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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.
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.
Consequent to the stability in the market over the past decade, the decline in real estate values elsewhere in the Sun-belt8 is not currently a factor in San Antonio. "It was a very good year" for home sales in 2006,9 and there is little indication of downward pressure in the near future. In fact, San Antonio was ranked No.2 on the Forbes Magazine list of most recession-proof cities in 2008.
The real estate market forecast for San Antonio places it at #21 in the top 25 appreciating markets in the US again in 2008, and up to #5 from #6 in Texas. Population growth in Texas is forecast to remain strong through 2030, and especially in San Antonio.10 Over the past year, forecasts for the San Antonio market placed it from a low of 7th in the nation on HomeVestors and 6th on Forbes.com's list of best U.S. housing markets to the number one real estate investment city by NuWire Investors.11
State-wide and city-wide forecasts have limited value though. Localized growth and its subsequent demand are likely to benefit most those areas adjacent to the new Toyota plant. Room remains yet in the area for retail and service industry growth, which may well manifest in appreciation rates slightly higher than the city-wide average.
Significantly, trends in real estate values have correlated well with population growth and economic development over the near term.12 It seems unlikely therefore that disaster looms in the foreseeable future. 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.13
The San Antonio housing market should feel relatively little in the way of repercussions from the sub-prime mortgage fiasco. The Fed is taking proactive action to head off the economic consequences of the sub-prime financing fiasco, and Congress is further addressing the issues related to the tightening of financing through an effort to amend the Internal Revenue Code of 1986 to exclude discharges of indebtedness on principal residences from gross income. Secondary mortgage markets (The Federal National Mortgage Association, among others ) are also moving to expand the types of loans to include refinancing and their holdings. Moreover, population growth is an ongoing factor, and lenders cannot just stop making loans to meet the demand created by this growth.14 Moreover, San Antonio was relatively unscathed by the factors affecting so many other markets in the US.15
The facts of life for lenders are that they need to make loans to recover their losses incurred by making sub-prime loans, and they will not turn away buyers who qualify for loans. The facts of life for qualified buyers are that interest rates are still low and they face a buyer's market at the end of 2007 that should last at least a few months into 2008. As new home builders clear excess inventory from their books, which should be relatively soon, the leverage that buyers have in the market will decline.
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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 form on this page of the Office of Federal Housing Enterprise Oversight Web site can be used to retrieve a table reflecting the 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 Sales 2006: It was a very good year," MySA.com (San Antonio Express-News).
10 See the Top 25 US Markets and Texas Real Estate Markets pages of Housing Predictor.
11 See "S.A. again gets nods as city to invest in," MySA.com (San Antonio Express-News).
12 See "Growth Slows In Some States," RealEstateJournal.com
13 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.
14 The signing of the Mortgage Forgiveness Debt Relief Act into law will certainly help both lenders and borrowers who plunged head-long into the sub-prime mortgage market. So too will the FHA Modernization Act, which recently passed in the Senate, if it goes on to become law.
15 See "S.A. keeps head above 'ugly' home-sale slump," MySA.com (San Antonio Express-News).
