St Louis Home Values Declined In Past 12-Months After Inflation

With the bidding wars we’ve seen on listings resulting in sold prices that exceed the asking price in St Louis over the past couple of years, it’s hard to imagine that home values could be lower today than a year ago.  Now, before you call me crazy, I’m not saying that St Louis homes are SELLING for LESS now than a year ago.  As our STL Market Chart below shows, the median price of homes sold in the St Louis 5-county core market was $254,950 in May 2021 and $270,000 last month, for an increase in sales price of 5.9%.  However, given that, as the chart at the bottom shows, the inflation rate has increased 8.6% during the past 12-months, St Louis home prices have not increased as much as inflation, thereby leaving them worth less today than they were worth a year ago after adjusting for inflation.

Home prices last month would have needed to be $276,829 to keep pace with inflation…

In order to keep pace with inflation and make a median-priced St Louis home worth the same in today’s dollars as it was worth a year ago it would have be worth $276,829 today at the current rate of inflation.

If we look farther back it gets better….

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Inflation Rate Increases to 8.5 Percent in March…What will the effect be on home prices?

This week it was announced that the U.S. inflation rate in March had increased to a staggering 8.5% the highest rate in over 40 years as illustrated by the chart below.  The last time the inflation rate was higher than this was in December 1981 when it hit 8.9%.   The “inflation rate” that I’m referring to, and is the most commonly reported, is based upon the Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average.  One of the categories included in the CPI-U is “shelter”.  The report shows the shelter inflation rate at 5% which, on the surface sounds low however, the median price of homes sold in St Louis in March was $250,000 an increase of just over 4% from March 2021 when the median sold price was $240,000.

What does an inflation rate of 8.5% mean for the real estate market?

With everything going on in our economy, country and world now I think it’s literally impossible to predict what is going to happen on any front with any level of accuracy however, a good guide would be what has happened in the past during similar times.   With this in mind, lets look at what the market looked like the last time inflation was at this level, December 1981:

  • Mortgage interest-rates on a 30-year fixed mortgage were an average of 17%-18% (see chart below)
  • The inflation rate actually reached a peak of 14.4% in March of 1980
  • St Louis home prices peaked during the 1st quarter of 1979 then declined until bottoming-out during the 2nd quarter of 1981 (see chart at bottom)

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Inflation Has Largest One-Year Increase In Over 39 Years – Will Home Prices Suffer?

As you’ve probably heard by now, the most recent inflation news was not good.  As the chart below illustrates, the Consumer Price Index (CPI) for all products in the U.S. (city average) for November 2021 was 303.4, an increase of 6.88% from a year ago when it was 284.1.  This is the highest 12-month increase in inflation we have seen in over 39 years, since June 1982.

What effect will this record-setting increase in inflation have on home prices?

The second chart below depicts the percentage change in the inflation rate from a year ago (the blue line)  as well as the percentage change in the St Louis home price index from a year ago (the red line).  As you look at the chart and reference the marked-up one I have below it, you will see a pattern.  Historically, when inflation rates increase significantly and consistently from a year ago, lower home prices follow.   Will this happen this time as well?  It’s hard to say right now as we still have an incredibly low supply of homes on the market, which tends to fuel higher prices, and we’ll need to see if the rise in inflation is sustained over the next few months.  For the time being, I’ll make the prediction that in 2022 we will see, at a minimum, a flattening of home prices…so maybe not a decline, but a pause on the rate of increase.  Time will tell.

[xyz-ips snippet=”Foreclosures-For-Sale-and-Homes-For-Sale”]

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