To portray exactly what I’m talking about, I’ll highlight just one area, Bella Villa. The reason why I choose this zip code is because few luxury homes were built here, I know the area well, and the stability of its socioeconomic situation.

The current data is as follows:
352 sales in the last year, with an average size of 2.5bd and 1150 sqft, selling at an average of $118,531 for $104 a sqft.

Now, year on year statistics are important, but multi-year data is required to really determine trends. 2005 had estimated values for the area at 112,400, but 2000 had valuation at $79,400. This is important to look at, but is meaningless without other data. The biggest tell-tale sign that we have a good bit to go in price correction is looking at wages.

2000 average wages for the zipcode was $36,827. This made houses in the area roughly 2.15 times yearly income for the average person getting the average home. Fast forward to 2005 and income changes to $39,500 and prices to wages changes to 2.85 times yearly income. This is a big change in valuation.

Now, fast forward yet again to 2008. Prices are still above 2005 valuation, though they are trending downward finally. But with the homes of the area selling at roughly 3x’s average area income compared to the 2.15 they used to go for, there is plenty of “breaking room” left. Already we see it happening as the 12 month average price is $118,531 but the 3 month average is $108,661. The modest uptick in incomes tells us that this isn’t an area were lots of higher income earners are starting to move to to cause an uptick in pricing, that this was partially speculation as well as correction from 2.15 affordability upwards to the statistical norm of 2.5.

With higher energy and food prices, people have less money available to spend. Credit markets being sapped also will play a much greater role this year in pricing. So from 2000 to 2008 prices for this area are still 30% higher while incomes haven’t grown even at the rate of inflation, another signifier of correctability. Barring a large uptick in incomes, I expect a significant drop for this area, and for St. Louis in general as most areas have very similar situations.

Now, a caveat. Some areas will weather this very well. Benton Park area I expect to not change much due to the interest of doctor’s and lawyers moving into that area. Other areas, like Bella Villa, St. Ann, and Florrisant I think will actually do much worse, going down below 2000 affordability levels before returning to “normal”. I’m most interested in seeing what happens to the abundance of luxury homes that were built recently.

Keep up the good work though, this is the only site I’ve found so far that does a good analysis of the St. Louis area.