Mobility Magazine of the Worldwide ERC, October 2016

By H. John Neff, SRA

The City of St. Louis and the four surrounding counties of St. Charles, Jefferson, St. Louis and Franklin comprise approximately 75 percent of the entire metropolitan statistical area’s 2.8 million population total and more than 90 percent of the Missouri market area’s population. St. Louis County dominates, with more than 1 million residents and 90 municipalities. Area commerce is led by health and education, trade and transportation, manufacturing, financial services, leisure and hospitality. Professional services account for the majority of employment opportunities in the area. As of May 2016, the unemployment rate was 4.5 percent. Efforts to provide opportunities for technology, bioscience, manufacturing, defense and financial services growth are ongoing in the community.

There’s good news for the St. Louis Housing Market. Late last year Realtor.com predicted St. Louis will be the second hottest major real estate market in 2016, with an estimated 8.6 percent increase in sales activity and a 10 percent increase in the median sale price. Through the first three months of 2016 Multiple Listing Service (MLS) statistics indicate sales activity was up 8.6 percent, but ended up 6 percent overall through the end of June. The average home sale price is up only 4.5 percent year-to-date based on the first six months of 2016 compared to the first 6 months of the prior year, and median home prices are up 6 percent for June  2016 as compared to June 2015.

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While the housing market is trending upwards in many locations and price ranges, at least some of good new depends on which side of the transaction you’re on. Low interest rates continue to keep buyers in the market, but the inventory according to both real estate agents and MLS statistics is well below demand. It’s a seller’s market, especially in active areas such as St. Peters, Webster Groves, Manchester, and Brentwood, where there is a less than 1.5-month inventory as compared to the overall market, which has a 2.9 months’ supply. South St. Louis City neighborhood leads the area in sales activity in 2016 with 1,103 transactions, followed by Mehlville (504), Wentzville (401), Kirkwood (375) and Webster Groves (366). Multiple offers within hours, full price contracts and escalator clauses are the norm in several markets. There were 14.7 percent fewer listings available in the second quarter of 2016 compared to the same quarter in 2015, yet sales activity was 4.3 percent higher in the quarter as compared to the same quarter in 2015. New home construction is steady to up slightly from the previous two years. It took roughly 6 to 8 years for the market to absorb the post-crash inventory of existing lots before raw land was developed for new subdivisions.

LOOKING BACK

St. Louis rarely experiences meteoric increases or declines in residential home prices compared to many other major home markets around the country. Home values experienced a steady rise from the mid-1990s through 2007, when the average sale price of a single family residence peaked at $190,729. For the two years following the market crash, the average home price declined 18.6 percent to $160,756 by year-end 2009.  Most every location and price range was adversely impacted by the decline in activity and market value.  Tightened lending guidelines made it extremely difficult for entry-level home buyers to qualify for loans, thus preventing the next level of move-up buyers from ascending the home-value ladder. The St. Louis Area had one of the highest foreclosure rates in the county, due primarily to home flipping and fraud activity.

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Areas where average sale prices were lower to begin with for most all city and county locations saw the highest-percentage decreases, again reflecting the adverse impact on entry-level buyers.  For example, the average sale price for a home in either the Hazelwood or Kirkwood School District in 2007 was $129,950 and $337,349, respectively.  In 2010 the average sale prices were $88,127 and $286,303, respectively. The 32 percent decline in Hazelwood was more than twice as great as Kirkwood’s at 15 percent.

Home values saw their first increase since the crash in 2010, but values slipped again slightly in 2011. Since 2011, when the average sale price was $158,675, average sale prices have increased each year through year-end 2015 to $197,288, a 24.3 percent increase. The average sale price of home soared by 15.2 percent from the first to the second quarter of 2016 ($182,100 to $209,700).

Looking Ahead

Most, but not all St. Louis-area markets have rebounded from several years of moderate sales activity and unstable values; but unfortunately, even though sales related to foreclosures and bank-owned properties are well below post-market crash levels, pockets remain in which these types of transactions continue to drive the market. Much of the increased demand for South St. Louis City homes is attributed to Generation X and Millennial buyers seeking affordable housing and conveniences. The number of transaction in this location was double that of the next-closest area.  Sales activity for expensive homes, those over $750,000, is relatively slow. Barring any significant economic, social, or political changes, all indications are that the positive housing trend should continue.

H John Neff, SRA, is president of Mueller & Neff Real Estate Appraisers & Consultants, Inc., in St. Louis and a member of RAC (Relocation Appraisers and Consultants). He is a Certified General Appraiser in Missouri.  He can be reached at +1 314 849 1444 or hjneff@muellerneff.com.