The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
Southeast Louisiana Housing Market Update
After Katrina hit in late August 2005, the real estate market in southeast Louisiana did not behave as it did in the rest of the nation. Once it came to terms with the destruction, the region attracted a substantial amount of public and private capital, and a period of rebuilding and growth in the housing sector ensued. Meanwhile, other events played out in the region that had some effect on the real estate market: in April 2010, the BP oil spill took place and the region began to experience an energy boom. Both of these occurrences attracted additional capital into the region.
With this as context, the Regional Economic Information Network at the New Orleans branch of the Atlanta Fed thought it would be helpful to touch base with residential real estate contacts to see how housing markets in the region are faring these days.
In general, contacts characterized the current state of the regional housing market as “healthy.”
Existing home inventories in the area have returned to, and often fallen below, levels associated with market equilibrium. Business contacts indicated that declining inventories were being driven by greater absorption, a decline in the number of distressed properties moving through the pipeline, and hesitancy on the part of existing home owners to place their homes on the market. Time on market has declined for existing, move-in-ready homes in desirable neighborhoods while the number of offers for these properties has increased.
Contacts also reported that the rising interest rate environment has not yet had much of an effect on home sales. In a few cases, borrowers have had to adjust their price point in order to maintain affordability. Move-up buyers tend to account for a larger share of home sales; contacts noted that most first-time homebuyers are still struggling to return to the home-buying market due to tight credit conditions and declining affordability.
Appraisal difficulties have somewhat subsided, according to contacts, though difficulties still exist. One persistent problem is that appraisal management companies continue to send out-of-market appraisers. However, a noted improvement was mostly attributed to savvy, proactive agents, who now bring appropriate comps (comparable properties) to the attention of these out-of-town appraisers.
On the new-construction side, contacts noted that larger national and regional builders are gaining market share in southeast Louisiana housing markets. Vacant developed lot inventories are dwindling, as they are in many other Southeast markets, and there still is not much appetite for lending on land acquisition and new development. Unlike in many other Southeast markets (particularly in Florida and Georgia), community banks in this region tended to fare better throughout the financial crisis, according to contacts. As a result, they have been able to continue lending to small, local builders for vertical construction on existing lots based largely on relationships and track records.
So to wrap up, while there are still some aspects that are unique to the region, residential real estate conditions in southeast Louisiana for the most part seem to be in line with those of the Southeast and the nation. Contacts expect the energy renaissance to persist and predict that housing demand will remain strong as businesses continue to move executives and staff into the region. They expressed some concern about local regulations governing the development process and financial regulation governing lending, but their overall outlook for the regional housing market was fairly optimistic.
By Jessica Dill, senior economic analyst in the Atlanta Fed’s Research Department and
Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
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As we witness another hurricane hit the U.S. mainland, we recount our own region's past disasters and lessons we have learned regarding the economic impact of these events. It was six years ago that Hurricane Katrina struck, and we have written about that experience in past posts. Data are still coming in, but it appears that while flooding associated with Hurricane Irene caused severe damage in several areas, destruction was not as bad as many had forecast. Looking back at previous disasters can help us understand what lies ahead in terms of the economic impact of Irene.
In the Wall Street Journal's Real Time Economics blog, Conor Dougherty writes that:
"Areas hit by some of the biggest natural disasters have in many cases recouped the economic losses in the form of federal aid and insurance payments, according to data from Moody's Analytics and the Insurance Information Institute. Here's a chart of past disasters, their cost and the eventual tally of aid and insurance payments.
"Hurricane Katrina, which hit in August 2005, has been by far the most costly natural disaster in recent history, resulting in $140 billion in damage and lost output. (That figure is in 2011 dollars and does not include the impact of higher energy prices after the storm.) But over the following months and years, businesses, residents and governments in the area collected a total $149.2 billion in aid and insurance payouts.
"There is no dollar figure that can be attached to the loss of life, emotional toll and massive loss of population that lingers six years later. But with Hurricane Irene barreling down on the Eastern seaboard, it's worth noting the damage of lost property and output is often made up in the end."
A recent Brookings Institution publication, Resilience and Opportunity Lessons from the U.S. Gulf Coast after Katrina and Rita, makes another point about economic recovery from natural disasters:
"Opportunity is a critical component of post-disaster recovery. It is defined by the extent to which a community uses a disaster as an occasion not simply to return to normal but also to achieve a new and better standard of living."
What is the Fed's role in helping the economy recover from natural disasters? The first response is through our role in the payments system. Federal Reserve officials helped to ensure the country's payments and financial systems get back online as quickly and efficiently as possible. The Atlanta Fed's response to Hurricane Katrina is one example.
Our superb economic education staff also used Hurricane Katrina to develop a financial and economic education tool in Katrina's Classroom: Financial Lessons from a Hurricane. The program is a four-chapter, DVD-based curriculum developed to help people prepare for disasters and recover from them.
Another question to be addressed in the wake of a natural disaster is what the role of monetary policy should be. Again, looking back to Katrina, the discussion was primarily about the potential impact on overall economic activity and inflation from reduced oil supply and transportation disruptions on the Mississippi River. At the Atlanta Fed, the view was that trying to mitigate a temporary supply shock by easing policy may have adverse implications for the economy down the road. Some economic research goes so far as to suggest policy should tighten in response of temporary supply disruptions from disasters. In 2007, the St. Louis Fed published a study, "Monetary Policy and Natural Disasters in a DSGE Model: How Should the Fed Have Responded to Hurricane Katrina?" Authors Benjamin D. Keen and Michael R. Pakko wrote:
"In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that … a nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities."
Similar to how hurricane forecasters have improved their models by taking advantage of past experience and applying lessons learned, economic forecasters are also trying to improve their understanding of the economic effects of disasters and the optimal policy responses.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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Lessons from past weather disasters
We've been thinking more about the impact of the April 27 tornado outbreak and how the recovery is taking shape.
We are drawn to comparisons to Hurricane Katrina—not the impact on New Orleans, because that event was singular as a result of the flooding, but the impact on the Mississippi Coast, where damage was catastrophic and, apart from the storm surge, the area experienced no flooding.
A report prepared in August 2008 by the Gulf Coast Business Council, titled Mississippi Gulf Coast 3.0 Three Years after Hurricane Katrina, reported that:
"Construction and rebuilding not only stabilized the economy on the Mississippi Coast in the months after the storm, but also propelled [sales tax] revenues to new highs; in fact, the entire State of Mississippi saw a boom."
Marianne Hill, senior economist with the Mississippi Institutions of Higher Learning (IHL), wrote in December 2005 issue of Mississippi Economic Review and Outlook:
"As 2005 draws to a close, recovery efforts are focused on debris removal and clean-up, provision of assistance and services to Coast residents, resolution of insurance claims, and reconstruction planning. Within a few months, reconstruction efforts will be able to move ahead at full steam. Already most homeowners and businesses are back in the area, settling insurance claims, repairing damage and restarting operations."
In the June 2006 report, she wrote:
"The destruction caused by Hurricane Katrina last summer set back economic activity in the state, but the tremendous inflows of assistance since the disaster have boosted sales, employment and tax revenues. Although the task of rebuilding after such devastation is frustratingly slow by its very nature, the recovery effort is moving forward. Economic indicators show clearly that progress is being made."
Like the Mississippi coast in 2005, assistance is arriving to hard-hit areas of Alabama. I was struck by weekend reports of the help that was flowing into Tuscaloosa. A story on Tuscaloosanews.com reported that up to 10,000 people had come to the city to help.
"LaDonnah Roberts, coordinator for Tuscaloosa Area Volunteer Resources, said that number doesn't take into account the hundreds more who are working with organizations like Samaritan's Purse and churches that were not required to register this weekend.
" ‘We estimate that since the storm, we've probably seen 10,000 total volunteers come into the city,' Roberts said."
Last week, we wrote about the small Alabama town of Hackleburg, which was devastated on April 27. Looking at how rural areas recover from natural disasters is an important part of the story. Bob Neal, emergency and fire safety coordinator from Mississippi IHL's finance and administration arm, recognized the difference in delivery of assistance between rural and non-rural areas. He wrote in the December 2005 issue of Mississippi Economic Review and Outlook (cited above) that:
"Rural places receive disaster aid more slowly than urban places because they are more thinly populated and, generally, more difficult to access after a disaster. There is little that can be done to alleviate or mitigate these two fundamental factors affecting disaster aid delivery. People who live in rural places must simply accept the fact that disaster aid will reach them more slowly than in urban places. Rural places also receive less disaster aid than their urban cousins. Providing disaster assistance in rural places is more expensive. Fixed costs of providing aid are spread over fewer people and transportation costs are greater."
We also wanted to share a paper I came across researching the topic. It's an (as far as we can tell) unpublished thesis written in 2009 by a doctoral candidate from Texas Tech University, Maribel Martinez. In her paper, titled "Economic analysis of the tornado impact upon two communities," she notes that:
"Research on the short-term and long-term economic effects after a tornadic event is sparse, especially for small to mid-size communities. These communities often lack the political and economic influence of larger cities when it comes to preparing and recovering from an event. Although large metropolitans may have more population at risk, large urban areas often have the resources, training, and funds to deal with hazards and disasters."
Martinez looks at the impact of tornados on two smaller communities—Clovis, N.M., and Tulia, Texas, that were hit on March 23, 2007, and April 21, 2007, respectively. Her conclusions are:
"The people in the community came together along with many others from surrounding communities to help in the cleanup process. Debris was cleared within the week....
Those businesses that sustained major damage not only to the structure but inventory as well, took longer to recover, between two to nine months....
"Research showed that when businesses are hit by a tornado, some experienced demand surge. This included auto repair shops and service firms such as insurance agents. Others continued to operate or recovered quickly by changing locations or operating out of their homes. However, establishments in sectors such as manufacturing/dairy/retail sustained longer lasting periods of business interruption."
We'll continue to monitor the recovery in both densely populated and rural parts of the Southeast in future posts.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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Thoughts on Hurricane Katrina, five years later
An anniversary is a time of reflection and a time of planning for the future. We marked the fifth anniversary of Hurricane Katrina a few days ago. My first thoughts of reflection go back to the morning when the storm came in. I had planned to get to work early, knowing I would spend the day doing various economic assessments of what damage the hurricane had wrought. But I first had to deal with a disaster of my own. My 9-year-old daughter had left the faucet running into a plugged sink in our upstairs bathroom. Our entire downstairs was flooded. As we did what we could to begin the cleanup, I watched the radar image of Katrina come on land from my wet, but safe, home outside Atlanta. What I would see that day would put our little problem in perspective.
By the time I got into work Katrina was well ashore. It seemed pretty clear that the Mississippi coast had borne the brunt of the storm and New Orleans had been spared a direct hit. As we began to develop briefing materials for the Bank's senior officers, news reports began to roll in describing the devastation in Biloxi, Gulfport, and Pass Christian. We also saw pictures of the damage in New Orleans—hotel windows missing and the torn fabric atop the Superdome. I wrote in one of my first communications of the day that "In New Orleans, structural damage appears severe in places but not catastrophic."
It wasn't until later that day that we began to hear that there was flooding in the Big Easy. From Atlanta, we figured it was the effects of the storm surge through the wetlands bordering St. Bernard Parish, and maybe levees were overtopped. All hurricanes bring storm surge and some flooding, so we didn't think too much of it, to be honest. We were focused on getting damage assessments from the Gulf's energy infrastructure, which we would find out were severe.
Then I read a newswire report that several levees in New Orleans had given way. I had watched a TV special about how New Orleans was vulnerable to hurricane-induced levee breaches, but the storms they described hit New Orleans head on; Katrina had missed to the east. It still didn't register. Then we saw the first photos. The entire city was flooding. It was clear we were dealing with a disaster we were told could happen, but none of us believed it would ever really happen. But it was happening, and like all Americans we felt helpless.
That was five years ago, but we can all remember watching the tragedy unfold like it was yesterday. I remember worrying about my colleagues in our New Orleans office, about the friends I had in Mississippi, and how we could ever be expected to go about our work in trying to measure the impact on the economy in what was clearly an immeasurable human catastrophe.
The response of the Federal Reserve Bank of Atlanta to Hurricane Katrina is documented in our 2005 Annual Report and in several articles and presentations made in the days and months following the event. In the Research Department, we became unwilling experts in disaster economics, never forgetting the heartbreak and human toll of Katrina. The Brookings Institute performed similar exercises, and their latest work is an outstanding look back, and also a look ahead.
I'm fortunate that my work takes me to New Orleans several times a year. I've been able to witness the city's slow but steady recovery and have met some of this country's best and strongest citizens. I've viewed the restoration along the Mississippi coast with awe.
When the most dire predictions were being made regarding the impact of the oil spill, I thought back to Katrina and how these people bounced back with pride and dignity.
As the people who survived and rebuilt five years ago reflect on and plan for the future, I had one recurring thought—not one measured by any economic time series or accounted for in any econometric model. No matter what my friends along the Gulf Coast and New Orleans may face, I wouldn't bet against them. Ever.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
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