St. Louis: Housing Woes in a Slow Market

Home prices never soared here, but the mortgage mess still takes its toll.

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Median household income: $49,765
Unemployment rate: 5.4 percent
Median home price: $150,500

Folks in St. Louis take comfort that the housing market here isn't the same debacle as elsewhere. This is a slow-growth, midwestern city that didn't enjoy the steep climb in home prices as did overheated bigger markets on the coasts. "We didn't enjoy the run-up, so we also won't suffer the run down," says Jack Strauss, a St. Louis University economist.

But that's little solace to home builders with liens slapped against properties they can't sell. Business is booming for attorneys who file cases against builders, says Joseph Blanner, a lawyer who represents St. Louis-area subcontractors and suppliers. "All we know is that our clients aren't getting paid," he says.

And it's little comfort to Wauseka Smith, a 34-year-old mother of three who rents in a St. Louis neighborhood hard hit by the subprime mortgage mess. Now she's being evicted because a bank foreclosed on her house. Unbeknownst to her, the owner took out a loan he couldn't afford. Foreclosures have hit a number of neighbors on streets surrounding her suburban home north of St. Louis proper. Somebody's got to step in to help, she says: "If not, it's going to be a ghost town here."

It seems no place is immune to the bubble bursting nationwide and the economic anxiety that flows in its wake. Cases like Smith's of households hit by the subprime mess have flooded local agencies, says Karen Wallensak of Catholic Charities Housing Resource Center. "We have hundreds of St. Louis households who need to be rehoused," Wallensak says.

Treading water. It could be worse. St. Louis has subprime borrowers who can't make payments after loans reset from below-market rates. But steadier values mean fewer in this area will find themselves underwater—owing more on a mortgage than a home is worth. Overall housing prices should hold stable in the area, says economist Strauss, who runs the Simon Center for Regional Economic Forecasting. Price declines are hitting areas that have overbuilt, overheated with skyrocketing prices, or suffered concentrated industry downturns. "St. Louis has none of the three," Strauss points out.

Also, housing starts have slowed, with a drop of about 20 percent last year. But that's less than the 30-percent-plus drop nationwide. Homes here still sell, if slowly. Smart builders had time to get ready. The industry has been in a recession with falling starts for a couple of years, says Jim Brennan, owner of McKelvey Homes, a St. Louis company. "It's gotten nobody's attention and gotten nobody's sympathy," he says.

That seems to have changed, with the Federal Reserve cutting interest rates and Congress weighing legislation to help struggling homeowners. Washington seems to be running scared with a recession looming in an election year.

But distant political help is just background noise for Smith, who is scrambling to find a home for herself and three kids, ages 10 to 18. Earlier credit problems complicate the search, though she now works steadily at a local call center. But with the fall in home prices continuing to dampen spending around the nation, Smith has to hope her housing problem isn't a taste of more bitter economics to come.