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Excerpted from the Q4 2002 CTG Investment New Orleans Market Overview [prepared by Halo Appraisals, LLC]. Analysis of the prior year is also available. The New Orleans Market (Shotguns and Condos) The market indicators for the fourth quarter show that the New Orleans real estate market is still moving "sideways.” Low mortgage rates and tepid economic conditions continue to dictate the terms. The supply of residential housing declined in December Despite a 9.3% increase in apartment inventory for this quarter over the prior quarter, there was a 5.4% decrease in inventory for December from November. This is the first time in 2002 that monthly listing inventory, the number of apartments available for sale, actually declined from the prior month. In addition, the rate of increase in apartment inventory began to ease over the past four months. Beginning with September 2002, apartment inventory changed at a rate of 16.6%, 9%, 6% and –5.4%. The reduction in growth of total inventory may be an early sign of stabilization in the housing market. Sales prices are relatively steady The three primary price indicators: average sales price, median sales price and average price per square foot show mixed results for the quarter indicating relative price stability. The average sales price fell 4.8% to $808,657 from the $849,103 seen in the prior quarter but the drop in this indicator is directly related to the decline in the average size of an apartment. This pattern is further supported by the increase in the average price per square foot. The average price per foot rose 3.3% to $669 per square foot, a record level for this study. Median sales price is consistent with this finding seeing a modest 1.2% increase to $525,000 from the $519,000 seen in the prior quarter. Smaller apartments are driving the market In the current quarter, 78% of all transactions were below $1,000,000 up from 77% in the prior quarter. The trend toward smaller apartments has been occurring quarterly over the past two years. The average apartment square footage has dropped 15.8% to 1,209 square feet from the same quarter two years ago when the average apartment was 1,437 square feet. Part of the decline is attributable to the gain in market share of the studio and one bedroom market. In the first three quarters of 2002, they comprised 48% of all transactions but increased to 51% in the current quarter. It is interesting to note that the market share for this segment was 46% for all of 2001. This market segment is much more sensitive to lower mortgage rates and as a result has shown vigor despite weak economic conditions. It takes longer to sell an apartment The average days on market expanded by 32 days over the prior quarter to 151 days, the highest average seen in more than five years and highest quarterly increase on record. The average days on market is defined as the number of days between the last list price change, if any and the contract date. However, the average is still in line with historical norms indicating more balanced supply-demand conditions. Neither the buyer nor the seller has the clear advantage at this point. This is a pronounced change from the past several years, when chronic lack of supply created a seller’s market. The number of sales has decreased to historical norms The average number of sales declined 9.5% from the prior quarter to 2,028 transactions. Although this represents a drop from the 2nd and 3rd quarter number of sales of 2,726 and 2,241 respectively, it is at a level consistent with the prior two years. After excluding the prior two quarters with their unusually high levels due to pent-up demand and lower mortgage rates, the number of sales over the past two years averaged 2,055 sales per quarter. At 1.3% above the current quarter total, it is consistent with the current quarter and demonstrates current market stability. Overview A lot has changed in the New Orleans residential real estate market over the past year. The same quarter last year was initially paralyzed by the effects of September 11th and came as the country was already slipping deeper into a recession. Efforts by the Federal Reserve to stimulate housing demand and consumer spending was successful beyond expectations. The benefits of lower mortgage rates on all housing activity despite weak employment conditions were significantly underestimated as evidenced by the high sales volume in all of 2002. Currently both local and national economic conditions, while still weak, appear to be stabilizing. The stock markets have shown some improvement in recent months, mortgage rates are still near historic lows, mortgage originations are at record highs, and the unemployment rate, while still pronounced, appears to have reduced its slide. However, budget deficits, tax increases and the possibility of war abroad have placed an element of uncertainty. Since these conditions have existed for several quarters it is already built into the current market. The real estate market and related industries continue to be one of the better performing economic sectors as investors continue to look for alternatives to the more volatile financial markets. Comparisons to the prior quarter are more relevant than prior year quarter Although comparisons are made in our market matrix tables to the prior year quarter due to the format of the report, the effects of September 11th cause the comparisons to be skewed. Due to the temporary but significant drop of most indicators at the end of last year in this category, it would appear that there was double-digit changes in most categories in the past year. More emphasis has been placed on comparisons to the prior quarter to understand where the market is today. Methodology: The market-wide coop and condo data used in this report was collected during the normal course of business for Halo Appraisals, LLC and Insignia Douglas Elliman and is based on all property sales available within each defined market area. Shotgun Double Market Despite increases in apartment inventory and marketing times, prices generally held firm or saw modest increases in the current quarter. It is taking longer to sell an Shotgun single! It took an average of 33 more days to sell an Shotgun single this quarter up to 152 days. For perspective, it took an average of 91 days to sell an apartment in the 4th quarter of 1999. The average days on market has been hovering around 120 days for the past two years. This is the first significant change since the 23 day expansion that occurred in 2000 after the Nasdaq market correction and is reflective of the increase in apartment inventory. Demand returned to normal as supply gained The inventory of coop apartments increased 9.9% to 3,961 units over the prior quarter total of 3,604 units in the prior quarter. The total also exceeded the 3,704 units seen in the prior year quarter immediately after September 11th. In addition to the increase in supply, the average number of sales dropped 11.7% to 1,291 units which is more in line with levels seen in 2000 and 2001. The 2nd and 3rd quarters of 2002 saw a surge of apartment sales as a result of pent-up demand from the end of 2001 as investors withdrew from the financial markets and took advantage of low mortgage rates. Flat price levels to modest increases Although the average sales price declined 5.3% to $689,002, the average price per foot rose 3.7% to $621, the highest ever recorded in this study and serves as a partial offset to the decline in prices. In addition, the average size of an apartment dropped 8.6% to 1,110 square feet which reduced the overall average sales price even though the price per square foot rose. The median sales price was unchanged from the $425,000 seen in the prior quarter, the highest coop median sales price seen in this study. The apartment mix was basically unchanged The studio and 1-bedroom markets only expanded 1% to a 54% market share up from 53% in the prior quarter. The apartment mix across all size categories saw very minor changes over the prior quarter. Even though the size of an apartment decreased this quarter, the average prices of nearly all size categories increased. Price averages within all but the 4-bedroom categories rose The average sales price of a studio apartment this quarter was $235,244, a 2.7% increase over the $229,042 last quarter. The 1-bedroom apartment average increased 6.0% to $406,806 over the $383,766 seen last quarter and was the highest ever overall average sales price of a 1-bedroom apartment. The 2-bedroom market jumped 13.2% to $897,501 from the $793,048 average seen in the prior quarter. The 3-bedroom market average increased 2.3% to $2,379,080 from the $2,324,679 seen last quarter. The 4-bedroom market was the only segment to slip, seeing a 4.9% decrease to $5,415,555 from the $5,692,188 seen in the prior quarter. This is likely due to the small size of this segment and therefore greater price fluctuation. Condo Market The erosion in the number of sales, expansion of marketing times and increased negotiability brought demand and supply into balance for the quarter. Smaller apartment sales still dominate although market share gained at the high end. The average sales price declined but remained above $1,000,000 The average sales price this quarter declined 5.5% to $1,018,256 but was the third consecutive quarter the average exceeded $1,000,000. This matches 2001 which also saw three quarters with average sales prices just over the $1,000,000 threshold. The median sales price dropped 9.4% to $720,000 but was still higher than all four quarters posted in 2001. The decline in both these indicators is partially reflective of the trend toward smaller apartments stimulated by low mortgage rates and a weakened economy. Average price per square foot rose for the 4th successive quarter The sales price per square foot increased 1.9% to $752 per square foot over the prior quarter. Despite recessionary economic conditions, the average price per square foot has risen 7% since the beginning of the recession in mid-2001. This increase serves as a partial offset to the declining average apartment size on the average sales price. The average size of a condominium apartment that sold this quarter was 1,354 square feet, a 7.2% decline from the prior quarter average of 1,459 square feet. Aside from the prior year quarter, the current quarter has the smallest average size since the third quarter of 1998 when the average was 1,307 square feet. This is due to the targeted development over the past several years toward larger apartments. Sales decreased as negotiability increased The condo market saw a 5.4% drop in the number of sales to 737 units which is the third consecutive quarterly decline since the all-time record level of 1,057 units sold in the second quarter of this year. The listing inventory of condominium apartments grew 8.2% to 2,016 units from the prior quarter. With a drop in demand and an increase in supply, it would be expected that the average discount from list price or negotiability, would increase. The listing discount increased to 5.1%, while still considered a historically normal rate, is well above the 1.7% discount seen in the prior quarter. It takes longer to sell an apartment One of the by-products of the shift toward a more balanced supply-demand market has been the expansion of the days on market this quarter. It took 25 more days to sell an apartment this quarter for an overall average of 145 days. For perspective on how tight inventory was a few years ago, it took 81 days, or 64 fewer days, to sell an apartment in the same quarter of 1999. Historically, the overall condo apartment market has always taken longer to sell than the coop market because the statistics include new projects as well as re-sales. The 2-bedroom apartment segment lost market share The 1-bedroom market gained 7% at the expense of the 2-bedroom market which lost 8%. This demonstrates the continued strength of the entry-level market. Surprisingly the 3-bedroom and 4-bedroom markets gained 2% market share for a total of 7% up from 5% in the prior quarter possibly indicating future improvement in the high end of the market. However, the 3-bedroom and 4-bedroom market share in the same quarter 2 years ago was 12% illustrating that much improvement at the upper end is needed to approach prior levels. Luxury Market All market indicators in the luxury category weakened this quarter. This segment has been the hardest hit by weak local and national economic conditions that have proliferated over the last 18 months. Prices of luxury apartments declined The average price per square foot declined 4.2% to $1,123 from $1,172 in the prior quarter. The average sales price dropped 13.3% over the prior quarter to $2,713,761 which is 8.6% below the average of $2,969,751 for all of 2001. Even though last year’s average were tempered by the affects of September 11th , the current quarterly average is still lower than all of 2001. Even after excluding the 4th quarter of 2001, the current average sales price is 17.3% below the average seen in the first three quarters of 2001. Median sales price also experienced a decline, falling 5.8% to $2,260,000 from the $2,400,000 level seen in the prior two quarters. Luxury apartments are taking longer to sell The time it takes to sell an apartment in this category was 185 days, an increase of 36 days or 24.2% over the prior month. Historically, this market segment experiences the longest market times but is now at levels considered more historically normalized. There is more price negotiability The average discount from list price in this market was 9.4% which is significantly higher than the 3.4% seen in the prior quarter and more than double the 4.5% discount seen in the overall market. Note: This sub-category is the analysis of the top ten percent of all coop and condo sales. The data is also contained within with the coop and condo markets presented. Loft Market After experiencing significant pent-up demand in the first half of 2002, the number of loft apartment sales is now more in line with the sales activity seen throughout the prior year. Size and number of apartments decreased The number of loft apartment sales fell 26.3% to 154 units from the prior quarter after three consecutive quarters of record sales levels. This amount is more in line with the sales activity seen throughout 2001. The seemingly unlimited market acceptance of large loft space has dissipated and a trend toward smaller space may have emerged. The average size of a loft apartment was 2,009 square feet this quarter, 8.8% smaller than loft apartments that sold in the prior quarter. This pattern is consistent with overall coop and condo markets as smaller apartments have gained favor due to weaker economic conditions and lower mortgage rates. Prices weakened slightly Although the average price per foot increased 3.3% to $697, the 8.8% drop in average apartment square footage more than offsets the increase in the average price per square foot. It would follow that there would be a decline in the average sales price and possibly median sales price. The average sales price fell 5.8% from the prior quarter to $1,400,489. Median sales price followed a similar pattern, declining 3.5% to $1,250,000. Increased time and negotiability The average days on market and average discount from list price weakened this quarter. On average, it took 154 days or 26 more days than the prior quarter to sell a loft apartment. This closely followed the overall market average of 151 days on market. The average discount from list price rose to 8.2% from 6.6% seen in the prior quarter. This change suggests increased price negotiability but also reflects the widening spread between sellers and buyers, resulting in a lower number of sales. Note: This sub-category is the analysis of all coop and condo loft sales available. The data is also contained within with the coop and condo markets presented. Important Notice: This analysis may not be reproduced or used in whole or in part, except with proper credit as to its authorship. To view general information on the preparation of the market reports view the methodology section. |
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