Betting on the Big Easy

Why snapping up real estate in coastal South Louisiana might not be the smartest thing to do right now

Hurricane Delta (2020) didn't make the top ten list. NOAA photo.

The Big Easy online magazine may have overdone it in a piece last month titled "Why Now is the Right Time to Invest in Louisiana Real Estate: An In-Depth Look." The message of the piece is that (1) yes, prices are low in Louisiana right now, but (2) that's an opportunity for buyers, because (3) the high interest rates and skyrocketing insurance premiums that are squelching demand might go down later.

The author points out that investors who bought houses following the 2008 market crash "benefited immensely" when the market bounced back. "Louisiana's market is poised similarly today," he continues. "By purchasing property in a downturn, investors stand to gain not only from market appreciation but also from the natural appreciation of real estate over time."

Unlike the situation following the 2008 market crash, though, climate-change-driven property value destruction, demographic disruption, and municipal pain in Louisiana are all likely irreversible, whatever happens to interest rates. 

Right now in Louisiana, and particularly in coastal South Louisiana, houses are sitting on the market for weeks. Statewide, the average house is on the market for more than six weeks and sells for about 7 percent below asking price. According to Redfin, the overall state housing market is "not very competitive."

Using Redfin data, New Orleans ranks as the slowest large-city real estate market in the country. (Cape Coral, right there in the Ft Meyers area, ranks as the slowest mid-size real estate market.) Homes for sale in New Orleans sit on the market for a median number of 93 days and house prices have gone down nearly 8 percent over the last year; First Street Foundation says that heat, flood, and wind risks in New Orleans are "extreme." The story is similar for Lake Charles: high risks and slow sales.

The property insurance picture in coastal South Louisiana is more than difficult. A dozen smaller insurers in Louisiana, several of whom used an "affiliate model" through which they shifted all the actual work to companies that were subject to less oversight, failed following storms in 2020 (Hurricanes Laura, Delta, and Zeta), and 2021 (the stunning Hurricane Ida that took out the New Orleans power grid and caused $36 billion in insured losses), leaving tens of thousands of Louisianans without payouts. More followed them, and something like sixth of the state's insurance market became insolvent. 

It's a leaky boat that appears to be taking on water too fast to be bailed out. A state insurance group borrowed $620 million to cover claims that insolvent insurers hadn't been able to pay. To pay back that $620 million loan, insurers in Louisiana are now subject to a special assessment, which they pass on to policyholders. More insurers are going insolvent, and the assessments keep growing. The state insurance group is sending out hundreds of millions of dollars a year to cover insolvencies and is on the hook for more than a $1 billion at this point—which means taxpayers are responsible for this tab.

In spring 2023, lawmakers in special session passed a $45 million grant program to reward insurers for sticking around and writing policies. It didn't work. Meanwhile, the number of policies taken on by the state-run insurer of last resort, Louisiana Citizens Property Insurance Corp, ballooned to over 133,000 by the end of 2023 (from 40,000 in late 2021), because many people in Louisiana couldn't find insurance on the private market. By law, Citizens has to charge at least 10 percent more than other insurers. It raised its rates by 63 percent in January 2023, so that means people who have to sign up with Citizens will be paying more. Citizens is "depopulating" its list of policies by persuading private insurers to take them on—but who knows whether those insurers will stay standing.

Meanwhile, the Louisiana state legislature is smoothing the way for insurance companies to refuse to renew policies for risky properties. A new law signed by Gov. Jeff Landry on May 7 (HB 611) will permit companies to drop five percent of their policies—and where they plan to drop them will be treated as proprietary, trade secret information. Companies will also be allowed to raise deductible thresholds to up to five percent of a home's value. Last year, the state insurance commissioner allowed insurers to raise rates more than once a year, and lifted profit caps. 

Louisiana State Rep. Gabe Firment told a local TV station recently that he thinks the legislation will help stabilize the teetering Louisiana insurance market: "I'm very confident that the legislation that's being passed on the property side will create a more favorable environment and will give consumers options that ultimately will lead to a more stable market and hopefully downward pressure on premiums," he said. That might happen someday, but in the meantime premiums will be going up—as they are for federal flood insurance in Louisiana (for which premiums will gradually increase by up to 1,000 percent in some parts of the state). 

And they should. It's risky to live there. 

All of this is contributing to a gloomy outlook for Louisiana real estate, and for the fortunes of the state in general. People will leave. Thomas Frank of E&E News recently reported that Moody's is bluntly predicting that most of the state will soon see a "severe" loss of working-age people. It's high insurance costs (people living in Louisiana pay more of their income for property insurance than other Americans), but it's also an awful economic outlook and the "state's susceptibility to natural disasters," Moody's says. (Premiums are going up everywhere, but Louisiana is a place where climate effects and insurance hikes are particularly visible right now.)

Coastal Louisiana is heading toward—or is already in—a spiral of departures and lower property values that will make it more difficult for cities there to provide essential services to their residents. And it is likely the very old and the less well-off who won't be leaving. That's a demographic disaster for state revenue. What happens when that state insurer of last resort can't borrow money any more? 

So, Big Easy Magazine, it's not clear there are great real estate opportunities in coastal Louisiana. The future is not bright.