Strong local economy spurs San Antonio housing market

The strength of the Texas real estate and housing market has been making headlines nationwide. Forbes recently identified the Austin MSA and the Houston MSA as the #1 and #2 fastest growing areas in the nation. Dallas and San Antonio rounded out the list at #4 and #9, respectively. We wanted to give you some idea of what the new year will bring, with a focus on Austin’s neighbor to the south, San Antonio.

Consumers and investors looking to get in on the action should take a close look at all of the major metros in Texas. While Austin and Houston have been getting more national attention as of late, San Antonio has just as much to offer, with high quality of life, a vibrant local economy, and low cost of living.

Let’s start with projections for the residential market in our major metros. These figures are driven by the strong job creation in each of the metros.

Projected home starts for 2013, by metro:

• Houston: 27,500 (a 28% increase in 2012 from 2011)

• DFW: 20,000 (a 21% increase in 2012 from 2011)

• Austin: 7,800 to 8,500 (a 30% increase in 2012 from 2011). Finding enough developed lots is the biggest challenge to meet this number)

• San Antonio: 8,000 to 8,800 (a 17% increase in 2012 from 2011)

Resale activity faces the same challenges, with little to no inventory.

• Houston: 73,994

• DFW: 75,207 sales last year

• San Antonio: 19,940 sales last year

• Austin: 27,000 sales in the SMSA (Austin is challenged with only 5,700 listings available as of the end of 2012.)

Apartment occupancy is strong in all metros with:

• Houston at 97%

• DFW at 93.1%

• Austin at 95.4%

• San Antonio at 90.5% (60%+ of the rental market is in the ‘C’ classification, which in turn explains the high turn over and higher vacancy rate.)

Again, most have seen the coverage of Austin and Houston’s success. Below we discuss San Antonio, a market that saw some impact from the recession, but has continued with a steady growth of jobs with base strong industries military, medical, and education.

When all is said and done, San Antonio’s home sales show a two-and-a-half year peak – and the total number of home purchases was 10% higher than it was in 2011, with a total of 19,940 homes sold, according to SABOR. The last time we saw this many contracts was in April 2010, and back then, buyers were rushing out to take advantage of federal tax credits. This time around, though, there isn’t any kind of incentive. Instead, people were out buying simply because they want or need to!

And, luckily, the momentum has carried into 2013 – it’s safe to say that San Antonio is seeing a housing surge! Real estate experts around the Alamo City expect the number of home sales to increase another 10% in 2013. While that’s not quite as big of a jump as we saw in 2012, it’s still a huge gain. And, considering the demand is based solely on the market itself – rather than any kind of incentive programs – it’s a testament to just how strong things are getting here.

Also on the rise in San Antonio has been the average price of a home. Locally, the average sales price for December 2012 for single-family residential homes registered at
$192,789 (a four percent increase from December 2011).

Breakdowns in prices show 64.6 percent of homes sold in the low-range ($199,000 and below), 32.04 percent in the midrange ($200,000 – $499,000), and 3.17 percent in the high range ($500,000 and up).

Because of the industry San Antonio has, affordable housing is one of the strengths of the San Antonio market. The median price for a home in San Antonio is $50,000 less than in Austin, with less traffic congestion. For comparison’s sake, this is also $181,000 less than the median home price in California – a fact that is often met with disbelief from Californians.

One challenge as 2013 moves along is that buyers around San Antonio will have less existing homes to choose from. This is good news for homebuilders who saw a 17% increase in starts from 2011, up to 8,077. This strength is projected to continue. This continued improvement in the San Antonio’s housing market has caused builders to take notice. As a result, local experts expect to see the number of newly-built homes increase by as much as 15% by the time this year is over. These won’t just be your run of the mill production homes, too. Home construction has been on the rise in San Antonio for the past several months, and throughout that time, one thing has been clear – people here want luxury homes. In fact, the number of home sales between $200,000 and $500,000 jumped 30% last year, so builders are taking full advantage of that trend. As a result, the number of San Antonio’s custom-built homes is expected to go up significantly this year – simply because the market demands it.

What is causing this surge in interest in the Alamo city? Part of it is simply due to location. Texas has had a strong overall economy. However, San Antonio gets the benefit of sitting right along the I-35 corridor – with Austin less than 100 miles to the north. It’s also only about three hours from Houston – a city that continues to mystify everyone with it job creation of over 90,00 jobs annually. In addition, San Antonio is a gateway to our neighbors to the south. Trade and migration with from Latin America has greatly benefited the city.

The largest employment sectors in San Antonio are education, medicine/biosciences, and government. Education, military, and local government spending employed a third of the city’s workers in 2012.

The large concentration of government workers is due mainly to the location of three military bases in the area—three Air Force bases (Brooks, Lackland, and Randolph) and one Army post (Fort Sam Houston). From the days its first mission and accompanying presidio military post were founded in 1718, San Antonio has been regarded as an area of strategic importance. By the end of World War II, the city had become the location for the nerve center of the nation’s defense network, and it remains the headquarters for the largest military establishment in the United States. The bases provide employment to approximately 74,500 military and civilian personnel and have an economic impact on the local community of $27 billion.

Education is represented by 31 colleges and universities (mostly public) that enrolled another 100,000 students, boosting the cities population by 8 percent in school time. Hundreds of thousands more jobs are in services that would not have existed without government-supported hospitals and military spending.

In 2012, the impact of the medical and biosciences industry on San Antonio’s economy surpassed $29 billion. Based on a conservative estimate, health care and bioscience industry stakeholders paid out $7.5 billion in wages and salaries to more than 156,000 employees in 2011, and more than one out of every six San Antonio workers was employed by the industry. San Antonio has gained more than 40,000 new health care and bioscience jobs over the last decade.

In addition, San Antonio itself has been the recipient over the last few years of a strong oil and gas industry – improving economic stability and allowing San Antonio to worry less about what the rest of the economy is doing.

Putting more pressure on home sales is San Antonio’s rising rental prices. The San Antonio apartment market occupancy figure is up 1% to 92+%, rental rates have increased 5+% to $.94 per sqft., and absorption has been the best since the boom years in 2005. Rents have more than kept up with the cost of living index while occupancy continues to hover just over 90% over the last seven years. As in other Texas metro markets, this has caused consumers to compare buy vs. rent more aggressively.

Some national markets are still troubled by foreclosures, but not San Antonio. The local foreclosure rate for San Antonio stands at 3.1% making it No. 312 out of 366 metro areas according to Realty Trac. A tremendous improvement over rates four years ago, when 6.8% of homes in the SA area were under foreclosure.

Other reasons companies and consumers are relocating to SA are the low tax burden, central time zone, and bilingual workforce. For relocating companies, the cost of utilities, water, and power range around 20% less than the national average. San Antonio traffic is much easier to get around in than so many metros in Texas and the US. Why? Over the last 40 years, city leaders have spent over $500 million on roadways. I am always blown away by the low average commute time of only 15 to 20 minutes.

The good news for San Antonio’s growth is that of the four major metropolitan cities in Texas, San Antonio has had the strongest growth in both exports and GDP since 2005. In fact, exports as a percent of GDP have more than doubled between 2005 and 2010. Although San Antonio’s overall GDP is the smallest of the four Texas metro areas, in terms of exports as a percentage of GDP, San Antonio ranks third and surpassed Dallas in 2009. This should help continue strength in the housing market.

San Antonio has two strong sub markets. South San Antonio has been a benefactor of the Eagle Ford shale play. The strength of this market has helped all real estate channels from residential to industrial and should continue for a projected 15 to 20 years.

Another one of San Antonio’s strong submarkets is New Braunfels. In this small, historically German and Hispanic town, the growth has been driven by mid-management retirees from the military or energy industry. Blue / Green properties was a major influence with their aggressive land sales to this market. Couple that the closeness to medical and military bases, low cost of living for retirees, and you can see why the market has done well. Over the last year we have seen home resale inventories decrease slightly, helping values. Distressed properties such as foreclosures and short sales remained the same as a percentage of the total market in January and have had little impact on values. The median home price is $259,500, a 10% increase from a year ago.

The residential rental market in New Braunfels is like most Texas metros, strong at 95% occupancy, and rents at record highs.

However, not everything is completely rosy. There are some challenges and opportunities within the San Antonio office market channel.

The overall strength of the San Antonio’s real estate market has been the steadiness through the recession, with no big dips or rises. Most local submarkets seem to have turned the corner. However, the office sector is still challenged caused by the ATT relocation a couple of years ago to Dallas. This has put citywide office vacancy close to 18%. While metrowide growth in San Antonio has boosted job creation and generated new demand for local space this year, office vacancy continues to rise. Why? Most of this challenge is attributable to corporate relocations to recently purchased or build-to-suit properties.

One of the office submarkets hit the hardest were the northern SA submarkets, where Kinetic Concepts Inc. (KCI), NuStar Energy, and Nationwide leave behind more than 400,000 square feet of previously leased space. The CBD continues to be challenged, with food-supplier C.H. Guenther vacating approximately 55,000 square feet to move into its newly built headquarters, though the majority of recent vacancy can be tied to AT&T, which continued to shed space and consolidate its remaining San Antonio staff in the first part of this year. At one time, ATT had over 400,000 square feet in the CBD.

Where is the opportunity? This much contiguous office space available is in short demand in Texas as well as most major metros across the nation. This puts San Antonio at an advantage and has a number of relocating corporations looking here because of the availability of space. 2013 – 14 could lead to some major announcements helping the local market.

What do this mean for San Antonio area home buyers and sellers?

Barring resurrection of the recent economic recession, it’s likely San Antonio’s home sales market will remain strong through 2013. Because the area’s inventory of available homes is relatively low, 2013 will see a moderate to strong San Antonio area home seller’s market, quicker sales, and higher than average list and sales price appreciations. That’s not necessarily bad news for home buyers, because quality San Antonio homes will likely remain remarkably affordable when compared to similar products in the nation’s other large metropolitan areas.

One thought on “Strong local economy spurs San Antonio housing market

  1. I subscribed to the blog as a result of this article. Easy read and gave me the answers i was in search for tonight online. Thanks again for article.

    Currently I work / live in Austin & Houston, but grew up in SA.

    Luke

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