Short supply: St. Louis residential market is the tightest in over a decade

Dilip Vishwanat | SLBJ Photographer; Steph Kukuljan and Veneta Rizvic – St. Louis Business Journal

Mar 22, 2018, 2:35pm

Teri Nicely and her husband thought nothing of it when they offered to let their friends stay with them while the friends looked for a new home.

“They could have easily moved in with one of their kids, but it was our idea,” said Nicely, a longtime realtor with RedKey Realty Leaders who handled $13 million in transactions in 2017, up from $10.6 million in 2016.

The friends wound up staying five months before they found a house in Wildwood that needed renovation — longer than Nicely and her friends, one also a real estate agent, expected.

An “extreme shortage” of homes on the market is pushing sale prices higher and forcing more buyers to make emotional pleas or financial concessions — or both. Supply has declined for 33 straight months on a year-on-year basis, according to information from the National Association of Realtors.

Low inventory levels have made themselves at home in the St. Louis residential market. In January, inventory fell to 2.73 months — the number of months it would take to sell all homes on the market. Inventory grew slightly to 3.21 months in February, but those were the lowest January and February levels in a decade, said Mark Gellman of the Gellman Team. A six-to-seven-month supply is viewed as a healthy balance between supply and demand, according to the Realtors association. For comparison, in 2012 inventory was at a 10.29-month supply, while 2009 inventory levels hit 15.93, according to MLS statistics provided by Gellman.

Nationally, existing-home sales were up 3 percent in February but that followed two straight months of declines.

Real estate agents and homebuilders said it’s a lack of sellers, rather than a surplus of buyers, that’s pushing the market to historic lows.

Sellers are waiting to put their home on the market until they themselves find a new place to live. That’s typical, Nicely said, but “there’s not enough to buy.”

“It’s a unique problem, and one I haven’t experienced in 13 years,” she said.

Switching strategies

Agents are spending months with buyers, instead of just weeks. And the conversation is changing. Flexibility is urged, and removing some contingencies is encouraged if buyers can swing it. Now, more prospective homebuyers are writing letters to owners as emotional pleas as buyers try to find anything to make their offer stand out, agents said.

It can take a combination of strategies, Kathy Beilein, president of Laura McCarthy Real Estate, said. One couple had lost out on each of their four offers for homes in Shrewsbury, Dogtown, south St. Louis and Richmond Heights despite offering $20,000 above the asking price and writing letters. So when they found a home in Webster Groves, they wrote a letter and included a photo again, but they bid $5,000 over the asking price and eliminated financial contingencies. That couple’s contract was selected from more than 10 others and got the house for $250,000.

“If they know what their options are, buyers can have a better plan,” said Beilein, whose firm reported about $340 million in sales in 2017.

Homebuilders are altering their strategies as well. Custom homebuilder Hibbs Homes and its owner Kim Hibbs said he’s having to manage clients’ expectations as it’s taking longer to find a lot and build a home due to shortages in supply and labor.

“That could slow us down,” said Hibbs, whose firm reported $7.8 million in 2017 revenue, up from $4.1 million in 2016.

But the demand has pushed the firm to make its estimator and selection coordinator, who were part-time just two years ago, full-time employees and hire a third superintendent.

Payne Family Homes has seen its labor and material costs grow double digits over the past three years, President Ken Kruse said.

Payne built 237 homes in 2016 and 263 in 2017, while recording revenue growth from $77.1 million in 2016 to $90.5 million last year. It recently opened Legends Point in O’Fallon, Missouri, at Highway 40 and Highway N and has more than 150 home sites in the works.

Shunning big and old

Kruse said Payne has added more staff as demand grows from buyers who want updated kitchens and bathrooms, open floor plans and main-floor laundries.

“The existing home market is attracting more buyers to newer communities,” he said. “People will move when their lives tell them, and they find a way to make it work.”

Consort Homes is building more spec homes. The Chesterfield-based firm has tripled the number of inventory homes year over year, from 23 homes today compared with seven this time last year because of demand for new homes. Consort sold or closed 155 homes in 2017, up from 128 in 2016, and saw revenue reach about $48 million, said President Ken Stricker.

Stafford Manion, owner of luxury real estate firm Gladys Manion Inc., said improvements and maintenance of older homes scares off many of today’s buyers who want more efficient, less complicated houses. Over the past 12 months, homes more than 50 years old and selling for more than $2.5 million spent more than 500 days on the market — just three homes like that sold in Ladue and zero in Clayton, Manion said. But 516 homes in the $200,000-$400,000 range in Kirkwood and University City sold with an average of 32 days on the market, he added.

Nationally, there was double-digit year-over-year sales growth for homes priced at $250,000 and above, according to the Realtors association.

“I’ve never seen such a differentiated market where one is a seller’s market and the other is a buyer’s market,” said Manion, who has been in real estate more than 30 years.

Moving mortgages

As St. Louis’ largest homebuilder, McBride & Son Homes’ customers are embracing large master-planned communities, Chairman and CEO John Eilermann Jr. said. The company built 50 new communities at various locations and price points in the past few years. McBride sold 854 homes in 2017, an increase of 15 percent from the year prior. The homebuilder posted revenue of $257.3 million in 2017, compared with $206.8 million in 2016.

“The increases in mortgage rates have been moderate and that has created some urgency,” Eilermann said. “That’s a part of our success. People think they are going up, so they want to buy now.”

Mark Mihal, regional mortgage manager for U.S. Bank, said rates could see a slight increase over the next year, though it’s unlikely rates will reach 5 percent. In January, 30-year fixed-rate mortgage rates hit 4.03 percent and increased to 4.33 percent in February, according to data from the Gellman Team. But that’s closing in on a four-year high of 4.46 percent.

Mortgage lenders see a lot of positives impacting the market, Mihal added, including low unemployment, higher wages and few economic risks.

“We’re optimistic about the housing market and mortgage rates,” Mihal said. “We expect inventory levels to increase throughout the year and expect for the first time to have year-over-year growth in 2018.”

U.S. Bank, which has a 25 percent share of the St. Louis market and had a 20 percent increase in purchase applications year-to-date, last year rolled out a new mortgage loan portal aimed at millennials, who now make up 40 percent of homebuyers, he said.

The online portal cuts the time it takes to get approval from 30 days to about 15 days, Mihal said. In a competitive market that St. Louis is seeing now, that halving could mean the difference between buying a home or losing out.