like crazy,” he said. “But now that (interest) rates have skyrocketed and insurance is so high, they can’t claim those houses anymore.”
Still, Kerrin said potential buyers shouldn’t give up on their dream. “It may take a little while for the market to stabilize, but there will be another deal around the corner,” he said. “You can’t just hibernate for six months because you might miss something – you have to keep looking, keep an eye on what you qualify for and be more realistic.”