ST. LOUIS, Mo. – June 15, 2009 – If the real estate bust has a bright side, it’s this: People like Lilly Thomas, Stephanie Driskell and Dexter Wuller can finally afford homes.
Falling home prices and an $8,000 federal tax credit are putting homes in reach of young people who couldn’t afford them a few years ago. As a result, real estate agents say starter homes are the only part of the real estate market that’s showing some life.
It’s not a lot of life. House sales this year are down by a third from the boom year of 2006, and the bust spans all price classes. But the lower end of the market – houses priced under $200,000 – is suffering less, and there’s some evidence that a comeback could be beginning.
Now, real estate agents are starting to worry that rising mortgage interest rates may dampen buyers’ enthusiasm. Rates on 30-year mortgages jumped to an average of 5.59 percent last week, up from 4.84 percent a month ago. Meanwhile, many FHA lenders have raised their credit score requirements to 620 from 580, which will seal some people out of the home market.
House prices in St. Louis dropped 4 percent in the last year, and they’re down nearly 9 percent from their high of 2007, according to the Federal Housing Finance Agency’s index, which excludes the most expensive houses.
‘We got a steal’
Those falling prices prompted newlyweds Lilly and Stephen Thomas to finally make an offer on a house in O’Fallon, Mo.
“As the market fell, we were looking at a $200,000 house that we could get for $170,000,” said Lilly Thomas, 29. “My dad thinks we got a steal.”
They also got a gift from Uncle Sam. The $8,000 “first-time homebuyer” credit is available to people who buy homes before Dec. 1. Buyers qualify if they haven’t owned a house for three years.
The credit may prompt an exodus from Mom and Dad’s house. Dexter Wuller, 23, left behind Mom’s cooking when he paid $88,000 for a century-old two-bedroom house in Belleville. “Once I started looking, I started liking houses. The idea of being out on my own and owning something was pretty good,” he said.
Stephanie Driskell, 28, saved money while living at home for free. That, plus the $8,000 credit, let her to buy a $138,000 home in Affton with her boyfriend. “We’re trying to live the American dream like they want you to do,” she said.
Scott Cottrell, of the Cottrell Realty Group in Ballwin, studies real estate statistics. He sees signs of a reviving market, led entirely by low-end home sales.
In St. Louis County, the monthly count of new sales contracts has gradually caught up to last year’s levels, which he calls a hopeful sign. That improvement comes entirely from the starter home market, he says. Completed sales in the region as a whole still lag last year’s levels.
Sellers may re-emerge
Buyers are in the catbird’s seat today, but Cottrell thinks the situation may reverse this fall. He thinks buyers will slowly reduce the inventory of moderately priced homes through the summer. Then he expects to see a rush of buyers in the fall as the December tax credit deadline nears. “We could get a supply and demand imbalance that favors the seller,” he says.
Things are sadder for sellers of upper-end homes. They suffer from two extra handicaps, says Cottrell. Fewer upscale buyers can get the federal credit because they own other houses or exceed the $170,000 income limit for married couples.
But the biggest hindrance is the $281,250 limit on FHA-backed loans. The FHA has filled some of the hole left by the collapse of subprime lending. The agency permits loans with 3.5 percent down payments to people with some blemishes on their credit.
Bankers slow market
Meanwhile, indecisiveness in the banking industry sometimes stymies sales at all price ranges. Brian Hunt learned that when he bid on two vacant houses in O’Fallon, Mo., but couldn’t get a reply at the bank.
Hunt knows construction work, so he went looking for a deal on a fixer-upper. As a result, he found himself looking at properties in foreclosure or threatened by it.
On one, he offered a “short sale.” He offered a price less than the current owner owes on his mortgage. In other words, the bank that held the mortgage would have to take a loss. Such deals are becoming more common as prices fall and foreclosures loom.
“It’s very difficult to do because you can’t get the bank to call you back,” said Hunt. He waited a month without a response, then withdrew his offer. He made a short-sale offer at another house and got the same non-response.
Real estate agents say that’s a common story. Cottrell, for instance, says he has hired a full-time short-sale negotiator, and still waits 3 1/2 weeks to 5 months for an answer from overwhelmed bank real estate officials.
Hunt finally bought a $115,000 O’Fallon home from an owner who had retired to Florida.
The most active part of the market is at the very bottom. Of 5,500 homes sold in St. Louis city and county this year, 1,079 have been worth $30,000 and less, or 19 percent of sales, according to figures from the St. Louis Association of Realtors. In 2006, these low-value properties represented only 3 percent of sales.
Some of those are “bulk sales” in which banks sell several foreclosed properties to a single investor, who then resells them or repairs and rents them.
Mark Scatizzi has watched the phenomenon firsthand as a real estate agent specializing in selling foreclosed and distressed property.
“What was selling two years ago for the $50,000s and $60,000s has been pushed down into the $30,000s,” says Scatizzi, of the RealtyNet Kratky Team.
Copyright © 2009 St. Louis Post-Dispatch
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