Signs building for better home market

The homebuilding industry in the St. Louis region may be on the road to recovery, but the journey will be rough and take years to complete, according to well-known consultant.

“I think that we’re recovering slowly, but not without a lot of pain,” MarketGraphics Research Group Chairman Edsel Charles recently told about two dozen building representatives and local government officials who gathered at The Columns Banquet & Conference Center in St. Charles.

He said the inventory of new homes has not come down in the St. Louis area as fast as it has in other regions.

Charles defined the region as St. Louis, St. Charles, Jefferson, Franklin, Warren and Lincoln counties; St. Louis City; and Madison, Monroe and St. Clair counties in Illinois. In St. Louis City, most new homes come from rehabilitating existing structures. Franklin, Tenn.-based MarketGraphics provides new-home market research in 26 states to builders, developers, banks and local governments.

While the industry is beginning to bounce back, Charles acknowledges there are factors that could derail the recovery. One of those is the collapse of the euro. He estimates the odds of that occurring at 50 percent.

Charles expects less than 3,800 housing starts in the region this year. “That’s way down” from just seven years ago when more than twice as many starts took place, he said.

There are still more than 30,000 undeveloped, residential lots in the region, according to Charles. Those probably won’t all be developed until 2017, he said. Monroe is the one county that is not overbuilt, he added.

The region’s largest homebuilder has slightly brighter outlook for the industry.

“There is definitely cause for optimism in 2012,” said John F. Eilermann Jr., chairman and CEO of Chesterfield-based McBride & Son Homes. “Sales have been consistent and strong so far this year and margins are up. I believe we are on the road to recovery.”

Eilermann said he is bullish on homebuilding for the next five years. However, when asked what the recovery will look like during that time, he said: “Slow and steady is a good way to describe it.”

The demand for building permits is on the rise, especially in St. Charles County where most homebuilding takes place. The county bypassed St. Louis County in issuing permits in 1995, “and never looked back,” said Joe Zanola, a St. Louis housing consultant. St. Charles County issued 387 permits for the construction of single-family were issued during the first four months of this year, an increase of 27 percent compared to the same period in 2011.

However, permits are not a reliable indicator of future activity because builders often obtain permits even after the market turns downward, according to Charles.

Most local jurisdictions are seeing improved employment numbers, but Charles said it is difficult to determine what effect that will have on homebuilding. A positive jobs outlook usually takes between 12 and 16 months to impact new-home sales, he said.

Even if more buyers start to appear, builders will have to change the way they do business. Charles said builders no longer can dictate the appearance and size of homes, and where they will be built.

“Bland seemed to have worked for a long time,” he said. That is no longer the case, he added, because St. Louisans are individualists. “We have been enormously uncreative in this market,” he said.

Charles and Zanola think builders haven’t focused enough on retirees. Charles thinks as much as 40 percent of that market is underserved.

Zanola thinks the population growth in the outlying counties, including St. Charles, will slow less than projected because of the lack of certain types of housing, including smaller homes for young adults. Much of St. Charles County’s population spurt the past two decades came from people moving from St. Louis County, but that is slowing, he said.

One thing Charles doesn’t want to see is more intervention by the federal government. More than two years ago the federal government tried to stimulate the housing market by offering up to $8,000 in tax credits to buyers. Charles contends that did more harm than good.

“It was an abject failure” because the stimulus did nothing to reduce housing inventory, he said. In fact, the stimulus actually extended the housing market’s recession by some 20 months, he added.