Despite recent national talk about bursting housing bubbles, it is a great time to purchase a new home in St. Louis, said Dennis Hayden, president of Hayden Homes, a St. Louis home building company established in 1977.
Indeed, the St. Louis area is not in danger of a bursting housing price bubble, according to information from a Wall Street Journal article that cites a recent National City Bank study. The National City Bank study analyzed 299 housing markets throughout the country to determine which metropolitan areas are at a risk for some correction in the price of homes. A correction is defined as a decline in prices of 10 percent or more lasting a period of two or more years.
In its analysis, National City economists examined the ratio of home prices to household incomes in metro areas and tried to explain the variation in these ratios on the basis of population density, relative income levels, mortgage rates and historically observed differences in prices, according to the Aug. 23 Wall Street Journal article. Based on this data, National City estimated what housing prices should be compared to actual housing prices to determine if the housing market was overvalued or undervalued.
The majority of the cities at risk in the top 50 – and all in the top 25 – are located on the east and west coasts and not in the Midwest, according to study results. And they were all overvalued at 30 percent or greater – the percentage range deemed to be highly at risk for future price corrections. Santa Barbara, the No. 1 place on the list, was found to be 69 percent overvalued. St. Louis was ranked 155 out of 299 with just a nine percent rating. Of the 299 areas, 214 had a rating above zero percent.
Hayden said St. Louis lacks many of the traits that have led to the problem.
“We are insulated from the heating up of real estate created by lack of land and an explosive population as we see on the coasts and some southwestern markets,” he said. “In those markets, large builders compete with each other for buyers that cannot afford to be discretionary about the quality of material and workmanship in their homes.” This is because end user purchasers are buying for location more than product, and there are many more real estate investors purchasing homes for quick resale.
“Real estate in St. Louis is generally purchased by an end user, who is very discretionary about the money they spend,” Hayden said.
Other characteristics also account for St. Louis’ solid real estate market, such as stable employment, relatively low but consistent growth rate, low interest rates and excellent new home products constructed by qualified and competent locally-owned home builders in a competitive market.
“I suggest to those considering a new home in St. Louis that there has never been a better time to purchase a new home,” Hayden said. “Building materials are still priced at reasonable levels, though there will certainly be pressure to increase prices when the rebuilding begins in the storm-damaged markets. Interest rates are very good and land priced in the metropolitan area is still a bargain.”
