Homebuilders in St. Louis have a two-year oversupply of ready-to-build lots, banker David Kemper says, so two years is a good estimate of how long the housing downturn will last here. Kemper, chief executive of Commerce Bancshares, spoke this morning at Washington University’s Weidenbaum Center forum:

We do a lot of financing for homebuilders, and there are strong builders in the St. Louis area. But they have 35,000 finished lots right now. That’s a three-and-a-half year supply, and it should be about a year and a half. It’s going to take at least two years to absorb that oversupply.

He said that the housing correction will ultimately be healthy, because in the U.S.

We way overconsume in housing stock compared with western Europe or Japan. Consumers are going to say, ‘It’s not such a good idea to put so much money in your house,’ and I think that (change) is going to be good for the economy.

Kemper also spoke about

• Interest rates: If the Federal Reserve raises short-term rates, he said, “I don’t think that’s a bad thing. We should be able to function with higher short-term rates. Short-term rates really should be above the inflation rate, which is three and a half percent right now.”
• Consequences of the subprime mortgage fiasco: “There’s going to be more regulation, there’s going to e a lot more skepticism from investors. … It’s going to bring more business to the larger, better capitalized banks.”
• The dangers of overregulation: “Most of the investment banks are public companies. The discipline should come from the shareholders. … When you start regulating everybody, you lose some of the dynamics of a capitalist market.”
• The overbanked St. Louis market: “I’ll give advice to those of you who aren’t already in the banking business: Don’t start a new bank. There’s way overcapacity in the banking  business. … It’s very difficult for a community bank to get a return on capital. Our model, 41 percent of our top line is fee income … (he mentioned areas such as money management and credit cards) …. If you’re a small bank you can’t do that. It’s going to be a long-term issue and capital has to come out of the market.