Consistency, Affordability Benefit St. Louis Market

Easy does it in St. Louis, where a less volatile market and traditionally affordable real estate stock have insulated the city from some of the market implosions in other parts of …

Easy does it in St. Louis, where a less volatile market and traditionally affordable real estate stock have insulated the city from some of the market implosions in other parts of the country.

“Affordability is the number-one differentiator for the St. Louis market versus others in the country,” says Kevin Cottrell, a principal at the Cottrell Realty Group who offers online observations on the St. Louis real estate market at his real estate blog. According to Cottrell, the city’s affordability index of 80—meaning that 80 percent of the population can afford a median-priced home based on median income levels—results in a significant amount of pent-up demand.

Cottrell also says that since the St. Louis market did not see large price increases during the boom years of 2003 through 2006, it retained its affordable nature and thus has not seen the levels of difficulty currently seen in other markets. “When Las Vegas or San Diego had prices jumping 40 percent, we were up 4 to 7 percent,” he says. “Those markets outpaced affordability and, as a result, prices needed a major adjustment. In St. Louis, the general case is that the same home purchased in 2004 to mid-2005 would be worth just about the same amount today.”

That brand of level pacing has meant that the last few years have seen flat prices in St. Louis, according to Cottrell: “No declines, just flat pricing.”

Dawn Griffin of Circa Properties concurs. “Overall, the St. Louis market has been much more stable than what we have heard about on the coasts,” she says. “Our housing prices were appreciating in 2004 and 2005, but not skyrocketing. Since the beginning of the fourth quarter this year I’ve noticed a slowdown, but up until (then), sales in the city were very steady.”

 

Foreclosures “Not A Major Factor”

On Dec. 6, Cottrell Realty released Saint Louis Metro Real Estate Market: ‘Real’ State of the Market. The report finds that foreclosure and short-sale volume in the St. Louis metro area comprise less than 12 percent of total sales.

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“Foreclosures are generally a low percentage of sales in our market and not a major factor, except in three specific areas,” Cottrell says.

Those areas are:

  • Benton Park/St. Louis City/South City, which was previously swamped with investors attempting to purchase or rehabilitate properties in excess of demand;
  • North County/Jefferson County, areas whose lower-than-average income and credit profiles resulted in a higher than normal amount of subprime loans;
  • St. Charles County, where an excess of new construction and builder incentives have had a depressing effect on new construction sales as well as resales.

Griffin believes that more foreclosures will be coming on the market throughout 2009: “This is completely unscientific, but in the last batch of houses I showed to a first-time buyer looking between $175,000 and $200,000, there were three bank-owned properties,” she says.

The Cottrell report estimates that it will take between 18 and 24 months for supply and demand as well as prices to recover, particularly in the hardest-hit areas.

Investor Incentives

Griffin sees the St. Louis market as “ideal for investors.” She attributes this to a quality stock of multi-unit properties, as well as the presence of multiple universities as well as teaching hospitals, which provides a good amount of qualified renters.

She points to a very cohesive, historic housing stock, as well as the real estate market’s opportunities for renovating old homes or buying rental properties, as investor attractions. Griffin says the city itself offers “lots of great parks, free museums, a vibrant downtown, great restaurants, a great local art and music scene…St. Louis has all the offerings of a much larger city, but it has a very small-town feel.”

Griffin adds that it is easy to traverse the city—but only if you’re driving. She lists poor public transportation and lack of density as two challenges in the market.

For his part, Cottrell credits affordability and a large population and employment base for providing a ready-made strong market. “It’s steady and consistent strength that attracts investors to our market,” he says.

Cottrell believes that St. Louis County, which is the suburban area outside the actual city of St. Louis, is particularly desirable due to its top-ranked public and private schools, as well as a strong employment base. “The surrounding counties, with the few exceptions (areas hard-hit by foreclosure) are also very strong in terms of their relative affordability and employment growth,” he says.

Flat Pricing in Short Term

Cottrell says the average sales price in the St. Louis real estate market is approximately $190,000, with a median price of $135,000.

He envisions a consistent market in the short-term future. “(I predict) flat pricing and continued lower-than-average supply—available inventory—in the next six months,” he says. “Longer term, we expect a return to the norm of 4 to 6 percent appreciation as the area recovers from the national recession.”

Griffin believes the next six months will be spent absorbing foreclosures, which in turn will keep prices flat. “Five years from now, I think we will see average yearly appreciation of 4 to 8 percent,” she says.

The Cottrell reports forecast inventory to be down in 2009 and 2010, with consumer confidence keeping demand down into mid-2009. With interest rates and additional fees the largest market risk for buyers, the report foresees that recovery will begin in earnest in mid-2009.

“Real estate is a cyclical business,” the report asserts. “What is down won’t stay there.”

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