NOLA May Be the Toughest City in America for Real Estate

After adjusting for inflation, the long-term home pricing trend for New Orleans is significantly down since 2000. Perhaps worse, current home prices are trading at a 14.0% discount relative to this trend. Said another way, the trend for home prices in New Orleans is down and current prices are below that trend.  Source: Top 100 US Housing Markets -- Inflation Adjusted.

Population growth is one of the quickest cures to real estate problems.  Unfortunately for New Orleans, the city has experienced a decline of 3.3% in population over the last 10 years. So, the population of New Orleans is going in the wrong direction to help the city’s housing market. Source: Stats American -- Big Radius Tool.

If real (inflation adjusted) prices are trending down and the population is decreasing, what about rents? Unfortunately, here again, there is no good news because New Orleans’ average rental is leasing at a slight premium of 1.7% relative to the city’s long-term rental pricing trend. Thus, on average, New Orleans residents are paying slightly above where rents should otherwise be based on a history of past rents.  Source: Waller, Weeks and Johnson Rental Index.

New Orleans could be the toughest real estate market in the country right now.  Both prices and rents are going in the wrong direction for local households. Prices (after adjusting for inflation) are trending down and have been for some time, implying homeownership might not be wealth creating for New Orleans’ households. Currently, rental units are trading at a slight premium, and the city’s population is decreasing.

Is there any good news for New Orleans?  With a current price-to-rent ratio of 17%, which is below the city’s average price-to-rent ratio, now might be the time to purchase a home. This is so because lower than average price-to-rent ratios usually signal the potential for property appreciation. Source: Price-to-Rent Report.

Ken Johnson, Ph.D.
Christie Kirkland Walker Chair of Real Estate
The University of Mississippi
School of Business Administration
Contact: khjohns3@olemiss.edu