I’ve been in the real estate business since I was 17, which means it has been 45 years of experiencing various market conditions, including recessions, inflation, 18% mortgage rates, the burst of the housing bubble, and a myriad of other good and bad things. However, I can confidently say that I have never witnessed a real estate market quite like the one we have been experiencing in the past couple of years.
So, what makes the current real estate market so unique?
First and foremost, I’ve pondered this question extensively, and I honestly can’t recall a time in this industry when the supply of homes for sale was not at least 4 to 6 months’ worth. Although there was a brief period in 2015 when the inventory of homes in St. Louis fell below 4 months, it quickly returned to nearly 5 months. From 2016 until early 2020, the inventory fluctuated between approximately 2 and 3 months, and then began a downward trend, hitting a record low of less than a 1-month supply in the latter part of 2021. While the supply has slightly increased since then, it still hovers around 1 month.
Months of Inventory – St Louis 5-County Core – 2013 – 2023
This situation showcases the basic law of economics—supply and demand. The supply of homes for sale in St. Louis is exceptionally low, and even though the number of home buyers in the market has seemingly declined significantly over the past few years, there still isn’t enough supply to meet the demand of the remaining buyers. Consequently, in accordance with the law of supply and demand, prices tend to rise when supply is insufficient to meet demand. While it’s easy to increase widget production to meet demand, it’s not as simple to suddenly add thousands of homes to the market in the St. Louis real estate market. Factors such as a lack of available land for development in high-demand areas, lengthy approval processes for new developments, labor shortages in the trades, difficulty in controlling construction costs, and the significant time required to bring a substantial number of homes to the market contribute to this complexity. As a developer, I can attest that the development process is lengthy enough for the market dynamics to change entirely before the first home hits the market.
So, where did all the houses go in St Louis? Why aren’t there more homes for sale?
A new report just released by ATTOM Data revealed that nearly one of every four homeowners (24.3 %) in the city of St Louis that have a mortgage, are underwater on equity (meaning property owner owes at least 25% more on their home than the current value). At the other end of the spectrum was St Charles County where just 3.9% of homeowners with a mortgage are underwater.
Below is a list of the larger counties in the St Louis MSA and the percentage of the mortgages in the respective county that was underwater during the 4th quarter of 2022:
According to data released by ATTOM Data Research, during the fourth quarter of 2022, 42.37% of the homeowners with a mortgage within the 63376 zip code, were “equity-rich” meaning their mortgage balance was just 50% or less of the current value of their home. The table below shows the 10 St Louis zip codes with the highest percentage of equity-rich mortgages. Half of zip codes on the list are located within the St Charles County, four in St Louis County and one in Jefferson County
Also shown on the table is the percentage of homeowners with a seriously-underwater mortgage, meaning their loan balance is 125% or more of the current home value.
According to data released by ATTOM Data Research, during the fourth quarter of 2022, 35.7% of the homeowners with a mortgage within the 63118 zip code, were seriously underwater on their mortgage, meaning their mortgage balance exceeds the value of their home by 25% or more. The table below shows the 10 St Louis zip codes with the highest percentage of seriously underwater mortgages. Half of zip codes on the list are located within the City of St Louis and the other half are located in North St Louis County.
Also shown on the table is the percentage of homeowners with an equity-rich mortgage, meaning their loan balance is 50% or less of the current home value. Six of the 10 zip codes on the list have a higher percentage of equity-rich mortgages than that of seriously underwater mortgages.
During the second quarter of 2020, 45.5% of the homeowners with a mortgage within the 63115 zip code, were underwater on their mortgage, meaning they were in a negative-equity position, according to data just released by ATTOM Data Research. As the table below shows, the north county zip codes of 63137 and 63136 were not far behind at 45.1% and 41.3%, respectively. Of the 10 St Louis-area zip codes with the highest rate of underwater homeowners, 7 were in St Louis County and 3 in the City of St Louis.
During the second quarter of 2020, 9.8% of the homeowners in St Louis with a mortgage, were underwater on their mortgage, meaning they were in a negative-equity position, according to data just released by ATTOM Data Research. As the table below shows, this is the lowest level of St Louis homeowners that are seriously underwater since 2013 when this data was first tracked. In spite of financial difficulties and hardships that people may be suffering as a result of COVID-19, the downward trend of underwater homeowners in St Louis that began during the 3rd quarter of 2019 continues.
During the fourth quarter of 2019, 10.2% of the homeowners in St Louis with a mortgage, were underwater on their mortgage, meaning they were in a negative-equity position, according to data just released by ATTOM Data Research. As the table below shows, this is the lowest level of St Louis homeowners that are seriously underwater since 2013 when this data was first tracked. This continues the trend that began in the price quarter with the then lowest rate at 10.5%.
During the third quarter of 2019, 10.5% of the homeowners in St Louis with a mortgage, were underwater on their mortgage, meaning they were in a negative-equity position, according to data just released by ATTOM Data Research. As the table below shows, this is the lowest level of St Louis homeowners that are seriously underwater since 2013 when this data was first tracked.
During the first quarter of 2019, 14.5% of the homeowners in St Louis with a mortgage, were underwater on their mortgage, meaning they were in a negative-equity position, according to data just released by ATTOM Data Research. As the table below shows, this slight increase follows a decline in the rate for the two prior quarters. The St Louis negative-equity rate is about one and a half times that for the U.S. as a whole.
During the fourth quarter of 2018, 14.2% of the homeowners in St Louis with a mortgage, were underwater on their mortgage, meaning they were in a negative-equity postion, according to data just released by ATTOM Data Research. As the table below shows, this is the lowest rate since the 4th quarter of 2017 when the St Louis undertwater homeowner rate was at 13.8%. On a national level, just 8.8% of homeowners with a mortgage are underwater which puts the St Louis rate at 161.5% of the US rate.
During the 3rd quarter of this year, 14.4% of the homeowners in St Louis with a mortgage were “seriously underwater”, meaning they owe at least 25 percent more than the estimated value of their home, according to a report just released by ATTOM Data Solutions. This is the lowest rate this year, down from 15.6% in the 2nd quarter and down from 14.7% in the first quarter of 2018. For the last quarter of 2017, St Louis homeowners that were seriously underwater had fallen to 13.8%.
Kansas City and Chicago have fared better over the past 5 years…
As the table below illustrates, our neighbors to the west and northeast, Kansas City, MO and Chicago, IL, have both seen a greater margin of improvement in their underwater homeowners over the past 5 years. Kansas City went from 23.1% of their homeowners with a mortgage being seriously underwater in the 3rd quarter of 2013 to 9.8% during the 3rd quarter of this year, a reduction of 58% in the rate of underwater homeowners. Chicago, during the same period, went from 35.8% to 13.2%, a reduction of 68%. Meanwhile, here in St Louis, the rate went from 25.4% to 14.4%, a reduction of 40%.
St Louis Seriously Underwater Homeowners – 3rd Quarter 2018
During the housing bubble that peaked around 2006 and then burst in 2008 one of the things that got many homeowners in trouble was using their home’s as ATM’s. They did this by using, in most cases, home-equity loans to take advantage of the equity they had in their homes to give them access to tax-free cash to make improvements on their home, pay for vacations, buy cars, boats, whatever. This was fine until the value of homes began declining which resulted in many of these homeowners becoming “underwater“ meaning they owed more on their homes than they were worth.
Yesterday, I wrote an article about the record amount of equity homeowners in the U.S. have in their homes now, even more than in 2006, and today I read a report from TransUnion in which Joe Mellman, their senior vice president, and mortgage business leader, said “There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster.” The report goes on to say that HELOC’s (home-equity lines of credit) represented the “greatest number of home equity originations in 2017 at 1.2 million, showing a 2.3% year-over-year growth from 2016”
Hopefully, homeowner’s will remember lessons of the past and be wiser about the use of their equity this time around. Below is a table from TransUnion showing the top five uses of home equity loans.
The percentage of homeowners with a mortgage in the St Louis MSA that were seriously underwater in the last quarter of 2017 was 13.8%, about half the rate from 4 years earlier, according to data just released by ATTOM Data Solutions. For this report, a homeowner is considered “seriously underwater” when the total of their home mortgage(s) is equal to, or greater than, 125% of their home’s current value.
Also shown on the table below is the percentage of equity-rich homewners in the St Louis MSA. An “equity-rich” homeowner is at the other end of the spectrum from an underwater homeowner with their mortgage total being 50% of less than the current value of their home.
You can click the table below to go to the complete information showing the data for the 5-counties that make up the St Louis core market.
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St Louis MSA Underwater Homeowners & Equity-Rich Homeowners
(Click on the table to be taken to the complete report by county)
Over the past couple of years, as the St Louis real estate market has continued performing well, mortgage delinquencies and foreclosures have continued to decline. Rising home value has also caused the number of “underwater” homeowners, also known as homeowners in a negative-equity position (meaning their mortgage balance exceeds their homes current value) to decline as well. As the table below shows, 5 of the seven St Louis area counties listed saw a decline in the number of underwater properties in the 3rd quarter of this year from a year ago. The largest decline in underwater properties was St Charles with a 35% decline. The two exceptions, the city of St Louis and St Clair County, Il, saw an increase in underwater property of 2% and 14% respectively.
St Louis Underwater (Negative-Equity) Properties – 3rd Quarter 2017
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In the St Louis area during the 2nd quarter of this year, there were 30,407 (5.4 percent of all residential properties) with negative equity, or underwater, according to a report just released by Corelogic. This is a decline of nearly 20 percent (19.89%) from a year ago when there were 37,581 St Louis homeowners in a negative equity position.
In addition to the homeowners that are underwater, or in a negative equity position, during the 2nd quarter of 2017 there were 9.660 homeowners, or another 1.7 percent of all homeowners with a mortgage, that were in a “near-negative” equity postion (they have less than 5% equity), according to the report.
Negative Equity and Underwater Defined
Two terms that we didn’t hear much prior to the real estate market bubble burst in 2008 were negative equity and underwater. However, after the bubble burst, we heard those terms a lot and now, even 9 years later, still are. So, what is considered “negative equity” or being “underwater” for a homeowner? Basically, in a nutshell, it means the homeowners current home loan balance is greater than the current value of their home leaving them in a position where they cannot sell their homes without “bringing money to the table.” For homeowners in a “near negative-equity position” they are better off since they have some equity (5% or less) but, since the cost of selling a home and relocating typically exceeds that amount of equity, those homeowners could face the plight of having to bring money to the closing as well, making it hard to sell for many homeowners in this position.
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The number of homeowners that are “seriously underwater“, or in a negative-equity position, increased during the 2nd quarter of this year, according to a report just released by Attom Data Solutions. During the 2nd quarter of 2106, 17.8% of the homeowners, with a mortgage, in the St Louis MSA were in a negative equity position, up from 16.6% the quarter before and up just slightly from 17.4% during the 2nd quarter of 2015.
To be included in this report, a homeowner has to owe 125% of the current value of their home, so these people are definitely “seriously underwater”. Obviously, there are many more people that are in a negative equity position, meaning they owe anywhere from 100% to 125% of the value of they home in mortgages.
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In mid-April the Federal Housing Finance Agency (FHFA) announced a new program aimed to help homeowners with a Fannie Mae or Freddie Mac loan that are seriously underwater on equity, meaning that their mortgage balance is at least 115 percent of the current value of their home. This new principal reduction modification program offers, to those that qualify, a one-time reduction in the balance of their mortgage to bring them out of a negative equity position.
Below is an outline of the program details as well as link to Principal Reduction Fact Sheet:
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In the St Louis area there were 44,674 (7.9 percent of all residential properties) with negative equity, or underwater, during the 4th quarter of 2015, according to a report just released by Corelogic. This is a decline of 18.6 percent from the year before when there were 54,604 St Louis homeowners in a negative equity position (9.7 percent of all residential properties) .
Wha is negative equity or being “underwater’
For homeowners considered to be in a negative equity, or underwater, position, means that the current balance of their home mortgage exceeds the current value of their home making it impossible to sell their home without bringing money to the closing table. This takes many would-be sellers out of the market as, even though they may like to sell their home and buy another, they just don’t have the cash available to cover the shortfall on their sale as well as cover downpayment and closing costs on a new home. Hence, one of the reasons for the low inventory of homes for sale in many parts of the St Louis area.
Near negative equity can prevent owners from selling as well…
In addition to the 44,674 St Louis homeowners that are currently in a negative equity position, there are an additional 16,720 homeowners (3.0 percent of the total in St Louis) that are in a “near-negative equity” position meaning that, while they are in a positive equity position, they are at risk of going into a negative equity position of home prices fall and most likely do not have enough equity in their home to cover the typical costs of a home sale and move to another home.
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According to a report just released this morning by RealtyTrac, 6,809, of the 103,855 residential properties in the city of St Louis,are vacant. This vacant property rate of 6.6 percent for the City of St Louis is over four times higher than the national rate of 1.6 percent. As the table below shows, the vacant property rate for the St Louis MSA as a whole is 2.6 percent and St Louis County has the second highest vacancy rate, coming in a 2.6 percent. St Charles County has the lowest vacancy rate at 0.4 percent.
“Abandoned ship” properties…
I’m applying the label of “abandoned ship properties” to those properties that are sinking, or seriously underwater with regard to equity, otherwise known as being in a negative-equity position, and are vacant as well. In this category, are 1,390 properties in St Louis county or, nearly 15 percent (14.8%) of all of the vacant properties in the county. For the MSA as a whole, 9.7% of all vacant properties are “abandoned shop” properties.
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As of the end of the 3rd quarter this year, 7 percent of all St Louis homeowners with a mortgage were in a negative equity position meaning their current mortgage balance exceeds the current value of their home, according to a report just released by Corelogic. In addition, another 4.6 percent of St Louis homeowners with a mortgage are in a near-negative equity position putting a total of 11.6 percent of St Louis homeowners with a mortgage in a position where it would be hard for them to consider selling their home, without bringing money to closing.
For the state of Missouri, the negative equity rates is 6.3 percent and nationally it is 8.1 percent.
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There were 123,546 St Louis homeowners with negative equity, or in a seriously underwater condition on their mortgage meaning they owe more than the current value of their home, in the St Louis MSA during the 2nd quarter of 2015 according to the most recent data by RealtyTrac. This works out to 17 percent of all St Louis metro area homeowners with a mortgage being underwater on their mortgage which is an improvement from 21 percent just 2 quarters prior.
As the table below shows, for the immediate St Louis, MO area, the city of St Louis had the highest rate of underwater homeowners at 1 out of every 4 homeowners with a mortgage and St Charles county had the lowest percentage at 7%.
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One year ago today, the small city of Ferguson gained international attention after Ferguson Police Officer Darren Wilson shot and killed Michael Brown, an incident which spurred weeks of violence and property destruction in Ferguson. This delivered a blow to the Ferguson real estate market which was, at the time, already struggling to recover from the housing bubble burst in 2008 which had severely impacted the area. Now that a year has passed, I wanted to see how the real estate market in Ferguson was doing.
Time to sell a home is down…
As the chart to the right shows, the median days on market for homes for sale in Ferguson shot up immediately after the shooting. Since then the trend has been downward and last month the time had dropped back to slightly below a year ago.
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The number of St Louis homeowners that are underwater, or have negative equity in their homes, has shown an upward trend lately, while those St Louis homeowners that are “equity rich” has trended downward. According to data just released by RealtyTrac, 17.4 percent of homeowners in the St Louis metro area were seriously underwater (meaning their mortgage balance is 125% or more of the current value of their home) during the 2nd quarter of 2015. This is showing a slight upward trend as, during the 4th quarter of 2014, just 17 percent were underwater.
As the table below shows, homeowners in the city of St Louis are in the worst shape, equity-wise with nearly one of every 4 (24.4%) housing units being seriously underwater St Charles County is in the best shape, of the counties in our core market, with just 7.4% of homeowners being seriously underwater.
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Seriously underwater homeowners, those people whose mortgage debt is 125 percent or more of their current home’s value, increased to 13.2% of all home loans during the 1st quarter of 2015, marking the first increase in rate from the prior quarter since February 2012, according to a report released this morning from RealtyTrac. As the chart below shows, the percentage of homeowners that are seriously underwater, peaked during the 2nd quarter of 2012 at 28.6% and has decreased every quarter until reaching the most recent low of 12.7% during the 4th quarter of last year.
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There were 119,936 St Louis homeowners with negative equity, or in a seriously underwater condition on their mortgage meaning they owe more than the current value of their home, in the St Louis MSA during the 4th quarter of 2014 which is a 21% improvement from the prior quarter when there were 152,025 St Louis homeowners seriously underwater, according to a report just released today by RealtyTrac.
As the table below shows, for the immediate St Louis, MO area, the city and county of St Louis had the highest percentage of underwater homeowners at 22% and St Charles county had the lowest percentage at 6%.
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The number of St Louis Homeowners with negative equity (or underwater) during the third quarter of 2014 hit the lowest level since Corelogic began tracking this data in the 3rd quarter of 2009. During the quarter, 8.43% of St Louis homeowners with a mortgage were underwater or in a negative equity position meaning their mortgage balance exceed the current value of their home, according to the latest data from Corelogic.
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In 2010, in an effort to “help responsible homeowners who owe more on their mortgage than the value of their property”, the U.S. Department of Housing and Urban Development (HUD) began a program that allowed lenders to offer refinancing options to underwater borrowers that included a reduction in the principal amount of their mortgage to get it more in line with the current value.
This program, called the “FHA Refinance of Borrowers in Negative Equity Positions (Short Refi) Program”, has helped only about 4,000 people or so reduce their loan balances, in spite of the fact that when announced in 2010 David Stevens, the FHA Commissioner at the time, testified before the Committee on Financial Services that this program was designed to help some of the “1.5 million borrowers who owe more not their mortgages than their homes are worth..”.
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Over half of the homeowners in Ferguson are in a negative-equity position meaning their current mortgage loan balance exceeds the current value of their home, according to data from RealtyTrac. According to the latest data available, 51% of the homeowners in Ferguson with a mortgage are seriously underwater on their mortgages with balances that are equal to or higher than 125% of the value of their homes. Another 14% of Ferguson homeowners have mortgage balances of between 90% and 110% of the value of their homes.
Ferguson Serious Underwater Rate More Than Double Rate for St Louis MSA…
As the table below shows, Ferguson’s seriously underwater rate, at 51%, is more than double the rate for the St Louis MSA as a whole (21%) and is nearly double the rate for St Louis county of 27%. At the other end of the spectrum, only 6% of Ferguson homeowners have mortgages equal to 50%, or less, of the value of their homes, exactly half the rate for St Louis County and less than half the rate for the St Louis MSA.
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Over 80,000 homeowners, or 27% of all homeowners with a mortgage, in St Louis County are seriously underwater on their mortgage meaning the total balance of their mortgages represents 125% or more of the current value of their home. In addition, there are 53,548 homeowners, or 18% of all homeowners with a mortgage, in St Louis County that have mortgage balances between 90% and 110% of the value of their home, according to data just released by RealtyTrac.
As the table below shows, for the St Louis MSA, 21% of homeowners with a mortgage are underwater and 19% have “resurfacing equity” (mortgage balances equal 90% – 110% of the value of their home). Of the 5-county core St Louis market, St Charles County has the lowest percentage of seriously underwater homeowners at 10% and St Louis County has the highest at 27%.
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The inventory of homes for sale in several St Louis neighborhoods is down to the lowest level we have seen in years. It would be great if that was the result of skyrocketing home sales however, it’s really a combination of home sales and a lack of sellers. While there are many different reasons people are not choosing to sell right now, I believe it is a lack of equity that is holding back many homeowners from selling, particularly in the lower price ranges. Last month I did an article about the fact that 40 percent of St Louis homeowners in the bottom 1/4 of the market were underwater, and, overall, 44% of St Louis homeowners had too little equity to sell their homes, hence the lack of inventory.
As the table below shows, the top 3 St Louis neighborhoods all have just a 1 month inventory of homes for sale, and the rest of the areas making up the top ten list just have 2 months. For homeowners in these areas that have thought about selling, and have the equity to do so, now would be the time to hit the market!
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