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The San Antonio real estate market has long been dynamic. Since I first got my real estate sales license in 1979, home values in San Antonio have been among the strongest in the nation, even during the miserable economic conditions of the 1980s. The exception was the oil industry crash of the late 1980s, when property values declined a total of 17% over two years. That decline was however the least severe of those that affected the metro areas in the "Oil Patch" states.1
That decline could however be attributable in large part to an adjustment following the "boom" years of the 70s and 80s, when a population shift to the Sun Belt pushed the city's population to twelfth in the nation.2 At that time, demand, runaway inflation and a combination of other factors3 pushed appreciation in real property values into the double digit range, and property values nearly doubled4 between 1977 through the middle of 1982. Realistically, the decline recorded by the FDIC failed in part to take the inflation at the time into account,5 and was therefore relatively less dramatic than the numbers indicate.
The good news was that rates of appreciation rebounded during the 1990s, but were modest by comparison to those locations where real estate values were inflated by growth in the high tech industry. The better news is that those rates remained relatively steady after the high tech bubble burst.
While a significant portion of the real estate market in the US reeled under the one-two punch of hyper speculation in some markets and the sub-prime mortgage loan fiasco in 2007, the real estate market forecast for San Antonio hit its mark. Properties appreciated at an average of about 5%—and the projection for 2008 is even brighter.
The primary factor in the slight decline in existing home sales activity during the last months of the year was likely due to a public perception that the market was in decline, consequent to the lack of context in the reporting on the sub-prime "crisis" by the media,* and due to significant buyer incentives being offered by new home builders to help them reduce their inventory. Remarkably however, some agencies, like Century 21 Smith & Associates, actually experienced record sales volume during November 2007.
* News article after article has reported on the downturn in the housing market as a national phenomenon, in most instances entirely overlooking the fact that real estate markets are local, or making only casual note of this fact. Real estate markets that would otherwise weather crises in the national market are subsequently affected by such irresponsible reporting when the doom and gloom scenarios that bombard them daily become a self-fulfilling prophesy.
One such example is Ali Velchi's statement during the CNN recap of 2008, wherein he stated flatly that no mortgage money was available. He could not have been more wrong, but anyone thinking about buying a new home might have might have been dissuaded from investingating the availability of funding is they mistakenly placed faith in Velchi's expertise.
From all appearances, many people did make such a mistake during 2008 and are still making it into 2009. Additionally, the number of homes sold under foreclosure or short sales (pre foreclosure) provided very real downward pressure on the market. This combination of lowered expectations and distress sales by financials confounded the market forecasts, and actually led to significant declines in values—despite continued growth.
Markets are however local, so local in fact that some neighborhoods were only marginally affected. Properties in neighborhoods with few or no foreclosures actually appreciated, albeit not at forecast levels. By contrast, the number of foreclosed homes for sale in some some areas accounted for as many as half of the total, which drove values down significantly.
In 2009, market values continued to decline, but only by about 7%—but primarily in newer developments which were built during the peak of the sub-prime mortgage loan fiasco. The overall decline held to just under 5%, due to stable values in some areas.
San Antonio is the southern anchor of the I-35 corridor, an area from the Dallas SMSA to the San Antonio SMSA, and is now the ninth largest SMSA in the United States—and part of the fastest growing region in Texas.6 Tourism is still the principal industry in San Antonio, but recent growth in its manufacturing base and other sectors of the economy7 is keeping the city's real estate market strong. It also boasts a strong health care-biomedical and military economic foundation.
Despite the real growth and the fact that San Antonio was ranked No.2 on the Forbes Magazine list of most recession-proof cities in 2008, the number of foreclosures, lowered expectations about the real estate market and anxiety over the future of the economic downturn continues to drive values down. However, as of January, 2010, foreclosure rates have continued to decline, and there is a decided increase in market activity, due to the first-time buyer tax credit. Additionally, the expansion of the Making Homes Affordable tax credits to include "move-up" buyers.9 is expected to add further impetus to the market. Mortgage money is still available, even for buyers with credit scores as low as 580—but only after close scrutiny of recent credit history. Though there is some periodic fluctuation in the interest rates, they have been hovering around 4.5% (+/-) since mid December.
The real estate market forecast for San Antonio for 2010 places it at #4 in Texas, but it has fallen off of the list of the top 25 markets, due primarily to the declines attributable to foreclosures and short-sales.10 Population growth in Texas is however forecast to remain strong, while lower priced short sales and foreclosures are forecast to continue driving down values by 3.2% for the year.11
With an unemploymet rate of 6.8% for the month of November, and expectations fo further job growth, San Antonio continues to beat the national averages. As expected, job growth was primarily in the retail and service industries, and the trend is expected to continue through 2010. Expansion of the Toyota plant and staffing of the new JW Marriott Resort led the surge, and Caterpillar (in nearby Seguin) and Medtronics contributed significantly as well.12
Significantly, trends in real estate values have correlated well with population growth and economic development over the near term.13 With continued effort toward a diversified economy and avoidance of overly speculative investment, the San Antonio residential real estate market should remain strong for many years to come.14
Though the San Antonio housing market suffered repercussions from the sub-prime mortgage fiasco, indications are that the downward pressures have begun to subside. Fed's proactive action to head off the economic consequences of the sub-prime financing fiasco, through the Mortgage Forgiveness Debt Relief Act and FHA Modernization Act have helped both lenders and borrowers who plunged head-long into the sub-prime mortgage market. Additionally, secondary mortgage markets (The Federal National Mortgage Association, among others ) have moved to expand the types of loans.
As new home builders continue to clear excess inventory from their books and new home starts continue their upturn, the leverage that buyers have in the market will decline. In the consumer's favor, the first-time home buyer tax credit and addition in November of tax credits for move-up buyers should continue to stimulate sales of both new and existng homes through the end of April.15 Interest rates at 4.5% have contributed additional incentive.
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1 This table (PDF) related to the FDIC report, "Home Prices: Does Bust Always Follow Boom," depicts the long-term appreciation and depreciation trends in some of the major US housing markets between 1978 and 2003. A subsequent follow-up report was issued in May 2005.
2 Initially, the 1980 census credited the San Antonio SMSA as being the tenth largest, due primarily to the method used to estimate the undocumented alien population, but the figure was later adjusted.
3 Upward pressure on the market was attributable primarily to the new home market being slow to adjust to demand and inflation.
4 Though the boom lasted only from 1977–mid 1982, appreciation rates only slowed, and real estate values more than doubled over the decade from 1977–1987. The Federal Housing Finance Agency Web site can be used to retrieve information on state-wide trends in appreciation and depreciation.
5 See: "What The FDIC Says About Real Estate Bubbles, Busts"
6 See "Texas Real Estate Market Reports" (PDF) from the Real Estate Center at Texas A&M University.
7 Growth in the local job market is being fueled by the addition of Toyota's Tundra Truck Plant, The National Security Agency's Satellite Center, expansion in bio-medical research and services, Microsoft, Rackspace and The TPC San Antonio Golf Resort, which have created high paying jobs in comparison to the local average wage. Additionally construction at Fort Sam Houston began in January 2008 on a $1.56 billion project and is expected to add approximately 10,000 jobs during the next three years.
8 See "Home prices down 1.2% in third quarter," CNNMoney.com.
9 See "Home Buyer Tax Credit Update," mysanantonioassociate.blogspot.com, for an overview of the November 2009 home buyer tax credit legislation changes affecting move-up buyers.
10 See the Texas Real Estate Markets pages of Housing Predictor.
11 See "Things looking up in realty," MySA.com (San Antonio Express-News).
12 See "SA job market looking up for 2010," WOAI.com; and "Business Leaders Get 2010 Forecast," KSAT.com.
13 See "Growth Slows In Some States," RealEstateJournal.com
14 As sub-context, it is worth noting that the nominal rate of appreciation is only part of the value accruing to home owners. As an investment, the tax benefits of home ownership should also be factored in, which makes owning a home in San Antonio a very attractive depository for your money. Note however that the contribution to the return afforded by tax savings declines as the mortgage is amortized.
15 See "Things looking up in realty," MySA.com (San Antonio Express-News).
