September 21, 2005
Interest Rates Nudged Higher
For the first time in several weeks interest rates nudged higher (albeit slightly). Freddie Mac reported 30 year fixed rates climbed .03% to 5.74%
Although not a significant increase, there is some uncertainty as to the overall future of interest rates. Many expect the Federal Reserve to raise short term lending rates which would eventually raise mortgage rates- although the fallout of Hurricane Katrina could alter their plans.
So what does that mean to St. Louis? The Post Dispatch reported this week that St Louis area housing prices had risen 9.2% over the past year. That’s one of the largest one year increases St. Louis has had in the past 20 years- and that’s because of the record low interest rates that have kept home sales brisk. (Read the full Post-Dispatch article here.)
As interest rates threaten to rise, there is legitimate concern (expressed almost daily in the news) that it could chill the real estate market if not send it into a full-out tail spin. However in regards to the St. Louis market, understand that the 9% yearly growth in local real estate is a long way from the 20-30% some markets have seen- and even below the national average of 13%. And ironically that’s the good news. As we near the end of what some experts are calling the “real estate bubble,” our relatively modest growth during the bubble should provide insulation to the negative effects a “bubble burst” would have (like crashing real estate values). Indeed, despite the fact that the St. Louis market seldom sees double digit growth like other cities, we also seldom see the declines those other cities see.
So, should we be worried about a real estate crash caused by increasing interest rates? Never say never. However below are a few factors that I think will affect the St. Louis real estate market more than a quarter point interest rate hike.
1) Hurricane Katrina (and any additional damage inflicted by future 2005 Hurricanes like Rita). As discussed in a previous blog entry, the fallout from Hurricane Katrina could eventually be felt in St Louis in the form of shortages for construction material. Shortages for cement, drywall, and lumber would in turn cause less new construction homes to be built which should in turn keep upward pressure on housing prices.
2) The Local Job Market. This week St. Louis took a big hit with the loss of some 1,700 local jobs thanks to the Federated buyout of local icon May Department Stores. The question to ask is, “How will St. Louis offset these job losses?” Can the growth from fast growing locals like Express Scripts, Build-a-Bear, Panera Bread, Enterprise Rent-a-Car, and others absorb those lost jobs? Can our nice slow economic growth entice corporations to relocate TO St. Louis- like Hardee’s and Arch Coal have in recent years? More important, will displaced May employees and executives leave St. Louis for good, or will we see start-ups and spin-offs blossom as a result? Unemployment and population shifts mean more to a local economy than interest rates.
3) Outside Investors. One of the more interesting trends we are personally seeing is an influx of out-of-state real estate investors who have been pushed out of the California and East Coast markets by astronomical real estate prices. Couple that with the talk of the “bubble bust” and there’s good reason for an investor to pull out of high priced (over priced?) coastal real estate and look toward safer Midwestern markets. One only needs to look as far as the Washington Street Loft District where 40% of the buyers are out-of-towners relocating or investing in St Louis. If this continues, it too will continue to keep an upward pressure on local real estate prices.
Posted by Sid Cameron at 10:53 PM
September 11, 2005
Katrina Shockwaves Affects Real Estate Industry
Realty Times reported this week that Hurricane Katrina will likely cause a slow down in the near-term economy while causing new housing costs to rise by 3-5%. This is based on a Freddie Mac report from earlier in the week. However most real estate experts tend to be in agreement that the worst of this storm, for those of us not living in the Southeast, won’t be felt for months to come.
Make no mistake; the shockwave effects of Katrina will make an impact on the nation's real estate industry. Increased fuel supplies have already begun to increase the cost of running construction equipment. However hardest hit will be new housing construction where the shortage of key construction materials rerouted to the Southeast (lumber, drywall, concrete, etc.) will not only increase material costs but may also cause construction delays as builders wait on materials. Hardest hit will be the small builders and neighborhood rehabbers who don’t have the ability to lock in long term supply contracts.
News sources from all over the country- from Pennsylvania to Arizona, from Baltimore even all the way to Hawaii- are warning of the impact Katrina will have on the local construction trade.
Although Hurricane’s have historically caused short term price increases of construction materials (as demand outstrips supply), Katrina packed a double punch by not only damaging and destroying a lot of wood-built structures across the whole of the southeast, but the flooding in New Orleans, a major U.S. city, will cause immediate demand for building materials as homeowners replace flooded out drywall, plywood flooring, even carpeting to homes that otherwise weren’t damaged by the hurricane (or totally destroyed by the flooding). Combine this with the damage done to U.S. oil production as well as the Mississippi lumber industry, and picture begins to look bleak.
So what does this mean to the St. Louis real estate industry?
As a home buyer looking to buy a new construction home, expect those home prices to slowly start inching higher as builders start to estimate for higher construction costs. If you’ve been thinking about making a purchase, you might want to evaluate locking into a price now before builders start to get a grasp of their true costs. How high new home prices will climb will ultimately be determined by several factors:
- Where fuel prices ultimately settle. Although important, the cost of running a bulldozer today or tomorrow is less important to the overall cost of building a home than the long term increase we are apt to see in construction materials caused by increased shipping costs.
- If demand for building materials cause shortages. The profitability for a home builder can be quickly drained by construction delays. A shortage of key supplies, such as drywall, plywood, or 2x4’s, can cause a ripple effect with subcontractors- turning a two week delay into several months. More important, a delay of even a few weeks can cause a builder to loose thousands of dollars in financing and labor costs- costs that ultimately have to be passed on to future home buyers.
- What impact, if any, Katrina has on the local labor pool. Some experts are already predicting that the pending construction boom to rebuild cities like New Orleans and Gulfport will entice skilled construction laborers from around the country to relocate to the Southeast in search of higher wages. It is unknown if it will ultimately cause a shortage of skilled labor in markets like St. Louis, or force employers to pay higher wages to keep their people.
- Interest Rates are the other factor. A decline in interest rates, which has been predicted by some, could always offset some of these other costs for a builder. Increase in rates could only exacerbate the situation.
Looking Forward…
If you have a new construction home already under contract that is less than ½ finished, forget what your builder has previously told you and expect delays. It’s inevitable. If a builder can’t get access to building materials, then they can’t keep a home on schedule- and all signs point to eventual material shortages over the upcoming months.
How this will ultimately affect existing home sales remains to be seen. Long term building supply shortages could create a temporary shortage of new construction homes, forcing more buyers into existing homes (increasing existing home prices). However higher construction costs could also damper the rehab business- making it harder to sell some existing homes and driving some first time buyers, who tend to want updated or new homes, out of the market.
The impact higher fuel prices will have on the economy also remains to be seen. Could we see a slowdown of people upgrading homes? Will people want to be closer to work- slowing down sales on the edge of town and increasing sales closer in? Will higher heating fuel costs cause consumers to seek out energy saving devices that change the way we build homes- such as implementing solar or other technologies?
Worst Case Scenarios…
Although not likely, a sudden spike in material prices combined with long term shortages could push some builders with lots of pre-sold homes into bankruptcy as profit margins erode away. The industry’s worst enemy, however, would have to be long-term price/supply uncertainty. Uncertainty is what keeps the smaller builders and rehabbers on the sidelines. Not being able to accurately project costs also tends to force larger builders to be conservative and take on fewer projects. A local decline in housing starts by just 5% could be detrimental to a local economy- regardless of what is happening on a national scale. A building boom in the Southeast doesn't translate into a booming economy everywhere else.
Again, these are the doom and gloom projections that we don’t need to worry about just yet. However it’s going to be interesting to see just what happens to prices and availability down at the local Home Depot and Lowe’s.
Referenced to write this article:
http://realtytimes.com/rtcpages/20050909_rates.htm
http://www.thehawaiichannel.com/news/4942515/detail.html
http://www.eastvalleytribune.com/index.php?sty=47773
http://www.wnep.com/Global/story.asp?S=3779764
Posted by Sid Cameron at 10:18 PM
September 09, 2005
New Agent to The St Louis Agent Team
We're pleased to announce that Darin "Sid" Cameron, Marketing Director for The St Louis Agent Team, has received his real estate license and will be broadening his work on the team.
We focus the majority of our marketing efforts on promoting the homes we have to sell (over promoting ourselves as agents). By getting his real estate license, we can now let Sid, the person doing the marketing for our home listings, take a greater roll in working directly with our home sellers in developing a go to market plan of attack. This is something we’ve wanted to do since Sid joined the team in January/February, but finding the time to take the classes has been a big challenge.
Posted by Kimberly Cameron at 08:25 PM | TrackBack
September 08, 2005
Blog 2.0 - We're Back
On June 22 we suspended our blogging activities. Today, it has resumed.
It never ceased to amaze us how many people read our little real estate blog (or how many people were concerned when it stopped). Kimberly even had one person ask her if we were getting a divorce since she hadn't gotten a newsletter or seen a blog post in a while (we're doing just fine, thank you).
The reason we were forced to stop blogging a few months back has everything to do with how we started blogging in the first place.
Kimberly's original website sucked.
Yep, if you don't believe me, you can see the original beta version of it here.
Last December I took a few days off from work and set out to build Kimberly a new website. At the time her original website was only getting 3-4 visitors per day, so it really wasn't a large part of her marketing plan or budget. As such, a business decision was made to build the website as cheaply as possible. That's why I choose an Open Source (i.e. free) blogging application.
The original problem was convincing Kimberly to even blog at all. Her argument was that it seemed like a lot of work for a website that averaged 3-4 people a day. At the same time, nobody else was doing it yet (I'm 95% positive we were the first real estate blog in St Louis).
However I won out. Three days after Christmas, Kimberly posted her first blog- a home holiday safety tip. The free blogging software seemed ideal.
THAT WAS THEN...
Within a few months the marketing and website development that I was doing over the weekends became a full time job as Kimberly quickly evolved from a solo act to managing a team of agents- thanks in large part to this website and blog.
By May our website had a Google Page Ranking of 5. (FYI, that’s pretty good for a local site dedicated to real estate).
By June we were pushing 1000 visitors to our site a day.
Unfortunately all of the corners I cut six months earlier to build this website as cheaply as possible had come back to bite me in the rear- and nothing was more frustrating than the free blogging software.
As blogging software quickly matured to offer new features like RSS/Syndication, Pictures, Audio/Video Attachments, Podcasting/Blogcasting, etc., our free blog software was left in the dust. So a decision was made to move the blog to a new software platform. Since I wasn't 100% sure I could migrate our old posts (which were able to do), we decided to stop posting until the new software was up and running.
THAT BRINGS US TO TODAY….
There have been a lot of delays at getting to this point, but we’re finally here. I will discuss some of the great things that have happened to us since June in later posts. But looking forward, this new blog software gives us the ability to:
- Have multiple Blog “Channels" for different topics. One of our biggest challenges was trying to keep the blog on the topic of real estate (when there was something more interesting on our mind to write about that day like a local news story or event). If you’re someone who reads blogs from time to time, you know how frustrating it can be when the blog author you found so compelling the day before is droning on about how cute their cat is in their next posting. Moving forward, this will be the “Real Estate Blog Channel” and a second “St Louis Living Blog Channel" will be created to talk about local events, local dining, etc. Additional Blog Channels will follow in the future.
- Pictures, Graphics, Hyperlinks, etc. It just makes it a more attractive looking site. It also allows us to post photos of homes and real estate developments we visit as well as activities and events that we participate in.
- Video/Audio files. One of the exciting things about podcasting/blogcasting is the ability to syndicate audio/video files around the internet to lots of people. A few months ago we began offering internet video home tours to our listing clients. Moving forward blog syndication will allow us to get more exposure for our client's home listings. We also have some other exciting video projects in the works.
For the time being, let’s just say it’s good to be back. Kimberly and I are looking forward to resuming our old blogging ways.
Thanks
Darin “Sid” Cameron
