Market On The Move
Is Columbia’s real estate market on the rebound? The experts at our recent CEO Roundtable say yes, but their optimism is tempered with concerns about the inventory of available homes, school redistricting and potentially costly government regulations.
Gary Meyerpeter, Boone County market president of The Callaway Bank, which sponsors the CEO Roundtables, welcomed the group. Then Inside Columbia’s CEO Publisher Fred Parry took over as moderator and asked the attendees to assess the current real estate market.
“Last year was great for a lot of us,” said Sean Moore of RE/MAX Boone Realty. “I think it honestly was fueled by low inventory and I think we’re going to see similar conditions this year. Maybe not the frenzy … last year in the spring season we had about 60 days of people fighting over houses. But we’re at less than 1,000 single-family homes in all of Boone County on the Multiple Listing Service right now, and the last time that happened was exactly a year ago.”
RE/MAX Boone Realty’s Susan Horak says she is fascinated by statistics and keeps careful tabs on her personal sales through the years. “I always track myself and try to beat myself,” she says. “I look at what is under contract, the pendings or the pipeline, how many listings I have and what is closed for the year. I’m already 38 percent over where I was on this same day last year. I think people are thinking banks are loosening up a tiny bit, so that’s helped. With banks being more agreeable, but interest rates possibly going up, people are jumping in maybe a little quicker and they’re just trying to get the deal done while they can.”
The Roundtable discussion took place during a dismal period of cold weather, just days before an anticipated warm-up, and Columbia Board of Realtors CEO Lee Russell predicted potential buyers would welcome some mild, sunny days. “What we think is probably going to happen is that a lot of people have cabin fever and the thaw is going to happen and the frenzy is going to happen.”
Parry asked the group if school redistricting has affected sales in certain areas of town. Tracy Arey of Tracy Arey Real Estate didn’t believe redistricting had a huge impact, but noted he did work with some families who wanted to buy in particular districts.
“I think Battle [High School] got a bad name for itself originally,” he said. “I guess since it was new, it was something that people were just not used to.”
As a mother of four, Horak had a different take. “I have four children who have attended Mill Creek since it opened and I am now in Russell. Across the street from me, children who have gone to Mill Creek are now in Grant. Now every family in my neighborhood has to drive more than 25 minutes against traffic to take their kids to school. For parents who want to drop off their kids, that’s a big commitment. So you wonder what’s to come.”
Horak suggested that the school board bring real estate agents into the redistricting discussions since those professionals could give an accurate assessment of how many children are coming and going from each house that is bought and sold.
“And from what I understand, the school board is planning on changing that redistricting every year,” Russell said.
“Well, there’s no certainty,” said Shannon O’Brien of House of Brokers Realty. “That’s where I am with my clients. I have to direct them to the newspaper to actually read what has happened to understand that what it is today may not be a year from now or two years from now. So unless you have the ability to pick up and move — which I don’t know of many people who can move every few years — you’re not going to be able to make your buying decisions based on the schools.”
Yet relocations based on school district changes are affecting the housing market, according to Moore. “I would guess almost 10 percent of my transactions last year were because of families buying and selling for schools.”
Mike Huggans of RE/MAX Boone Realty has been actively involved with sales in the Old Hawthorne subdivision, and Parry asked him if Old Hawthorne’s transfer into the Battle High School district was an issue for those property owners.
“I think we would have had a lot bigger issue had we started as a family community,” Huggans said. “We started as a golf community, even though there’s a lot more to Old Hawthorne than golf, and we have a lot more kids now. We see now — more than when we started — that schools make a difference.”
As for development around the new Battle High School, Moore predicts it will fill in slowly, as has been the case around other new schools in recent years.
“Part of the problem is the school board, making decisions, unilaterally deciding where they are going,” Russell said. “And the board insists that developers will follow and they’re not going to.”
The sentiment repeated around the room was that developers can’t afford to build modestly priced homes in Columbia anymore, and the culprit, they say, is the burdensome cost of new building codes and permit fees. In addition to the more stringent building codes recently put in place by the Columbia City Council, there are other regulations looming that could affect the bottom line. Russell had a list of several looming rules, including a proposed Transportation Equity Fee of $4 to $5 per square foot, “trip charges” and expanded codes that would require passive radon systems in rentals and resales.
Huggans reflected on new housing construction from just a few years ago. “When you were building $150,000 or $160,000 homes, your lot budget was $20,000,” he said. “It costs that now to put the infrastructure in, without any land costs. You’re never going to see another land lot in Columbia for $40,000 again. That means there’s never going to be another new home for less than $200,000. Wait until we get the impact fees. I don’t think people realize how serious this is.”
Scott Linnemeyer, a developer with Beacon Street Properties, noted: “If you take the sales price of the new construction home that you could get a year, two years, three years ago, to reach that same price point, you’re going to have to get less home for your money. It may be 100 square feet smaller for the same price, but that’s what we’re anticipating trying to do. The fees and the ones that are still to come are out of control.”
Huggans pointed out one obvious problem with the increasing cost of new homes. “Say that a building permit goes up from $5,000 to $10,000. Does that make that house worth $5,000 more? So, what are we going to do about appraisals? If the appraisals don’t go along with the increase in cost, then we’re going to run into some issues here.”
O’Brien believes that many Columbians think these stringent regulations sound good in theory and the fees won’t affect them if they’re not planning to buy a house. “They are all applauding the energy changes and the building codes and they think it’s the greatest thing that’s ever happened.”
“There’s a lot of lip service in our community about affordable housing, but is that a reality?” Parry asked. “Is that something that’s even on the table? Is there an opportunity to build affordable housing?”
Amid chatter about land prices, Huggans suggested: “I doesn’t matter if they give you the land. You couldn’t build a $130,000 house even on free land.”
Another challenge, Horak said, is the high expectations of today’s first-time buyers. “No builder would build a basic square house that’s cheap and easy to build with a reasonable pitch on the roofline, with one bathroom and three bedrooms and an unfinished basement that when the family gets a little better off, they can finish out. Is affordable housing what we think of, or can children no longer share bedrooms? We’re spoiled brats as consumers. Could we build an affordable house? Yes, we could if it had one bath and a one-car garage.”
“But nobody would buy it,” Parry pointed out.
“Because it doesn’t meet today’s buyer’s wants,” Moore added.
“Even though it would be brand new and crisp and perfect, it just wouldn’t be fancy,” Horak said. “Gotta have those granite countertops.”
Parry shifted the conversation to the other end of the market: the luxury home. “The thought in town is that if I have a home that’s more than $700,000, it’s probably going to sit on the market for awhile.”
“I disagree with that,” said Sara Harper of House of Brokers. “We’ve got plenty of physicians and university people. It depends on the house. It depends on the location. But I think sometimes it can take up to six months, even a year. Obviously there are less buyers in that price range, but there are still plenty of them. I would say more than a million, it’s still a pretty tough sale.”
Moore points out that when a house price soars above $1 million, many buyers prefer to build. “I’m building my dream house,” he said. “I’m not buying your house.” But that unique home, built to satisfy very specific tastes and needs, can be tough to sell down the road.
“If you have a beautiful, giant home that’s 10 or 15 years old, you better go in and get rid of that brass,” Horak said. “The people who are purchasing, they do not want to fix those issues of datedness for you because it takes away from the ‘I’m moving to a new house. Now it’s an old house, and I have to go and do all the things I did in my old house to try to get it sold.’ ”
“My philosophy is, if it’s $300,000-plus, it has to be turnkey,” Moore said.
Parry asked the group to define the “sweet spot” in Columbia’s real estate market.
“We’re trying to fill that niche right now,” Linnemeyer said. “It’s hard to find homes for less than $300,000 or $325,000 with a finished basement in the southwest part of town. Anywhere in that 300 mark is kind of that sweet spot. It goes back to that whole discussion: The old 250 is the new 300. It’s regulation, it’s land cost, it’s development cost, it’s material cost, it’s construction cost — it’s going up just as quick as permit fees. It’s all that combined.”
Parry addressed June Hurdle, who is developing Linkside at Old Hawthorne specifically for active baby boomers. “Going back to 1988, ’89, our Chamber of Commerce has been talking about recruiting seniors to our community. What is your sweet spot, in terms of who you are going after?”
Hurdle shared a statistic from the National Association of Home Builders show she had recently attended: Every day in this country between now and 2030, more than 10,000 people will be turning 65. “We are marketing to 50-plus,” she said, “but we really think that the people who are going to choose a change of lifestyle and a downsizing type of thing is really going to be 60-plus. They want the opportunity to have less maintenance and lock-and-leave. They don’t want to clean out their gutters anymore. People don’t all move to the warm weather climates as they age anymore. They want to stay near their families, and Columbia has a lot to offer in those areas. Price range? Probably $275,000 to $375,000 is the range we’re thinking.”
Horak wondered aloud if the community is properly preparing for an aging generation when city codes seem to discourage an arrangement where parents come to live with their adult children. “I think there’s a huge push to build with main level or drivable access for an apartment inside the home, like a mother-in-law’s apartment but more expanded. But we have these city ordinances that say it’s a duplex if you have another kitchen. That’s an issue we need to get over and address before it becomes a problem. You need to be able to say you can have a separate kitchen and not just a glorified, beefed-up wet bar and then we all lie about it and put the stove in afterward.”
“This topic was big at the convention,” Hurdle said. “Builders — and this country as a whole — need to be thinking about multigenerational housing. There is a desire for it and a need for it and our builders need to start to think about it.”
“It’s sad because I think the multifamily home is more popular on the West Coast and the East Coast,” Moore said. “Being here in the Midwest, we’re going to be the last ones to see it.”
The Next Big Thing
Where are the best opportunities hiding in the local real estate market? According to O’Brien, it may be in that old house next door, especially for buyers interested in being close to the heart of the city. “I think we’re going to start to see a lot of this: ‘I can pay $100,000 for a lot in Old Hawthorne, or I could buy a $130,000 house and just tear the house down.’ ”
“It’s huge in St. Louis,” Moore added.
Linnemeyer was cautious about the approach, though. “It’ll happen initially,” he said. “And then everyone who lives in these smaller homes in the central area will catch on and then the prices are going to go up.”
As the day’s discussion wound down, Arey reflected on the conversation and offered a reality check. “I think a lot of people think we’re in a real estate boom,” he said. “If you go back to our numbers in 2005 and 2006, they are the same. We’re back to normal quicker than most cities because we’re a university city with the hospitals and all the things we’re talking about, so we’re very fortunate that way.
“But our appreciation numbers are not what they used to be,” he added. “For 20 years, we’d go on a listing and know typical appreciation of a house that was sitting there for a year — you could almost landmark that at 3 or 4 percent. We’re not back to that either. We’re not seeing a lot of appreciation yet. Home value is flat.”
Slow but steady is the watchword for Moore. “Real estate is a commodity,” he said. “Values fluctuate both down and up. But I think the future is going to be good. I think it’ll be slower, but I think there is going to be a steady improvement.”