An influx of displaced Gulf Coast residents, as well as those setting up shop to provide rescue, relief and rebuilding efforts after Hurricane Katrina -- along with the obligatory group of speculators circling for real estate carrion -- may be creating a small Baton Rouge housing bubble that's as fragile as New Orlean's century-old levee system.
Home prices in Baton Rouge and surrounding communities have jumped and rentals have all but vanished since Hurricane Katrina forced hundreds of thousands of Gulf Coast residents to flee inland for safety.
Fortunately, the unexpected boom may not be as big or as widespread as originally reported -- for now.
"The problem with sudden appreciation is that it's temporary. In six months or a year from now, if people start saying 'New Orleans is my home. I'm going back,' then you'll have a huge inventory. Right now, the demand is outstripping the supply," said Herb Gomez, executive vice president of the Greater Baton Rouge Association of Realtors.
Should the influx become an exodus, those suddenly inflated home prices will topple like a home with a foundation undermined by a week of soaking flood waters.
Eighty miles up the Mississippi River from the town of New Orleans, the state capital, Baton Rouge, like other towns further inland from the Gulf Coast, have become towns of refuge for those displaced by the storm.
Only Katrina's windy rain storms hit Baton Rouge, but behind her wake came wave after wave of people looking for shelter, doubling Baton Rouge's population of 500,000 virtually over night.
A week after the storm, Baton Rouge Mayor Melvin Holden was seeking $10 billion in federal relief funds to pay for road, sewer and landfill repair and maintenance, due to heavier than normal traffic; for schools in which to teach the student population boom; and for funds to hire and house the necessary additions to teaching and medical staffs, the police force and the fire department.
Now a million-person city with an infrastructure for half that many, Baton Rouge has also suffered pressure on rents and the price of homes as buyers and renters vie for space and inflate a real housing bubble.
"We've had increases in sales and there's going to be a reasonable increase in the average sales price, but I don't know by how much yet until the sales are all closed. All we have right now are reports of pending sales. We won't know exact figures for several weeks. Anything you hear is anecdotal," Gomez said.
The anecdotes range from a doubling to tripling of home prices to homes purchased and apartments rented sight-unseen. Stories tell of homes that sold for $85,000 before the storm now fetch $250,000. Another says offers at tens of thousands of dollars over asking, previously unheard of, are now a market staple as virtually every home on the market has sold. Or so the stories go.
Anecdotes, however, are just that, in this case, recollections of individual transactions that haven't even closed. The appraisal my not fly. The loan could be rejected. The house could be iffy. Until the deed is done, cautions Gomez, the true impact will be unknown.
David McKey, broker/owner of Coldwell Banker -- Phelps & McKey Realtors, Inc. in Baton Rouge tells a less dramatic story than the anecdotal ones making media rounds.
He said many of the home buyers are financially well-off professionals. Markets with normal rates of appreciation always shudder when they arrive.
"Most of them are displaced business people whose business will not be in operation for some time to come if ever. Some will relocate up here," said McKey.
"The primary bulk of what we've seen in our office has been doctors, architects, attorneys, business owners," he added.
Those buyers were preceded by armies of volunteers, military personnel, insurance adjusters, federal workers, law enforcement officers and a host of others who needed somewhere to bed down each night -- for many nights to come.
"Army, Navy personnel created a dramatic increase in the rental market. We got an inordinate amount of calls the first few days from people looking to rent. That was sucked up first. As time went by, those renters turned into purchasers. There's not much left to rent," McKey said.
McKey said of the 3,200 to 3,500 homes on the market before Katrina -- a typical inventory level for the market -- 75 percent of them have been sold. Some of them at a premium.
During the first few days after the storm, buyers purchased homes for a steal -- the normal pre-Katrina average price of $150,000 to $157,000.
"Initially, it wasn't so much people raising the price. A lot of those prices were stable the first few days, unless they got caught in a bidding war. And we did have bidding wars," said McKey.
It wasn't long, however, before offers started to push up the asking prices.
"Anywhere from $10,000 to $15,000 above list price, that would be a house of about $180,000 to $200,000 just because they wanted to be in that spot and they knew if they lost this bid there wouldn't be any more," McKey said.
Remaining sellers, suddenly endowed with vastly reduced inventories, are now raising prices and the buyers keep coming, buying at an inflated price.
Still, McKey says the new prices are a lot less than those recalled in repeatedly published stories based on anecdotal evidence. Also, the normal inventory of homes for sale -- all of which did not sell at a premium -- are but a fraction of the town's existing housing stock. How much impact those sales will have on the entire Baton Rouge market remains to be seen.
Most people who live in the area, purchased a home there to live in to enjoy that community's non-New Orleans way of life, but still be within an easy drive of the Big Easy's attractions. Chances are, they aren't all going to all suddenly move out because someone is willing to pay them a premium.
Nevertheless, Baton Rouge's new home prices aren't going to return to pre-Katrina levels for some time to come.
Statistics from the recently released Office of Federal Housing Enterprise Oversight's Second Quarter 2005 Home Price Index reveals, in terms of home price appreciation, Baton Rouge ranked 219 out of 265 metropolitan markets. That put it just above the 50 slowest appreciating metropolitan housing markets in the nation. In five years, home prices in the Louisiana capital city increased only 21.58 percent.
The 4.68 percent increase in home prices in the past year, ending in the second quarter, 2005, has been a comfortable rate of appreciation and a good match for the lifestyle there.
"We've had increases in sales and a reasonable increase in the average sales prices, but nothing spectacular in the last six to eight years in a row. I don't even know what this event is going to do to prices," Gomez said.
As in every housing market in the nation, the buying in the Baton Rouge and surrounding areas nearby got a boost from flat interest rates as Freddie Mac reported last week rates didn't budge after falling by small increments each week for more than a month.
So, if rates rise, Baton Rouge will feel it, just like other housing markets.
"It (sudden price increases) will help some builders who have had houses sitting for while, but I don't think it's going to be a dramatic effect on our properties. There's a lot of demand in a short period of time and it's already waning," said McKey.
"I think you are going to see some adjustments. Houses are coming on the market with over-inflated prices. As time goes on, these folks will see they'll have to adjust their prices down a bit, especially if they were speculating or listed with exorbitant prices.
They'll take them off the market. People think it's the pot of gold at the end of the rainbow, but they will find out they are being a little too optimistic," McKey added.
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