Has the Texas Real Estate Market Slowed?

by Mark Sprague

I am frequently asked if the Texas real estate market has slowed. In this piece I’ll explain the state of the market and try to answer this question. First, some context.

Austin real estate has been traveling at light speed with over 60% appreciation on residential real estate in the last ten years. DFW has seen over 50% appreciation in the same period. While these aren’t as robust as the ‘go go’ years of the sand states (California, Arizona, Nevada and Florida who at times pre-recession were appreciating 40%+ annually), they have led the nation in the last ten years. Since 1990, Austin has had an average residential real estate appreciation of 5.4%, Houston 4.9%, San Antonio 4.7%, and DFW 4%.

Recently, we have seen sales slow, as you can see in the charts below. Not much, but a little.


Point of distinction: Residential appreciation has slowed, but not declined.

Commercial real estate sales nationally are off about 20% from last year. Here in Texas, it is slower but not by nearly that much. Commercial values continue to be strong in all Texas metros, except Houston due to the oil downturn (pre-Harvey). Pre-Harvey there were concessions on multifamily rentals. Those all but disappeared after Harvey. The other Texas metros continue to see good appreciation and occupancy. Most commercial channels have occupancy above 90%. These are all signs of healthy markets.


So the important takeaway is that Texas metros real estate values continue to appreciate. In some price points, inventory is up, particularly luxury above $2 million. Buyers are looking at properties as a commoditable product so they are not willing to overpay. The buyer will see multiple homes, and the one that best fits their needs and budget will be their new home. Sellers are having to travel farther to meet buyers expectations. Luxury is in a ‘buyer’s market’.

Have values increased in this price point as aggressively as the rest of the market? No, luxury values have historically been less than the general market due to the smaller pool of buyers.

If you are shopping for a house with a budget above $2 million? I have good news: You have more than a six-month supply of homes to choose from, as opposed to a couple months’ supply of homes in many of the lower prices.

Below $700,000, if priced correctly, we are still seeing multiple bids in Austin and Dallas. Sales volume has been dropping, but days-on-market has gone down. Overall, the market is clearly slowing down for the season, though it’s not painfully dull like it was in 2013 or 2014 during the fall. This is key to understand because when we say values are “softening,” some interpret that to mean the market is really slow or crashing. But we’re really only saying sales are slowing.

These charts show you which price segments are strongest in our metro areas.

Many price stats last month actually showed an increase in value. What does that mean? Does this mean the market improved? I thought you just told me the market is slowing? In reality, sales from October really tell us more about properties that went under contract in August and September before they actually closed escrow in October. Thus that 1% uptick really happened in the market a couple of months ago rather than in October. In other words, we’ll see the real trend of the market for October when the pendings from October close in November and December.

Let’s not make a big deal about the market technically showing an increase, because the uptick didn’t actually happen last month. If we want to see the current market, we must look at the sales, but we cannot forget to give strong weight to the listings and pendings. Are properties taking longer to sell? Are there more listings hitting the market? Are properties starting to generate less offers or offers at lower prices? What are buyers, sellers, and the real estate community saying about the market? All these are factors to consider.

To borrow an analogy from the holidays, I’d say the real estate market is like searching the freezer and refrigerator for leftovers from the holidays. You cannot expect the food to taste the same or cook at the same rate. It depends on each market. Some portions are blazing hot

while others remain only warm — or even frozen. Like leftovers, we can say the real estate market is hot overall, but it’s definitely not the same temperature in every area or price range.

Lower price points have had the largest appreciation

Some of the largest price increases in the Texas metros these last few years occurred at the lowest price ranges. While values increased by 5+ percent or so for many price points, in some starter areas, values easily increased by five times that amount. So the market is ultra hot at some of the lowest prices in town, but we don’t see the same rate of appreciation at every price point throughout the region. On top of that, this year, properties above $1 million typically took three times longer to sell compared to properties under $300,000.

Some neighborhoods have begun to see a flattening of sales compared to previous years. The reason is that prices have increased to a point where the area is still desirable, but $100,000+ more than it was three or four years ago. That appreciation is great for those already vested in the neighborhood, but prevents many from moving into their desired location.

We have a housing shortage in the lower price points. The cost of land, labor, and materials continues to escalate, with the hurricane, wildfire, and a lumber tariff not helping. Slower job creation in Austin, San Antonio, and Houston for 2017 have also not helped.

See what I mean now about those unevenly heated leftovers?

If someone asked me whether the Texas metro markets were “hot,” I’d say they are strong. But, realistically, I’d probably first answer with a question, “Which market are you talking about?”

Austin, DFW, and San Antonio continue to be some of the most desirable markets in the nation. Should you wait for values to drop? Never say never, but I don’t see values softening anytime soon, barring a catastrophic economic event. With rates and values rising, the time to buy is now.

Beware! Wire Fraud is at an All Time High.

You’ve done it!  You took a Buyer from shopping for a house, to a contract on a house, to the closing table and you couldn’t be more ecstatic for them.  Then… in total shock you find out your Buyers have wired thousands of dollars to a thief!  You discover the “I could never be a victim to wire fraud, it’d never happen to me” has actually happened to you!  It’s becoming more and more common in our industry and way more sneaky and sophisticated than you may think.

Unfortunately, we are seeing attempts to divert wires to imposters’ accounts on a weekly basis, leaving the Buyer, Seller, Realtor and Title Company at risk.  More often than not, the fraudster hacks into the Realtor’s email account (yes YOUR email account) or creates a close duplicate email account along with your exact signature, and then posing as the Realtor gives bogus instructions trying to divert the funds of one of the parties involved.  It’s happening and it could very well happen to you!  As a Realtor, the video below is a great tool to send to your Buyers & Sellers warning them of the risk.  NAR’s General Counsel, Katie Johnson, has made this video to help you educate your clients on how to avoid being in a wire fraud scam.

Here at Independence Title, we have put many policies and procedures in place to combat this growing issue.  This document is a great tool to send to clients during the contract process.  We send this out to all parties with a commitment and/or contract.  It is critical that you take the time to educate your Buyers and Sellers and warn them of this risk.

Looking for Something to do While Sitting in Traffic?

PodcastHeaderLet’s face it, sitting in traffic isn’t ideal.  Especially when your to-do list is a mile long, you were supposed to be at your appointment 20 minutes ago and every radio station is playing that VERY annoying used car guy commercial.  We get it and can very much relate!  What can you do while you sit in your car bumper to bumper or in-between appointments across town?  Take a look at this list of the Top 40 Real Estate Podcasts courtesy of Curaytor.com.  While there are thousands of real estate podcasts across the internet, we agree, these are the best and most informative.

Top 40 Podcasts for Real Estate Agents

What exactly is a podcast you ask?  A podcast is basically a digital audio file made available on the Internet and subscribed to and downloaded or streamed online to a computer or mobile device.  According to researcher Richard Berry, podcasting has become a recognized medium for distributing audio content, whether for corporate or personal use.  A podcast is similar to a radio program with key differences: listeners can tune into their favorite shows at their convenience and listen to podcasts directly on any device that can play audio files.  These podcasts are great to listen to while driving, exercising, grocery shopping, etc!

End of year Texas economic review

It seemed like the Texas growth miracle would never end. Texas has led the nation in job creation and home price appreciation since the end of the Recession. 2013 was a tremendous year, with home price appreciation at 15% or greater in all Texas metros. 2014 saw continued strength but a slowing of demand. At the start of 2015, the Texas region was coming off a good year, yet there was concern about declining oil values, (WTI per barrel high of  ~$105 in June 2014, now at ~$38) and the effect on our region’s economy.

While Texas is still experiencing growth, the effect of lower oil prices and a stronger U.S. dollar has weighed on the region’s economy. 203,900 jobs were added in Texas this year, and employment in December 2015 will be at 11.9 million jobs, just under a 2% increase for the year. But for the first time in five years, the state lost jobs on a monthly basis – 25,200 jobs in March and 13,700 jobs in August, after four months of job gains. As stated before, the state still added jobs overall, even with the job losses from the energy sector. However the job losses signal a slowing of the market in some channels. The state gained 204,800 nonagricultural jobs from October 2014 to October 2015, an annual growth rate of 1.7 percent, lower than the nation’s growth rate of 1.9 percent. This is the first time since the Recession that Texas has added jobs slower than the rest of the nation.

Existing home sales dipped in October, while third quarter exports fell. The employment forecast ticked up, and the estimated value of the Texas Leading Index rose in October following four consecutive months of decline. All metros continued to see great low unemployment numbers, with jobs being created in services, trade, and utilities industries. Looking at employment data through November, it now seems certain that Texas will get through the 2015 oil bust with net positive job growth for the year and continue into 2016.

While the forecasted 1.3 percent job growth is much weaker than the 3.6 percent growth in 2014, it is stronger than that of other energy states and much better than what occurred in the 1980s following similar oil price declines, according to Dallas Federal Reserve analysts. The difference is that Texas is much more diversified today than it was in the 1980s, and its real estate markets were in much better shape heading into this energy downturn. If oil prices remain near recent levels, 2016 job growth will likely remain close to this year’s pace.

Last year, the state gained a net total 103,465 new residents, the second most of any state in the country. Americans relocated with good reason. Between 2012 and 2014, employment in the Lone Star State grew 6.2%, 2.5 percentage points ahead of the national growth rate of 3.7%.

With this growth, housing demand in all metros is strong but with some signs of slowing. Statewide housing sales increased year over year by 9.2 percent this year. All Texas metros, with the exception of Houston, are driving this increase in residential and commercial real estate sales while the border cities record moderate growth. To no one’s surprise, Houston’s housing sales have remained flat in following declines in energy prices.


Houston is the one metro nationally that seemed impervious to the recession with incredible growth in all channels. Although the annual employment is off 30%, growth is still there. Apartment demand continues strong in the Houston area in the wake of dipping oil and gas prices. The employment picture upside exists as the oil and gas operations consolidate in the Houston area and the continued growth in the area’s medical community. Though the employment growth remained slower this year, these two sectors lead the charge in fueling demand for rental housing. In the eastern portion of the metro and along the Gulf Coast, several petrochemical plants are underway or proposed, stirring demand for Class B and C apartments nearby and driving property interest and values in the area.

West Houston is coming off a several year building boom that has brought thousands of new units online. Softening  has begun to occur and developers are ramping up efforts to lure tenants to recently constructed properties. Developers attitudes about the market are shifting and new developments coming out of the ground are already beginning to slow (if adding 20,000+/- units to the market is slowing). Rent values have slowed but continue in a positive trend with some concessions, except in the class A channel. Occupancy continues to be in the mid 90% range and projected to remain steady in 2016. With a 110,000 jobs continued to be created, Houston’s so-called “slowing” is envied by many.

Home sales slowed but values remained strong. Home sales in the Bayou City saw a 12% drop from the previous year and increase in resale inventory rise from 2.8 months of supply last October to 3.5 months of supply. Inventory has held at a 3.5 months of supply for the past four months, but remains below the current national housing supply of 4.8 months of inventory. Nonetheless, home prices achieved the highest levels ever for an October in Houston. The single-family average price rose 3.7 percent from last year to $271,648, while the median price jumped 6.6 percent year over year to $205,000, and average days on market ticked up slightly from 51 days to 53.

Office space is feeling the brunt of the energy slowdown with over eleven million square feet coming on line this year, surpassing the 9 million that came on line last in 2014. All this office development has pushed vacancy up near 18%, with rents beginning to stabilize after years of increasing values. Hopefully developers will begin to pull back in 2016. Houston industrial and retail have slowed but maintain above national occupancy in the mid 90% range.

Dallas/Fort Worth

Strong job formation (130,000+ jobs 2014, 90,000 in 2015) continues to be the driving force behind the Dallas/Fort Worth metro’s growth, and these factors will play a large role in propelling the market. Many companies are expanding, moving headquarters to the area, and employment additions remain broad in nearly every employment channel. Rising employment in the market is stirring demand for housing, and despite developers bringing nearly 75,000 apartments online since 2009, vacancy has continued to tighten with no concessions and rising occupancy (95+%). Tight conditions combined with healthy rent growth have prompted developers to resume building activity, and developers will deliver 22,000 units this year. Nearly 40,000 apartments are underway throughout the region, and multifamily permitting remains strong in almost all North Texas cities, signaling builders’ continued confidence in the market. Though some softening should occur in 2016 as newly constructed units come online, vacancy should remain well below the last 10 years average. Because of this, rent growth and sales growth should remain strong through 2016 into 2017.

With all the new people and tight rental inventory, home values have continued to improve over 7% to 12% depending on what county you are in North Texas. Home sales are brisk with less than 2.5 months of inventory. In the northern suburbs where business is brisk there is concern of overdevelopment by some due to the number of communities coming online by the end of 2016.

With all the corporations moving to the area, office development is strong with over 7.5 million square feet new in the market in 2015, featuring headquarters space for State Farm, Raytheon, and FedEx, etc. In 2016, roughly 3.6 million square feet was finished. Even with all the office space demand, vacancies will continue to move up to around 20% in the market. Lease concessions continue to be available to larger tenants through 2016 and rent values should continue upward.

San Antonio

Job growth remains steady with the lowest employment of the last 20+ years at 3.5%. This employment growth should remain through 2016, supporting household formation and property values, keeping rents and occupancy strong. Several sectors of the metro’s employment base added a sizable number of jobs during the last 12 months, further diversifying the economy.

The trade, transportation and utilities industry makes up the largest share of metro wide employment, driving demand for B and C class apartment properties throughout the area. The continued healthy pace of hiring in the leisure and hospitality and construction sectors is strengthening demand for these older communities. The number of rental communities built in the 1970s and 1980s offering concessions remains well above the metro average.

Through 2016 the continued growth in the metro’s blue-collar / entry level workforce will bode well for landlords and operators of these properties and will contribute to the strength of the market through 2015. The continued expansion of the local medical community and technology industry is creating thousands of well-paying jobs. Young professionals moving into the market underpin the strong performance of recently built properties. Vacancy at apartment communities built since 2000 has tightened below 5 percent, and the number of these properties offering concessions has dwindled to 3 percent from 14 percent one year ago.

Construction added 5,500+ apartment units in 2015, an increase of 3.2 percent from last year. However because of the demand for lower priced units, multifamily permitting activity is down 70+% from a year ago as builders begin to scale back new developments watching absorption of new inventory. With 94+% occupancy, rents will continue to rise about 5% through 2016.

San Antonio retail and office continue to be moderate in construction and sales with 90+% occupancy. A potential game changer for San Antonio is Microsoft. The tech giant  has bought 158 acres of Texas Research Park real estate controlled by the Texas Research and Technology Foundation.  TRTF officials said the company plans to develop one of the largest data centers in the country at the far west San Antonio site. This type of catalyst could change the dynamics of the San Antonio economy. Do not be surprised by other announcements in the same vein for San Antonio.

San Antonio and Austin are interesting due to their limited bandwidth of where they can expand development to. San Antonio prefers to stay north of I-10 and west of I 35, but moving west is an issue with the government owning so much land. Two years ago we suggested to our Alamo Heights group that the King William area was prime for redevelopment and have seen an explosion as developers look at ‘underutilized properties’ for denser development. We feel that San Antonio has tremendous opportunity with their underutilized properties inside the loop and along it.

The average price of a home in the San Antonio metro improved 10% from a year ago to $231,116 (10% increase), with median values to $187,200 (6% increase). Sales increased by 5% and the market remained a seller’s market with 3.9 months of supply.


Austin is the last major Texas metro that we will address. Austin cannot continue to grow West due to geography, road infrastructure, and environmental concerns. Do we move east, north or south? Recruitment of new business and organic local growth will be the driver of our city’s economy for the foreseeable future.

Google and Apple have not even begun to hit stride in expansion. Other companies that are moving to or expanding in Austin are Dell /EMC, GMC, Hewlett Packard, the University of Texas medical school, and Emerson Process Management. The potential for continued growth is much greater in Central Texas than the rest of the nation.

The strength of this market is shown by the number of units being brought to the market and absorbed. It is not a secret that Austin has the most expensive housing costs in the state of Texas, and this trend will continue in a slower fashion, even as more supply comes online. While the median household income can still buy a median-priced home in areas surrounding Austin, home values in the core are well out of range for many would-be homeowners. As a result, demand for apartments in these areas has risen significantly as residents seeking to locate near popular employment and cultural districts choose to rent in lieu of homeownership. This is apparent as we see 10,800+/- units brought to the market, following 12,100 in 2014. That type of growth and development has not been seen since the late 80’s in the Austin area. Yet concessions are few, and rents continue to rise, although slower.

The Liberty Hill, Cedar Park, and Leander areas are experiencing rapid growth because they have some of the last affordable, developable land available. Home sales in the $400K to $700K will be the most difficult to move for sellers. Values will continue to improve, just not as aggressively. As a smaller builder, I would stay focused on value for the dollar and keeping labor happy as competition continues to battle for their services. The ability to build entry level homes will present opportunity for large market share for those builders who can do so.

The demand for office space is apparent with the number of construction cranes dotting the landscape. In 2015 3.5 million square feet will be completed, which is the largest amount of space delivered since 2007. Last year, office inventory rose by 1.1 million square feet. The strong demand has kept occupancy in the low 90% range, and rents continue to escalate.

We started this conversation concerned with the cooling of the regional market. Yet, if we look at the numbers, the continued pace of sales and values should continue. All this positive news actually scares me a little, since in my lifetime I have never seen Austin or Texas with this level of potential and few clouds on the local horizon. Time will tell.












Texas metros remain sellers’ markets

We are in interesting times. Texas metros have had hot real estate markets for the past five years. For the last few months, we have had questions at both end of the selling spectrum. On the one hand, we are still seeing a sellers’ market in terms of inventory and demand. On the other hand, we are seeing homes at certain price points taking longer to sell and some values softening. What’s going on?

First let’s examine the dynamics of the national, regional, and local real estate markets to answer those questions. Again I look at this not as a seller, buyer, or broker. I’m a developer and a real estate and equity analyst with forty years of watching the Texas market.

Presently there are eight metro areas with a population of over a million nationally that have fully recovered from the recession. “Fully recovered” means they are at or above pre-recession GDP, employment, and real estate values. Four of them are in Texas – Austin, San Antonio, DFW, and Houston. Only 2% of our nations counties have fully recovered. Those cities carry a lot of economic weight, but can’t carry the nation by themselves.

Dallas / Ft. Worth, San Antonio, Houston, and Austin continue to be sellers’ markets based on the lack of inventory and high demand in all real estate channels. What constitutes a sellers’ market? Analysts consider six months of supply as equilibrium. Above that it is a buyers’ market, below a sellers’ market. A buyers’ market is where the buyer trends show sold values being 7-10% less than asking price and other concessions are common. Historically in a sellers’ market the seller is able to sell within 2% of their list price, often with multiple bids. The Texas region has not been in a buyers’ market for nearly five years in our major metros.

The only city that has seen sales slowing is Houston. Low oil prices have caused employment growth to slow. Houston is not as robust as it has been for the last five years, but sales continue to remain relatively strong. At 3.4 months of inventory, it is still solidly a sellers’ market. Demand for commercial real estate has slowed as companies are pulling back on expansion plans. The good news is that there is not the speculative commercial space that we have seen in previous years.

So, if you live in one of the Texas metros, what type of market are you in? These number are from the Texas A&M Real Estate Center.

NL Graph 9-18

Attached are our breakdowns of the Austin and DFW residential markets by zip code. Local real estate data is very important, because even though these metros are broadly sellers’ markets, specific areas have more inventory and are hinging closer to buyers’ markets. You have heard this for years – all real estate is local. Neighborhood values can be dramatically different and it is important for sellers to sit down with a real estate professional to price their inventory correctly.

If priced correctly, homes in all price points in Texas metros should sell within 60 days. However be aware of each local neighborhood, because a few areas of each metro are taking 3 to 4 times longer to sell than the norm in that area. Homes under $1 million if priced correctly should sell within these parameters.

Those sellers that argue with this logic need to step away and look at it from the buyers’ perspective. Let’s look at the logic of setting the proper value against an inflated value when placing your home on the market. A great example is the value of the dollar; if I take a dollar and walk back to where we have our cubicles and ask $.90 for it, there is a chance I may have multiple offers up to the true value. The point of this is that buyers are not going to overpay in this market in general and will not take the time to look at a home that is out of line with fundamentals. Would you?

Demand for shelter, whether for sale or rent is still strong throughout all our metros. Jobs are still being created. There is not enough shelter for everyone moving here. As long as Texas and our metro have strong job creation there will be demand for Texas homes.

Home sales in general were slower last month. In Austin, this last month ABOR reported residential values rising, but the number of sales slowed just a little. Rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Yet the naysayers want to say the ‘overvalued bubble’ has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. It is not a softer real estate market.

Some metrics in housing (higher price points in certain neighborhoods) may be showing signs of a slowdown temporarily, but one thing that is evident is housing demand continues to strengthen. Values, inventory, and other analytics need to be reviewed if selling your home in a timely manner is important. Check with your real estate professional to see what values and inventory are doing in your specific neighborhood.

Total home sales nationally increased to nearly 6 million annualized in June. This was the fastest pace of sales since before the financial crisis and is a clear sign that the housing market is gradually normalizing. Granted, people may not have the income to keep pace with growth of home prices nationally or locally. And credit restrictions are either too tight or too loose, depending on which assumptions you start with. But demand is strong, particularly in Texas and that’s a critical component of the whole supply, demand, and price thing that often gets put on the backburner.

What we are seeing is a readjustment of the market in some neighborhoods. With the potential of rates increasing this year, the ability to buy as much house as you can today will disappear. A one percent rise in rates is a 12% loss in buying power. All buyers want the best possible buy and all sellers want the most profit they can get. The happy medium is to look at the analytics and buy or sell at the right value.




























2015 Texas Midyear Review, Part III

This week, our series on the major Texas metro real estate markets shifts its focus to San Antonio. San Antonio continues to see growth near or above prerecession numbers, unlike the majority of the country.

After a slow start to 2015, economic activity in San Antonio picked up in May. Jobs grew at an annualized 2.9 percent, slightly better than the state’s overall rate of 2.1 percent. Jobs creation should end up just above 20,000 jobs for 2015. However this is 30% less than last year’s total of over 33,000. The tepid start was due to low oil prices and the subsequent downturn in energy employment starting last November and continuing into 2015. That said, San Antonio’s unemployment rate continues to look good as it fell once again to a very low 3.6 percent, putting it in the top ten metro markets in unemployment, while rates in Texas and the U.S. ticked up to 4.3 and 5.5 percent, respectively.

San Antonio’s new oil industry and the breakeven prices for the Eagle Ford shale (which hover between $45 and $55 per barrel) will continue to have an impact on employment. Should oil prices drop below $40 per barrel for an extended period of time, the Alamo city’s outlook could change dramatically. The good news is that employment growth will be largely dependent on non-energy-related sectors such as healthcare, education, and professional and business services (all with long term, well paying jobs) this coming year. As a result, despite some weaknesses stemming from slowing Eagle Ford Shale activity and the strong U.S. dollar, year-to-date job growth in San Antonio is 1.5 percentage points above that of Texas.

The Alamo City is growing its military presence, even as other cities are seeing base closures. San Antonio was chosen for a new Air Force Installation and Mission Support Center. This center should bring 350 military and civilian jobs to the metro this fall. Because of the short-term nature of many military jobs, apartment operators near the base will benefit.


For the last few years, office development and construction was playing catch up to increased market demand due to oil growth south of the city. The good news is that any excess office is leased and many office tenants are outgrowing their existing footprints and looking at the market for new locations, which is accelerating demand for office space. Office developers will complete 1 million square feet of office space in 2015, raising total inventory 1.6 percent. That is over double of last year’s absorption. Solid occupancy of 86% with absorption of over a million square feet in the metro area will allow office rents to climb modestly. San Antonio’s most challenged office market (CBD at 80% occupancy) continues to improve also. 2015-16 will be interesting for developers looking for financing, with less than 40 percent of the total square footage scheduled to come online this year preleased. The large volume of speculative construction could create temporary concessions in the market while the lenders continue to watch absorption in a challenged market. However remember that the growth seen in all Texas metros, including San Antonio, is better than the vast majority of the country.


Apartment construction will remain strong with 6,500 apartments being added this year following 6,300 in 2014. Given San Antonio’s population growth and the popularity of renting among young professionals and transplants, we expect these units to be absorbed quickly and occupancy to remain around 92 to 93% with rents rising about 5% annually.

Many young professionals are moving into the SA area as job openings increase, creating demand for class ‘A’ rental housing nearby. Employment growth is led by professional and business services, financial services, and information technology. In addition strong hiring in the education and health services sector and leisure and hospitality industry will help diversify an economy heavily dependent on the military.

These young professionals are not obligate renters and many are looking to buy, considering San Antonio housing is the most affordable of the major Texas metros. According to Texas A&M Real Estate Center data, the June 2015 median price for a home in Austin was $270,100, Dallas $243,000, Houston $222,000, and San Antonio at $199,200.

However, young workers want to work, entertain, and shop near where they live. The redevelopment of the Pearl District is a great example. The majority of these young adults will stay in rentals, particularly in live-work-play neighborhoods where the cost of ownership is typically more expensive than the metro median priced home. Any softening in the market should be short term as deliveries decline drastically after this year and demand has the chance to catch up with the influx of new supply.


Developers will complete 1.5 million square feet of retail space in San Antonio this year, much of which is preleased. Rents continue to grow modestly with vacancy remaining unchanged. The bulk of the new retail development taking place this year is largely concentrated to the northwest and northeast, as builders and retailers seek to capitalize on strong demographics in this portion of the city. San Antonio is beginning to see development of core inner neighborhoods (King William district, Federal district) into a live-work-play atmosphere, which in turn spurs equity and developers to relook at this market.

H-E-B is planning for a new store downtown. Although the location will be smaller than the grocer’s normal footprint, it will be the first full-service grocery store in downtown San Antonio in years. Having a grocer convenient helps inner city growth dramatically. The majority of space coming online this year is preleased, and the lack of inventory will facilitate the backfill of a few remaining large spaces left over from the recession.

Single family residential

With resale inventory at 4.0 months of supply, San Antonio remains a sellers’ market. Home sales and values continue to improve from a year ago. As stated earlier we are seeing inner city values improve dramatically due to heightened demand from consumers and developers. Some have questioned these higher values and have even suggested the development of a new housing bubble. These fears are misplaced – presently those properties seeing strong appreciation are in inner city locations where new construction is beginning to replace 50+ year old structures due to the closeness of the neighborhoods. Accelerated housing appreciation is due to the market dynamics of strong demand met with limited supply, not speculation.

San Antonio median home prices increased 5.5% year over year from June 2014 to June 2015 and now sit at $199,200, while average home sales price remains strong at over $240,000. New home sales remain slower with about 10,000 starts this year. The strength of the market continues to be north and northwest including New Braunfels. The low inventory of homes and a 5%+ increase in construction help-wanted advertising in May / June suggest continued strength in residential construction in the months ahead.

The strength of the San Antonio market is its steadiness and affordability. Consumers and investors alike will continue to see values increase. The availability and affordability continue to attract industry. In San Antonio as rental affordability declines and mortgage rates remain low, more first-time homebuyers are being drawn towards homeownership but many prospective buyers are up against the low inventory problem. In almost all real estate channels San Antonio should continue its steady rise.





Mid-year condo report doesn’t tell the whole story

The Texas Association of Realtors released a report about condo sales in the Austin, DFW, San Antonio, and Houston metro areas. Values are strong in all, and sales are strong and improving except for Austin.

According to the report, Austin, Dallas, Houston, and San Antonio experienced an aggregate 1% decrease in condo sales between January and May 2015. While Dallas and San Antonio posted small annual gains of 3% and 6%, respectively, condo sales decreased 1% year-over-year in Houston and 12% year-over-year in Austin in the first half of the year. This sparked misplaced concern in Austin that the market was overvalued and over built.

Despite the short-term decline in sales in Austin, prices are up. The median price has increased 4% to $222,000, and price per square foot is up 9% to $222. There are 14% more listings, but units are selling faster with an average of 43 days on market. The important take away is that you cannot pick and choose one statistic and generalize an entire market. The headline of the linked article could easily be, “Condo market sees higher prices and faster sales”.

The reasons that sales are improving in Dallas/Fort Worth, Houston, and San Antonio areas is those markets are showing stronger development of condos in many of the older, central communities. Austin is about 10 years ahead of this curve with phenomenal acceptance of Central Business District (CBD) living, with over 10,000 living in the Austin CBD presently. The other Texas metros have begun to see this same level of interest in their downtowns.

Realize that downtown and inner ring living in Texas metros has not been that popular until the last few years. The demand for downtown has been driven by employment as well as desire to have a permanent residence where one can live, work, and play without commuting.

In reading this report, my first question is about inventory. Not all inventory that is available has been included. Two major residential towers in downtown Austin have not started construction, even though they are a 95% sold out (reservations with escrow money deposited). If you look at the values quoted for median ($222,000) and average ($284,089) values, they are very affordable comparatively to single family in the same neighborhoods.

Sales are a product of the market, and if buyers cannot find the product they want, they will wait for it. Presently, values are not being driven by speculation. Successful multifamily sales historically are 15% to 20% less expensive then the same single family square footage in the neighborhood in Texas. You can’t use this formula with CBD (Central Business District) multifamily because of lack of single family detached.

Unfortunately the higher values of the Austin CBD condos have captured everyone’s attention and focus. Also most condo resales, if priced properly, are seeing multiple offers, which is not a sign of a slowing demand on the market. In a given market if you continue to see multiple offers on properties, even though sales may slow, don’t make a snap decision that the market has an issue. Step back and look at the parameters of that decision. How much inventory is available? Less than sixth months of inventory is a seller’s market. All residential channels in Texas metros are a seller’s market due to limited inventory and high demand.

There is the question of affordability in certain areas of town. Values continue to rise strongly in the CBD and inner ring neighborhoods here in Austin and our other Texas metros. According to ABOR MLS statistics, larger downtown condos are going for over $750 per square foot – a lack of supply of 3 bedroom and larger condos has driven values of such units up. This is unusual – historically it’s the smaller units that are priced her per square foot. Note that many high-end condo transactions take place off MLS, and we’ve heard of large condos going for over $1100 per square foot.

Most residential properties in downtown areas are priced above what the median income can afford. The primary buyers for these closer in residences have always been buyers with substantial assets. Also realize that affordable housing has never been the highest and best use for CBD and inner ring land historically. Desirable, yes, affordable, no.

When will rising values downtown slow purchasing? As long as Austin and Texas metros have strong job creation there will be a desire for having a ‘place’ in Austin or your respective community.

Be reminded that Austin home sales in general had a slower month in June. This last month ABOR reported continued residential values rising, but the number of sales slowed just a little, which is probably a healthy respite for the market. Interest rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Inventory is tight in desirable neighborhoods. The biggest complaint is there is not enough inventory in the inner neighborhoods.

Yet the naysayers want to say the ‘Austin bubble’  has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. Not just residential, but across all real estate channels presently in most of state, particularly in the four major metros. The driving force of the market – job creation – is still here and continues to mature. Demand should continue based on job creation and relative affordability, compared to other job creating metro areas nationally.




Metropolitan job growth drives demand for all real estate channels

The median price for homes in the state of Texas hit another all-time high in June 2014 in the four major metros, and demand for homes in the state continues to be strong, but demand has seems to reached a plateau in the last couple of months with values and rents continuing to remain strong while sales have dropped slightly. Office, retail, and most commercial channels continue to have strong absorption with few concessions.

On a statewide basis, 295,769 single-family homes were sold in the last 12 months, up 10.73% from the previous 12 months. This represents the most homes sold in a single year since the boom years of 2005-2006. However, in August 2014, there were 27,999 sales of existing single-family homes, 1.2 percent less than in August 2013.

Continuing the steady increase seen in recent years, prices for Texas homes were extremely strong in the second quarter, hitting an all-time high for the quarter. The median price in 2Q 2014 was up 5.87% from the prior year, reaching $187,300. The average price rose 5.28% from the prior year to $246,209. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate.

Texas and California continue to lead the nation in job growth, with Texas capturing over 40% of all jobs created in the country in the last 12 months. The effect on local residential markets has been dramatic.


Austin continues to create jobs and have one of the most healthy labor and real estate markets in the state. Although Austin will probably have a record year in resales, the lack of supply of resales and new homes continues to present challenges to buyers. Austin area home sales declined for the second consecutive month in August 2014 as rising home prices and housing affordability issues continue to affect the Austin-area housing market. Austin area home sales decreased four percent year-over-year to 2,835 single-family home sales in August 2014. Resale home inventory continues to dwindle in September of this year, hitting just 3 months (6 months is considered the equilibrium of a sellers and buyers market).

Austin is looking at 9,800 to 10,000 new home starts this year. Delivery has begun to catch up to demand, with builders aggressively looking for developed lots to meet demand, but also seeing a slowing demand for speculative inventory over $500k. The production builders who are able to deliver homes under $250,000 continue to have more demand than product.

Austin not only has one of the state’s lowest unemployment numbers (4.6%), but has been creating 22,000 to 30,000+ jobs for the last three years. Traditionally, for every two jobs there should be one housing start, however with rates creeping up around a point, cost of land, materials and labor, there has been a shift of buyers pushed to rentals. The new formula is closer to three jobs for one housing start. The new employees still need shelter, however their options now are limited to resale or rental. The good news is that demand is still strong in the $250,000 and below price range and apartments continue to lease with little to no concessions. The statement about rental concessions is significant, seeing that Austin as well as the other metros have been leading the nation’s apartment construction for the last 3 years, leading many analysts to think that overbuilding is a risk. However, due to the demand rents and occupancy continues to lead the state.

A majority of Austin area homes are now priced out of an affordable range for first-time and first-time move up homebuyers, where a significant portion of home sales historically occurs (30+% historically, now around 7%). According to the latest ABOR report, the median price for single-family homes jumped 11 percent year-over-year to $247,500 and average price rose nine percent year-over-year to $311,414. Single-family homes continued to sell quickly as they spent an average 42 days on the market, one day fewer than August 2013.

San Antonio

San Antonio remains on track to end the year with job growth in the 2.5 to 2.6 percent range, a 2.5 percent rate means the area will produce a net gain of about 22,800 jobs this year. The job-growth rate is mostly good news. It’s faster than both the national rate and San Antonio’s long-term job-growth pace. But it’s slower than the forecast for Texas as a whole with San Antonio’s job growth between July 2013 and July 2014 at 2.17 percent, which is below the state’s 3.22 percent but higher than the U.S. pace of 1.88 percent. All other large Texas cities except Dallas were higher than San Antonio during that period. Last year was a bit of a struggle due to the high number of civil defense job layoffs (85,000+/- in Texas affecting El Paso/ Fort Bliss, Killeen / Fort Hood, and San Antonio / Fort Sam Houston, Lackland Air Force Base, and Randolph Air Force Base), however this year San Antonio has averaged under 5% unemployment, a number that a number of national metros covet. So even with the layoffs, the market has gained traction in most areas.

With one of the nation’s largest oil shale plays nearby and the increase in high tech jobs, the market will be challenged to meet demand. Resale inventory is at a six year low with just over 4.5 months supply and most properties selling for near full list price (95+%). Apartment occupancy is just under 92% with rents rising above a $1.00 per square foot. While this is not as robust as other Texas metros, it is still attractive for many investors. The good news is the rental market remains strong even with new units coming to the market. Like Austin, the lack of completed developed lots is a challenge and has led to tremendous activity in large land tract sales to builders and developers.


Dallas / Fort Worth continued to improve this year with a healthy 120,800+ jobs created in the last 12 months, led by the professional and business sector with over 45,800 jobs. This surge of quality jobs has created housing demand.

Over 15,200+ apartments are to be delivered over the next 12 months with occupancy staying above 94+%. Multifamily construction and completions have picked up significantly in the Dallas/Fort Worth region. That would normally cause concern for equity as supply could outstrip demand. However, substantial growth in the Dallas/Fort Worth economy and other demand drivers have helped maintain absorption enough to mute the effect of elevated supply. The Metroplex market demand for new product class ‘A’ has been strong, and ‘B’ and ‘C’ class demand remains strong as well. Such demand has prevented significant occupancy declines, giving apartment management and owner’s confidence to continue raising rents. In particular, middle- and lower-tier market segments in the Dallas metro have exceeded rent growth expectations.

The big questions moving forward are: can the middle and lower tiers maintain that pace, and how long can top-tier units continue to show few side effects from apartment development and a strong single-family home market – especially now that (presumably) much of the pent-up demand will begin to be burned off? In particular, the Metroplex’s ability to absorb new apartment product will face more trying tests going forward, as 14-year high construction volumes promise to push supply levels even further over the next two years.

The lack of resale listings is slowing home sales in most desirable Dallas-area residential districts. The inventory of homes being marketed by Realtors has fallen to less than a 2.5 month supply in the Metroplex, allowing values to continue to improve. The second quarter of 2014 improved over 45% from the first quarter, but demand has slipped a little, 2.5% less than this time last year.

Home starts and development will remain strong for the rest of 2014 and into 2015, with developers / builders following the same script of the other Texas metros in trying to secure as much land as possible. In contrast to the roaring growth in multifamily, single-family home construction has increased at a more gradual pace. The slower growth is partly due to constraints on the supply side, such as a shortage of developed lots, higher construction costs, and widespread labor shortages. Dallas home price appreciation is slowing, increasing 0.2 percent in the second quarter, according to the Federal Housing Finance Agency purchase-only house price index. Year over year, prices are up 6.5 percent.

Like most of the Texas metros, the Dallas / Fort worth area is still facing an inventory shortage. A steady, ongoing supply of new housing stock — particularly in the entry level and first-time move-up market – continue to face challenges. This channel was over 30% of the market and has fallen to less than 10%. These homebuyers represent a large majority of home sales historically and their equity growth and ability to move up will be crucial to Texas housing market growth.

Office markets are healthy, as Dallas/Fort Worth’s office market continues to improve this year as corporate expansions and relocations improve job creation and boost office demand. A great example was the market’s ability to recover relatively quickly from large corporate move outs. Plano, for example, was dealt a blow late last year from Encana Corp.’s (Canadian natural gas company) decision to vacate its newly built offices, but the city has since been selected by FedEx and Toyota for their new corporate headquarters. Combined, these two relocations alone will bring an estimated 5,200 jobs to the area within five years and will attract secondary supporting firms. The Metroplex has shown an envious ability to recover from overdevelopment and building the last few years. A great example is Richardson where over 30% of all office space was available for lease just five years ago, but the corporate campuses for State Farm and Raytheon has sparked a dramatic turnaround in recent quarters. Downtown Dallas has also received a boost from major office-using tenants, with Tenet Healthcare leasing 242,000 square feet and Santander Consumer USA committing to 350,000 square feet in the area. In Fort Worth, the North submarket, which includes Alliance, reports the lowest vacancy rate, though the Northeast and Mid-Cities areas recorded the most tightening over the past year.


The Houston economy continues to lead the nation with over 112,000+ jobs created in the last 12 months. To say the economy is doing well is an understatement. Houston continues to remain strong with a booming energy market, strong trade, and surging real estate development activity. If you have not been able to go to the Woodlands in the last year, you need to take a field trip. The relocation of Exxon and Occidental to the area has caused tremendous growth that has to be seen to be believed. Demand in all channels in this 30,000+ acre community is off the charts.

Although it is off the 2009 high of over 20,000 new apartments delivered, Houston continues to have strong construction in the apartment sector. 2014 should have 12,000+ apartment units being deliver this year, and rental occupancy has stayed steady at 94%. Resale and new home sales struggle with the tremendous demand for inventory, although we saw sales slow this September. Like all of the Texas metros, resale is definitively a seller’s market with just a 3.2 month supply. Like the rest of Texas, land developers of residential, office, and retail are quickly securing positions and starting construction to address the demand.

Citywide, August delivered gains in both residential home sales volume and prices. Housing inventory held steady month-over-month, but is tracking slightly below 2013 levels. While prices were the highest for an August on record, they fell short of the all-time records set in June 2014. Single-family home sales were up tad, at 1.1 percent versus August 2013. Months of inventory, which estimates how long it will take to deplete current active housing inventory based on the previous 12 months of sales activity, matched July’s 3.0-months supply, lower than the 3.3-months supply of last August. It is significantly below the current national supply of 5.5 months of inventory.
Residential values continue to show the strength of the market, with the average price of a single-family home up 6.4 percent year-over-year to $275,369. The median price jumped 10.4 percent to $206,000.

The tremendous job growth and corporate expansion continues to intensify in Houston, driving demand for office space and sparking a construction boom. This year, developers will complete more than 11 million square feet of office space in the metro, which represents the highest total on record since at least the turn of the new millennium. Pre-leased office towers and build-to-suits will account for a sizable share of deliveries through 2014-15, and demand appears strong enough to absorb much of the new construction that remains available. Approximately 85% of the 4.4 million square feet delivered in the first half has been spoken for, and pre-leasing of buildings slated for completion over the balance of the year already exceeds 70%. The market’s recent performance and a dwindling supply of large blocks of Class A space suitable for corporate tenants have renewed speculative development in the metro.


After reviewing most of the state, residential sales demand has slowed, yet values continue to improve, and will allow somewhere between 5-7% appreciation of most residential real estate throughout the state. This lack of sales demand is to be expected with new and resale inventory improving. Even with the tremendous growth Texas has seen over the last number of years, with supply improving, values will remain strong but may be challenged to continue. They should still see appreciation, just not to the degree we saw in 2013. Other channels of real estate will bear watching throughout the state, since many are at a ‘tipping point’ of supply overwhelming demand.

With such strong supply and continued demand, the inventory of Texas resale homes has remained in a ‘sellers’ market. The Texas market had 3.7 months of inventory, and has remained there much of the year. A 6-month supply of homes in a market indicates a balance of supply and demand. The Texas inventory supply indicates strong demand for homes of all values, but particularly entry level.

The point of this exercise is that with mortgage rates and home values continuing to increase, Texas metros as well as many smaller towns continue to see appreciation to the point that waiting to buy does not make sense. The home you look at today will not be there tomorrow. Whether this is just a couple of years of appreciation or a longer cycle for the majority of the state has yet to be seen. However, it is safe to say that buying today is a wise investment.

The future of Texas is bright

With the media attention on the lack of housing starts and the lukewarm national economy, I felt it was time to revisit why Texas continues to stand out from all the negative news about the national economy. The $1.3 trillion Texas economy has shown a complete recovery from the Great Recession and is getting stronger, with few foreseeable economic hurdles over the next few years. To put that in perspective only 3 states are producing a significant number of jobs, Texas with 375,330 jobs, California 331,000 jobs, and Florida with 218,000 new jobs in the last 12 months. There are 18 other states at prerecession employment numbers. But there are still 32 states that have had yet to regain all the jobs lost in the downturn, based on revised state-level employment data from the Bureau of Labor statistics.

The Texas economy is now larger than those in Michigan, North Carolina, and Georgia combined. The Texas economy has recovered from recession and entered into a phase of expansion. This is different than the majority of states in the nation. Texas has left the stabilization and recovery phase that the rest of the country seems to be stuck in. Not all Texas metros are fully recovered as shown below.

• US – Stabilization – The Federal Reserve lowers rates, then gradually allows increase, as housing and job growth historically follow. When the rates are at zero, the Federal reserve uses other means, such as quantitative easing (QE) to encourage growth. As Fed reduce stimulus, rates should rise.
• Texas – Recovery/Expansion – Supply and demand is in balance, and home and land appreciation meets or beats inflation.
• Austin – Expansion – Economic housing formation as well as other real estate channel demand exceeds supply. Housing and real estate appreciation stronger. Austin is at 111% of prerecession employment numbers.
• Houston – Expansion – Economic housing formation as well as other real estate channel demand exceeds supply. Housing and real estate appreciation stronger. Houston is at 309% employment recovery of prerecession numbers.
• San Antonio – Recovery – Demand has picked up, putting pressure on supply. San Antonio is at 93.2% of prerecession employment numbers.
• Dallas/Fort Worth – Recovery – Demand has picked up, putting pressure on supply. DFW is at 228.6% of prerecession employment numbers.

To see how Texas metros rank against the rest of the national metros we have the following chart from the Bureau of Labor Statistics.

voice graph 7-25

Texas lost 400,000 jobs between 2007 and 2011 during the recession, but has since added more than a million. Those who lost their jobs may not have gotten one of the new ones. The current oil and gas boom is fundamentally different from one in the late 1970s because it is driven by increased demand and production, not just higher prices.

The strength of the regional economy is apparent when you realize Texas unemployment has been at or below the national rate for 90 consecutive months. Non-agricultural employment in Texas expanded over the last month for the 45th straight time with the addition of an estimated 19,100 jobs in June. This growth followed on the heels of gains of 55,500 and 62,400 positions in May and April, respectively. Seven of the eleven major industries in Texas showed employment increases over the month. Total non-agricultural employment ended the last 12 months at an estimated level of 11,550,000 jobs, an increase of 371,000 jobs over the year. The annual growth rate for was nearly unchanged at 3.3 percent in June and has been at or above 3.0 percent for four of six months in 2014. Trade, transportation, and utilities employment continued its expansion with the addition of 7,700 jobs in June. Regional retail trade grew by 3,100 positions, and wholesale trade added 1,200 jobs in June. Trade, transportation, and utilities employment added 90,400 jobs over the year as its annual growth rate reached 4.0 percent, the highest in this regional channel’s history.

With this employment growth, construction has increased in residential and commercial. Regional construction starts and automobile sales also have helped spur the recovery that would not be here if it was not for the other channels employment growth.

Because of this, consumer confidence in Texas is above average, while it remains low nationally and in other regions of the country as evidenced by the chart from the Texas Comptroller’s Monthly Report (a healthy economy traditionally is shown by the index being above 100). When you have strong consumer confidence, the consumer spends more, which in turn helps the regional economic growth.

voice graph 2 7-25

On top of this, Texas-based companies are blazing new trails in innovation, driving job creation and spurring some new record-setting growth for the Lone Star State.

For the first time, Texas recently surpassed California in technology-related exports, according to a report by the TechAmerica Foundation. Technology now accounts for 17 percent of all exports from our state, and there are plenty of reasons why that trend will increase, not decrease.

A significant amount of credit for this pro-tech, pro-investment environment in Texas must go to state leaders, who have enacted some of the smartest, most forward-looking policies anywhere in the nation. The Governor’s office and staff, and local and state policymakers have been squarely focused on public policy that spurs business and manufacturing investment broadly and that encourages the growth of the tech sector, in particular. And that, of course, means more jobs. Particularly in one of the fastest growing industries in the world.

It’s because of the economic, regulatory, and business climate in Texas that technology companies are willing to invest billions of dollars and create tens of thousands of jobs with confidence. Notably, a sales tax rebate on certain technology manufacturing equipment (House Bill 1133) correlates to $800 million in new broadband network investment by companies every year in our state. Also, passage of House Bill 800 has promoted Texas as a place for research and development activity, a key element of tech innovation.

The state’s public policy decisions have played an integral part in the decisions technology companies make every day on expansion. With only so much capital to invest, companies must decide where the best environments are for investment. A strong, pro-growth climate with policies that reflect a commitment to growing jobs and the economy make Texas standout from the rest.

Last year, weakness in manufacturing and cuts in federal spending (85,00+ jobs just in Texas) contributed to the state’s job growth slowdown. Still, our regional economy continued to expand, with employment in oil and gas, leisure and hospitality, professional and business services, and construction growing strongly. Even with slower job expansion, Texas remained the third-fastest-growing state in 2013, trailing only North Dakota and Florida.

Where is the rest of the year headed? 2014 should be another good year, with many analysts expecting improvement in global and U.S. economic activity, Texas should benefit as demand for its products and services increases. Federal government cuts are unlikely to be any harsher than they were in 2013, nationally as well as regionally. The latter part of this year’s national pickup in job growth suggest that 2014 employment will increase by 2.5 to 3.5 percent. Texas will see the same gains in job growth in 2014 with an increase by 2.5 to 3.5 percent. Texas will likely continue growing faster than the national average and most other states.

Austin and San Antonio midyear review

It’s time for a midyear review of our real estate markets in Texas. This week we will start with what is happening in Central Texas and San Antonio. The underlying theme is the continued job growth in Texas and all the benefits it brings.

Not only does Texas have a rapidly growing job market, it also has an exceptionally large GDP of $1.5 trillion in 2013. It was second highest nationwide last year and greater than the combined GDP of the following nine states combined. GDP growth exceeded the national growth rate by a large margin in each of the last three years.

By most measures, including employment and economic output, Texas recovered from the recession a couple of years ago. Booming oil production is named as one of the largest factors contributing to the economy’s strong growth. The mining industry, which includes oil production, accounted for 13.5% — well over $200 billion — of Texas economic output, five times the sector’s contribution to the national output. But over the last 15 years over 40% of all jobs have been created in the health and education industry. Texas total nonfarm employment increased by 64,100 jobs during April 2014. Between April 2013 and April 2014, Texas total nonfarm employment increased by 348,000 jobs or 3.1 percent.

The Texas unemployment rate was 5.2 percent for April 2014, down from 6.4 percent a year earlier in March 2013. The Texas unemployment rate has been at or below the national rate for 88 consecutive months / 7+ years. The second part of that story is the lack of inventory in most real estate channels and the continued buildup of demand.

San Antonio

Home to one of the largest medical facilities in the nation, San Antonio has seen strong job growth from military medical operations. This is welcome news as the national defense budget has been cut dramatically. Ambulatory health-care services combined with new technology has created more than 12,000 jobs over the last five years and looks to continue for a while. Medical isn’t the only thing driving development. San Antonio is also home to the largest oil and gas development in the region in the Eagle Ford Shale. Record drilling levels and high-yield wells are pumping new jobs into energy and related sectors. In San Antonio the real estate downturn wasn’t as severe as in the rest of the nation. Government presence (three large military installations) has somewhat protected the market. However the lack of job growth (a net positive of 1,000 jobs over the last 12 months) in 2013 put a drag on optimism and the local economy.

The local housing market continues to improve with home resales increasing in value but with volume nearly identical to last year. Resale inventory is at 4.5 months (6 months is considered equilibrium) making it a seller’s market. New home starts followed a similar path with a slight increase in volume, but values improved dramatically. New home sale has seen an improvement in the upper end with luxury housing priced $300,000-500,000 dramatically improving 33%, and homes over $500,000 are 28% over last year.

In most markets developed lot inventory has been the biggest challenge. San Antonio lot inventory has increased each of the last three quarters thereby increasing the overall lot supply from 17,002 lots in 2Q13 to 18,384 lots as the end of the first quarter of 2014. This has helped to stabilize values and lot inventory and provide relief to high demand areas that saw their lot supplies diminish over the last three years. After 7+ years of little appreciation, land, labor and material are driving up the cost of lot development. This ‘catch up’ value increase has pushed the San Antonio affordability ratio where it is now virtually impossible to reproduce lots for new housing priced under $175,000.

Renter-household formation continues to be strong as broad-based employment growth continues to boost the San Antonio economy. The Alamo City is particularly benefiting from jobs generated by the nearby Eagle Ford Shale. Oil-field service companies have created thousands of jobs, bolstering hiring in a broad array of sectors including professional, health, education, and government. These jobs will support the addition of a projected 65,000 new households between 2012 and 2017, boding well for apartment operators. Wanting to capitalize on surging demand, developers are bringing 4,700 units to the market this year, concentrating on the Broadway corridor, northwest and north central San Antonio. In addition to the boom of the oil industry, the northern region is home to major employers such as the University of Texas at San Antonio, USAA and the Medical Center District. Although construction market wide is significant, strong demand will put downward pressure on vacancy, resulting in continued moderate rent growth.

The San Antonio apartment market is strong for a San Antonio market. While a 91.5% occupancy rate may seem low in other cities, San Antonio’s stability at this rate continues to attract investors. In the past four years, there has been over 13,250 new units added to the local inventory, yet occupancy has fluctuated minimally, showing less than a 4% difference between the highest and lowest occupancy rates during that time. In addition, rental rates have continued to creep up, increasing almost 20% over the four-year period, to reach a current record high of $0.99 per square foot. With this stability developers are enthusiastically building in this market and investors are eager to buy. There are currently 10,846 units under construction in San Antonio. In addition, the next 12 months are expected to see approximately 7,900 more units break ground. Much of this construction remains concentrated in the northern and western outskirts of the city where demand is strong. While this area was previously undeveloped, and thus, under-served by the multi-family market, there is a concern that these areas may become overbuilt. Occupancy rates have remained relatively flat, increasing only .26% during the quarter. If this was indeed the case, expect occupancy levels to increase a bit more dramatically during the second quarter, as new unit additions should be less than the 1,520 units added this quarter.

Expect to see apartment construction continue at a brisk pace, while occupancy rates should increase during both the second and third quarters. Rents will continue to creep along, while investor interest will remain high, fueling additional sales.

Office construction will remain below the five-year average in 2014, due to continued office surplus in the CBD. Northern San Antonio receiving most of the new inventory as employers seek locations near the growing employment base. Class A office vacancy in Northwest San Antonio has fallen since peaking in late 2011, and a number of speculative developments are underway. In far West San Antonio, the presence of major corporate data centers including Microsoft, Chevron, and Valero motivated Stream Data Centers to build a second facility in the region. Through all this the improving office and greater space demand has put upward pressure on rents this year.

Local and out-of-state buyers will target traditional office properties in the North San Antonio, Northwest, Far North and Far West submarkets. Proximity to the large employers such as the medical district and universities will keep these submarkets desirable to investors. On average, first-year yields in San Antonio start in the low-7 percent range for Class A assets, while Class B properties typically trade in the low-8 to low-9 percent range.

Positive momentum will increase investor competition, placing upward pressure on prices and encouraging sellers to bring assets to market. Last year, listings were limited and almost exclusively Class B properties. Though available inventory is tight, it will expand as merchant builders and impending loan maturities boost listings of Class A and Class C assets. Generally, Class A units change hands at cap rates in the high-5 to 6 percent range, while Class C properties start trading in the high-7 percent range. Investors with a high risk tolerance will target outlier markets such as New Braunfels and Boerne where cap rates trend higher. Acquisition financing is more available as regional banks, flush with cash flow from Eagle Ford Shale, are playing a more active role in smaller unit lending.

The technology strength is obvious to those that live in San Antonio, with the explosive growth of Rackspace and Geekdom. The city was ninth in job growth over the last five years. A nationwide restructuring of military bases could lead to many new jobs. So on many fronts those looking to find opportunity have a lot of options in the Alamo city.


The Austin metro area continues to get plenty of positive economic press. Nationally, Austin has come in the top five major metros for job growth over the last five years, due in large part to a more diversified economic base. Homegrown tech companies like Dell, National Instruments, as well as foreign investment such as Samsung (with the largest foreign investment in the US in Austin) and others complement incoming companies like Apple and IBM (which both now have large bases in Austin), as well as startups coming out of the University of Texas. When you look at the explosive growth of new tech companies such as Homeaway, Bazzarvoice, Invoto and many others, the economic future is obvious.

Austin is one of the strongest residential markets not only in the state, but the nation. Austin-area homes continued to sell at an accelerated rate, decreasing the average days on market by five days year-over-year, down to 45 days in April 2014. At the same time, monthly housing inventory decreased 0.4 months year-over-year to 2.3 months. (Six months is equilibrium – above six months it is a buyer’s market, below a seller’s market). The market also featured two percent fewer new listings, three percent fewer active listings, and six percent fewer pending sales in April 2014 compared to the same month of the prior year.

More than 11,000 apartments are scheduled for delivery in the next 12 -15 months, which will put upward pressure on market wide vacancy during lease-up. Normally, more units increases vacancy rates, but due to Austin’s 95+/-% occupancy, rent values continue to improve, although not as rapidly as the last 4 years. The local rental market remains tight with rent values increasing. The balance between buyers and sellers in the market will begin to align this year, though multiple bids per listing will remain commonplace in the early part of 2014. A number of factors will materialize that encourage apartment owners to divest in the coming months. Rising interest rates will place upward pressure on cap rates, signaling to some investors that the market has peaked. As the year commences, cap rates are generally in the low-5 percent area for core listings and move up to the low-6 percent range for 1980s class ‘B’ assets.

Austin’s decision to back a new medical school that will open in the fall of 2016 will help attract many more in the medical field – research, as well as support industries and practitioners. Partnering with the university and the strength of the other medical centers in Texas will allow the state to become much more attractive on a global scale to many. Couple that with the nation’s aging population, you can see the strength of the economic argument.

Austin business leaders plan is to maintain its high-flying output over the next number of years as it focuses on clean technology, data centers, digital media, biosciences, and other industries.

In addition, other real estate channels such as office are benefiting from the strength of the market. Several recent corporate relocations and expansions in the thriving high-tech economy will push down vacancy in Austin this year. Google Fiber will also make its debut in the market, providing resources and opportunities for further development of high-tech industries. Builders are increasingly optimistic, capitalizing on strong demand by proceeding with several build-to-suit and speculative developments in the CBD and northwest Austin. The CBD will be home to the new IBC Bank Plaza and Colorado Tower, which will collectively add more than 565,000 square feet of office space.

Construction of the Dell Medical School at the University of Texas will attract and spur the development of healthcare and ancillary services in the CBD and university area and has already affected values east of I-35. Additional expansions will result in the highest net absorption in five years, allowing operators leverage to raise rents. Close to 2 million square feet of additional office space has been announced for development. With current employment growth, current office projections and absorptions seem to keep ahead of demand.

Substantial employment growth and improving operations will draw additional investors to the Austin market this year. Local buyers will target value-add opportunities in suburban submarkets, including Northwest and Southwest Austin to capitalize on upside potential. These assets generally trade at cap rates near 7.5 percent. Properties with less than 50,000 square feet will account for the majority of these transactions

In future weeks we will review the other major Texas metros and cities and see where they stack up in comparison.

Texas is a state that is seeing great job creation and a better-than-national real estate market, and both metros reviewed are truly blessed with good absorption, lack of supply, strong rentals, etc. Sales and appreciation have increased, but if you look over the last 5 years, it has been stable and comfortable growth current projections show that trend continuing.

Factors driving the Texas economy

Texas cities are clearly the place to be in terms of job creation, wealth formation, and overall growth. All the major Lone Star cities continue to show economic strength while the rest of the nation struggles.

I thought we would look at each of the metros and see what is driving the growth in each metro, rather than focusing on just real estate.

San Antonio

San Antonio’s economy is standing out once again as one of the four strongest metropolitan areas in Texas and eleventh overall in America according to a recent Brookings survey of the 100 largest metros in the United States. The Brookings MetroMonitor survey evaluated unemployment rates, housing prices, economic output, and employment in each city.

The unemployment rate in San Antonio is expected to decline at a slower rate as the oil and gas drilling continues to moderate. Texas is losing 90,000 military-related jobs due to the sequester and budget reductions last year. Even with the reduction in force, San Antonio is fortunate to have added 8,000+/- jobs to their economy, most of them coming from the services and construction industries. San Antonio continues to see improvement in the unemployment rate as it declined to 5.9% compared to 6.0% at the end of 2012. Employment growth is expected with residential construction picking up at the end of 2013 compared to the rest of the year. San Antonio’s residential demand continues to improve moderately, consistent with job and income growth in the area.

The Alamo City’s focus on strong growth sectors like bioscience, healthcare, aerospace, and cyber security will continue to contribute to improved employment opportunities.

San Antonio also appears in the 2012 Cost of Living Index, developed by The Council for Community and Economic Research (C2ER), as the No.1 least expensive city for food costs (as measured by the grocery item index), making for more disposable income for its residents. With the lowest cost of living in the state and one of the strongest economies in the country, San Antonio continues to attract industry and consumer alike.

Keith Phillips, senior economic policy adviser for the Federal Reserve Bank of Dallas, expects the area to add about 22,400 jobs this year, expanding the job base by 2.5 percent. That would be a significant improvement over the 1.1 percent job-growth rate in 2013 that produced about 13,200 new jobs. That was down from 2012’s 2.6 percent growth rate. The San Antonio MSA has benefitted greatly from the Eagle Ford shale opportunity. The area will continue to benefit, although at a slower pace.

All these factors have led San Antonio to a 17 percent increase in home resales in 2013 when compared with 2012. With so many people moving into the city, more jobs have been created which has translated into economic growth and a rise in home sales and home prices.”


The Houston metro area should create just under 70,000 jobs in 2014. Employment will grow in all sectors, with professional and business services, education and health services, trade, transportation and utilities and construction turning in the strongest performances. Energy and manufac¬turing will grow but at a slower pace. The year should end with 2.9 million payroll jobs, a net increase of more than 500,000 jobs since January ’05. Only two other metros – New York and Dallas-Fort Worth – are able to make a similar claim.

For the 12 months ending October ’13, the metro area created 79,600 jobs, a 2.9 percent annual growth rate. This is a slower pace than earlier in the year. Growth peaked at a 4.5 percent annual rate, or 119,300 jobs, during the 12 months ending February 2013. That was the fastest pace since June 2007, when the region added jobs at a 4.6 percent annual rate.

Houston has enjoyed almost four years of phenomenal growth. Since January ’10, the region has added 337,300 jobs, or more than two for every one lost in the reces¬sion. In that time, the region has built 100,000 single-fam¬ily homes, and exported $434.6 billion in manufactured goods and commodities.

All channels of real estate are doing well. In the 12 quarters ending Q3 2013, Hous¬ton absorbed 10.5 million square feet of office space, 12.9 million square feet of industrial space, and 3.8 million square feet of retail space. Since January ’10, residential brokers have sold more than 274,000 homes, or one home every 7.2 minutes.

The phenomenal pace of job growth that Houston experienced over the past few years couldn’t be sustained indefinitely. Some easing of the employment throttle was inevitable. That easing began mid-year 2013 and should continue through 2014 as the region moves toward a more normal and sustainable pace of job growth. Since 1993, excluding the recession years, Houston has averaged 61,900 net new jobs per year. Payroll growth has almost doubled the rest of the nation at 3.0% compared to 1.7% nationally.
Strong energy markets and a broadening economic base will continue to drive the Houston economy through 2014. Oil prices by the barrel remains healthy. West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing and continues to hover around $100 a barrel in February.

The extreme weather hammering the rest of the country has increased natural gas demand, supporting price gains and helping Houston’s and the other Texas metros’ economies. Natural gas producers have been thankful that the rest of the nation has pushed demand up to $4.60 per MmBtu (million BTU) in February, about 30% higher than last Novembers lows.

Also creating optimism is the potential of repealing crude oil exports, an export law that was put in place in the 70’s when the US was not the chief oil producer in the world. A significant portion of the gasoline produced by the regional coast refineries is exported, helping supporting the nation’s balance of oil exports. In addition Occidental Petroleum is moving its head quarters to Houston in 2015. As Mexico opens up its energy sector to international investment, Houston is poised to benefit.


The Dallas-Fort Worth economy has shown good growth through 2013, supported by three pillars: energy, organic growth, and links to the broader U.S. and global economies. Even with the flattening of the metro economy at the end of the year due to reduced Federal spending, most local labor markets continued to show strong expansion. Year-over-year payroll job growth of 3.2 percent for the Dallas-Fort Worth metropolitan statistical area was nearly double of the national average of 1.7 percent in October. Likewise, the metro area unemployment rate of 5.4% in January 2014 was well below the national average of 6.5% for the month. Payroll employment now stands at 3.15 million jobs, which is 5.4 percent above the pre-recession peak of 2.99 million jobs from May of 2006.

The Dallas-Fort Worth area also will see strong steady growth through 2014, but it will be down slightly from the fast pace of the last two years. Dallas-Fort Worth’s economy is expected to expand by 3.3 percent this year, compared with 3.4 percent last year and 4.3 percent in 2012. Dallas-Fort Worth’s job growth is projected to be 3.1 percent, compared with 3.4 percent last year. Dallas-Fort Worth’s unemployment rate is expected to decline to 5.2 percent by the end of this year from 5.6 percent in November.

In an example of strong local corporate (organic) growth, North Texas healthcare-related construction is booming. Beyond the monumental $1.3 billion Parkland Memorial Hospital in Dallas, other projects are spread throughout the region. According to the Dallas-Fort Worth Hospital Council, hospitals in North Texas account for 265,000 jobs and generate $14.4 billion in income for healthcare workers. Global links to North Texas are strengthened by the American Airlines/US Airways merger, finalized on December 9, as American emerged from bankruptcy protection. Several speculative warehouse / distribution facilities are under construction in the area. Dallas-based Southwest Airlines also benefitted from the merger, picking up 22 slots at New York’s LaGuardia Airport.


Austin continues to be one of the strongest job creating metro areas in the US with 23,600 jobs created in 2013, most of them coming from services producing sector, professional jobs. The capital city is home for many high tech companies, and wages in the tech sector are some of the highest in the area. 2014 should see Austin add thousands of additional jobs in 2014, mostly in the high tech and services sectors. High tech giants such as Google, AT&T, and Time Warner cable are competing to provide superfast internet service in the area and networking to start around mid 2014. The new service has the opportunity to attract so much business that needs the 100+% increase in internet speed.

Austin’s unemployment rate declined to 4.9% in December matching the August 1989 rate. The unemployment rate is expected to fall continuously as the year progresses, powered by the continued strong job growth. Year over year growth of personal income climbed to 4.7% in the latter half of 2013, which is second only to Houston in the state.

After a strong 2013 in all real estate channels, home starts will continue to improve, only slowed by the lack of developed lot inventory. Lack of inventory will be the biggest challenge to the local industry as the area continues to attract more residents drawn by strong job growth, cheaper cost of living, friendly business atmosphere and Austin favorable and creative investment climate. Currently Austin home prices are at a record high. Continued appreciation should continue through 2014 in most if not all Austin submarkets.

Last year saw the return of a thriving office investment market, so much so that several regional markets saw significant chunks of their overall stock of buildings change hands in 2013. Five Southern markets saw more 10% or more of their total office market inventory change hands last year: Austin, Dallas-Fort Worth, Atlanta, Houston and Denver. Austin was especially popular with office investors as 13% of its office space was acquired by new owners in 2013.

Austin has also been on the radar of institutional investors for quite some time. The metro had a huge inventory turnover in 2013 (13.1% of inventory), although a sizable portion of that (40%) was due to portfolio sales. The biggest portfolio to trade hands last year in Austin was the sale of the Thomas Properties Group portfolio of five class ‘A’ CBD towers as part of the firm’s acquisition by Parkway Properties. With a large chunk of the CBD inventory having already traded in this market the last couple of years, expect sales to remain strong, but turnover rates to moderate in the near term.

Several factors have helped Texas retain its national lead. Among them:
• Strong job growth. 40+% of all jobs created in the US last 3 years were in Texas.

• The cost of living is low. Beer? Cheap. Food? Reasonably priced. Apartments? Affordable. No state income tax gives former residents of CA or NYC an automatic raise. Texas has the second lowest cost of living of any state in the country. The same paycheck you receive in California, Florida, etc. goes a lot farther in Texas.
• Low unemployment. Only one other major market has jobless rates below 4.9 percent. Austin is at 4.9 percent. Our assumption is that strong local economies attract the most people and create the best conditions for family formation, which in turn generates new demand. Strong productive industries drive demand for such things as heath care, business services, and retail, as well as single-family houses, a critical component of local growth, and owning a home is still the aspirational goal of the vast majority of Americans.

• Retail strength. Employment in the Texas retail sector has grown by since the recession. As the retail industry will tell you, no other state has had the retail growth that Texas has shown the last five years.

• Appreciating home values. Nationally the typical home has declined in value since 2008 in 92 of the 102 markets. Among the exceptions are Texas metros, cities, and towns, with most appreciating the last 5+ years.

• People are friendly and genuinely want to help. I do not blame you if you think this sounds hopelessly naïve. Many don’t believe this statement, but time after time I hear this from newly transplants and relocating business owners. I’ve had this confirmed by multiple outside visitors: if you come from either of the coasts, you’re going to find the middle of the country almost disarmingly welcoming. People you don’t know wave to you. You can strike up a conversation with essentially anyone. Accidentally making eye contact with a stranger isn’t an awful stare-down that leaves you feeling dried out and steely; they’ll probably just smile at you. It’s the sort of thing you notice right away, in all sorts of subtle ways –- the people are just friendlier. It’s contagious, as well.

• There’s weather! If you don’t like it wait a day. Most of Texas has two seasons — summer and spring, although this year has been an exception with several winter storms. It doesn’t have the maddening consistency of California or the weather disasters of Florida. It snows occasionally and doesn’t stick. It’ll rain once in a while, it’ll get down to 30 for a week or two in February, it’ll spike up to 100+ in the summer, there are clouds and such — but most of the time, the word I would use is ‘nice, warm, with occasional swelter in August’.

• There’s stuff to do. The rest of the country tends to look at Texas as devoid of culturally fun events that you see in so many metros on the East Cost. However that is wrong. All four major metros have something happening almost every weekend. Austin leads this category. SXSW, Austin City Limits, film festivals, F1 racing and more.

The bottom line is that a lot of people are and will continue moving here, causing more demand than product. If you are moving here, don’t dawdle. If you are looking for shelter, make a decision quickly. The home / apartment you look at today will not be there tomorrow.

If you are reading this from another state / country you may be snickering as you read this. But reserve judgment till you have been here. You will see the statements above are backed by the facts.

If you live in Texas, count your blessings and know that the Texas economy has room to run.

Continued job growth drives strong Texas real estate market

The median price for homes in the state of Texas hit another all-time high in September 2013 in the four major metros, and demand for homes in the state continues to surge to record levels, increasing home values and rents.

On a statewide basis, 271,839 single-family homes were sold in the last 12 months, up 17% from the previous 12 months. This represents the most homes sold in a single year outside of the boom years of 2005. Additionally, demand in the state was as hot as ever, with 43 out of the 47 markets followed by the Texas A&M Real Estate Center showing an increase in sales year-over-year.

Prices for Texas homes were extremely strong in the second quarter, hitting an all-time high for the quarter. The median price in 2013-Q2 was up 9.98% from the prior year, reaching $177,300. The average price rose 10.44% from the prior year to $235,075. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate.

Texas and California continue to lead the nation in job growth with Texas capturing over 40% of all jobs created in the country since 2009. What effect has that had on the local residential markets?


Austin continues to create jobs and has one of the healthiest labor and real estate markets in the state. Although Austin will probably have a record year in resales, the lack of supply of resales and new homes continues to present challenges to buyers. Resale home inventory continues to dwindle, with just 2.7 months supply available, dropping from 3.7 months supply in August. Builders will deliver 9,200 new home starts this year. Builders are happy that demand is outstripping supply, but are scrambling for developed lots to meet demand. Austin has one of the states lowest unemployment numbers (5.2%) and has been creating 22,000 to 30,000+ jobs per year over the last three years. Remember for every two jobs there should be one housing start, so the new home market has to play catch-up for the last few years. Due to the longer entitlement process in Austin, it will be two to three years before lot development catches up to demand, which in a broader perspective is a “good problem” to have.

San Antonio

San Antonio also has strong job and population growth across the metro, accelerating demand for shelter. With one of the largest oil shale plays nearby and an increase in high tech jobs, the market will be challenged to meet demand. Resale inventory is at a six year low with just over 4.5 months supply and most properties selling for near full list price (97+%). Apartment occupancy remains strong at around 95%, even with new units coming to the market. Like Austin, the lack of completed developed lots is a challenge and has led to tremendous activity in large land tract sales to builders and developers.


The Metroplex economy continued to improve this year with 92,000+ jobs created in the last 12 months, led by the professional and business sector with over 21,000 jobs. This strong demand has been tempered by the reduction in forces in the banking and mortgage industry. This surge of quality jobs has created housing demand. Over 13,500 apartments are to be delivered over the next 12 months, with occupancy staying above 93%. The lack of listings is slowing home sales in most Dallas-area residential districts. The inventory of homes being marketed by Realtors has fallen to less than a two-month supply in the Metroplex. In addition, the number of pre-owned single-family home listings in North Texas is down 14% year-over-year, according to data from the Real Estate Center at Texas A&M University. The rest of 2013 and into 2014 should remain strong as developers try to secure as much land as possible for future deliveries.


Houston is the nation’s #1 job creating city. With over 106,000 jobs added in the last 12 months, to say the economy is doing well is an understatement. Houston continues to remain strong with a booming energy market, strong trade, and surging real estate development activity. The level of development in this area is unbelievable. Last time I was in the Woodlands we counted 37 cranes just from 290 to the business district in the middle of the community. West Houston has the same amount of construction. Even with over 10,000+ apartment units being deliver this year, occupancy has stayed steady at 92+%. Resale and new construction struggle with the tremendous demand for inventory, although we saw a slower September. Resale is definitively a sellers market with just a 3.2 month supply. Like the rest of Texas, land developers of residential, office, and retail are quickly securing positions and starting construction to address the demand. If you were to list the strongest markets in Texas, Houston would easily lead.

Bryan/College Station

Bryan/College Station is another bright spot in the Texas triangle that has seen new home and resales improving over 30% and values following. As in the other metros within the triangle, inventory is lower than a year ago and dropped to less then six months this year. Texas A&M’s continued growth should help this areas continued growth through 2014.


Beaumont saw improvement in values and sales over the last 12 months. Beaumont is one of the few Texas markets where the last four years have been a ‘U’ shaped curve due to the loss of jobs and since then improved job creation. Golden Pass LNG’s expansion in Sabine Pass is expected to create thousands of jobs and generate billions of dollars in investments. We have seen the average price for sold homes move dramatically from $143,839 a year ago to $241,162. This was on the heels of a 45.8% decline in June from a year earlier. Thank goodness that energy has brought strength back to the market.


The real estate market in Amarillo has remained flat (literally as well as figuratively) through 2013, mostly due to a lack of job creation. The good news is that it has become more of a sellers market with resale inventory remaining under equilibrium for the last 11 months. Median values have improved to $139,700 with slow employment growth. Amarillo continues to have the same challenge that most of rural America has: population and employment stagnation. An oversupply of resale properties and little to no job growth has kept things slow for 2013 and through 2014

El Paso

El Paso has maintained strength even with the defense cuts affecting Fort Bliss. Although job creation has suffered this year, the strength of the local market has helped the real estate market continue to move in an upward direction. The median sales price is up 4.9% year to date over last year to $138,600. The number of homes sold has increased 5.3%. The supply of homes on the market has decreased from 8.1 months to 7.3 months. This fast growing population has helped El Paso climb five notches on the Milken Institutes latest Best Performing Cities Index, ranking ninth out of the nation’s 200 metro areas. El Paso did not see the boom price surges as the rest of Texas, so they have seen continued appreciation in new and resales.


In Lubbock closings of new homes increased year-over-year in July, and the market seemed to be hinting at strengthening with a percentage hike more robust than June 2013. The market has been driven by campus enrollment, rather than job creation. There was a 50%+ jump in new home closings from a year earlier. Closings of new and existing homes gained in July after staying steady in June from a year earlier. The average per-unit price of newly sold homes jumped year-over-year to $247,395 in July, up 21.1% from last year. This rise is better than the 10.4% boost in June year-over-year.


Abilene has seen improvement in resales this year, and the natural gas boom has added more jobs for the area and should continue to be beneficial for the local economy. Any boom in real estate, however, is unlikely as Abilene moves back into the sort of slow paced market it has been for years. As in other Texas markets, we saw fewer sales and continued appreciation recently. New and used sales are slow and will continue through 2014.


In the last five years three Texas towns had benefited from the military realignment: San Antonio, El Paso, and Killeen. Fort Hood in Killeen is one of the largest United States military installations in the world. At the top of the market, Killeen was doing about 5,000 sales annually. It has dropped to a good pace of about 2,500 home sales with about 700 new home starts. Although sales are slower, values as in other areas of Texas have maintained and appreciated slightly, because of the lack of available real estate. Again the reduction in force caused by the defense layoffs and the near 17 billion lost from the budget impasse at the start of the year has been covered by the continued good fortune of job creation in surrounding towns.

We should continue to see 5 to 10% appreciation of most residential real estate in Texas’s major metros. While this improvement in sales and values is welcome, areas outside of the major metros and oil/gas boom areas will continue to be challenged.

Most of our state did not have the big price drops we saw in the rest of the country, so to see 10% price increases on top of properties that held value in recent years means we’re seeing even more significant growth in Texas over the next few years.

With such strong demand, the inventory of Texas homes has decreased 32.5% year-over-year, to 3.9 months of inventory. A 6-month supply of homes in a market indicates a balance of inventory and demand. The Texas inventory levels indicates strong demand for homes and a seller’s market.

Texas metros as well as many smaller towns will see price appreciation to the point that waiting to buy does not make sense. Whether this is just a couple of year’s appreciation or a longer cycle for the majority of the state is yet to be seen. However, it is safe to say that buying today is a wise investment.

Texas real estate: no sign of slowing down

Texas continues to lead the national economic recovery. Home prices are on the rise, businesses are relocating here, and jobs are being created. I wanted to revisit the major Texas metros and examine all channels of real estate to really show how well we are doing.

First, understand that the median price for homes in the state of Texas hit another all-time high in the second quarter of 2013 as demand for homes in the Lone Star state continues to rise as supply struggles to keep up. On a statewide basis, 79,760 single-family homes were sold in the second quarter of 2013, up 17.78% from the same quarter of last year. This also represents the most homes sold in a single-quarter since the Texas Association of Realtors began this report in 2009. Austin had their best month ever since records were started in the early 1960’s, with 3,135 single-family homes sold in the Austin area, which is 35% more than July 2012.

To put that in perspective, realize that there were only 6,100 listings, so a little over 50% of all listings sold in central Texas. San Antonio had a record month with 2430 listings sold, over a 24% increase in sale over a year ago. Dallas had a record month with close to 9,400 home sales in July. Houston also had a record month. In Texas, demand in the state was strong as ever, with 43 out of the 47 markets included in the report showing an increase in sales year-over-year.

More homes are selling, and for higher prices. The median price in Q2 2013 was up 9.98% from the prior year, reaching $177,300. The average price rose 10.44% from the prior year to $235,075. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate. All of us living in one of the Texas metros sees or hears about the strength of the residential market, with home values increasing at around 10% this year.

The economy is booming with job and population growth. And, for the first time perhaps ever, home values are appreciating at double digit rates. We don’t believe this will last forever. But for a limited time, we have the opportunity to experience what the rest of the country has had in appreciation in the last boom and now.

Houston’s economy continues to remain well positioned with over 99,000+ jobs created this year. This continued increase in employment will feed housing, office, and retail absorption. The rapidly expanding energy and medical sector are the major economic catalysts for Houston. New and resale residential properties are doing well, with the lowest supply of homes on the market since December 1999. Houston is leading the nation in home starts, adding pressure to an all ready tight market. 2013 should bring in excess of 27,000 starts. This is still far below the boom days of 2006, when home starts neared 50,000, but a strong recovery compared to other cities. Rental rates are also way up — in office towers, in apartments, warehouses and even for people who are leasing single-family homes.

Metro wide, over 9,200 apartment units are under construction with another 20,000+/- planned. While new apartment supply continues to increase, demand is outstripping development, putting pressure on rents, particularly in class A complexes. With the potential of overbuilding, and with average Class A vacancies below 7% and rents spiking, developers have been hustling to be first in line to bring new multifamily product out of the ground and to the Houston inner loop market. Apartment absorption has caught up with new construction, shown by the 92% occupancy citywide, even though there was a 77% increase in construction the last twelve months rental rates have increased 5%. With the continued strength of the market, we see sales continuing to improve particularly in the B and C class with apartment communities that have less than 100 units.

Over five million square feet of new office space will be delivered this year. That said, vacancy rates stayed stable with not a dramatic increase in the 85% occupancy even though over twice the amount of space as last year was brought to market and rents continue to increase. With the strength of the energy sector and all its support industries, CBD and the energy corridor have put pressure on raising rents. That has been offset by slower interest in non-core areas such as Greenspoint where office leasing continues to be a challenge. Because of the strength of employment, many institutional investors continue to show high interest in core office space. Sales velocity increased more than 50% over the previous 12 months.

With over two times the national employment growth, retail continues to buck the national trend. Retail rents and sales continue to improve with a conservative (220,000 sq ft in 2012 and 240,000 in 2013) amount of space coming on the market. There has been a flight to quality on the loops and areas of high housing growth which should continue into 2013.

San Antonio

San Antonio employment grew this year by 32,000 jobs, or a 3.6% increase. San Antonio’s future continues to look bright, thanks in part to the strength of oil and gas production in the Eagle Ford Shale, which continues to strengthen renter demand in south SA and counties south of the city. In the northwest and west, Nationwide’s new campus along with expansion in the growing bioscience sector will continue to drive the market.

Apartment leasing is still strong at just under 95% occupancy and rents and sales are still rising, even with over 4,000 units coming on line this year, another sign of a good market. Rising construction costs, particularly framing and lumber may slow down development with lower paying industries adding jobs primarily. There is some chance of higher vacancies with the amount of units coming on this year.

Office continues to be a bit challenged compared to other Texas metros, with 85% occupancy and the hardest hit classes being b and c class properties. This is due primarily to corporate relocations and owner-occupied and/or build-to-suit properties. That said, rents are stable with a little rise, due to the Eagle Ford Shale play south of SA. Corporate relocations to owner occupied and build-to-suit have caused office vacancies to increase over last year. However, the strength of the Eagle Ford Shale play and stronger housing market conditions are working to revive previously stalled developments.

Eagle Ford drilling has had a dramatic effect on boosting retail in San Antonio. San Antonio experienced a spike in buyer demand as in Class A properties, which in turn has encouraged more sellers to enter the market. Rents continue to rise despite the fact that occupancy dropped just over 1% due to over 400,000 sqft coming to market. Retail should continue to improve with modest increases this year, as continued job growth in most sectors has allowed San Antonio families an increase in spending in San Antonio. Most tenants are concentrating in areas with high home sales and job growth, causing retail space demand to exceed supply this year, gearing the market toward healthy vacancy improvements and modest rent growth.

Dallas / Fort Worth

The DFW economy has turned the corner with over 96,000 jobs created last year, a 3.2% increase. Of all four major metros, D/FW has lagged behind the others in returning to prerecession employment. However it is doing better than most of the country at 99% recovery. The economic slowdown and hesitancy to build is apparent in the tightness of the market.

With apartment occupancy at 94%, and a limited number of new apartment communities coming on line (13,500+/-), rents should continue to rise and lease negotiation should remain firmly on the sides of the landlords. While this is sizeable increase from 2012, when just fewer than 7,500 units were delivered, the market remains 25+% under the metros cyclical peak in 2009. Construction was slower than other Texas metros till 2012 because of the competition from the large amount of foreclosures. Now that these have largely disappeared, the market is prime for growth.

The DFW office market continues to post improvements in occupancy as new supply continues to stay current with demand. Over 2.6 million sq. ft. will come online this year, more than doubling last year’s output of 1.2 million square feet. DFW vacancy is still challenged at 80 to 85% occupancy. However, with 80% absorption of new product this year, rents are still improving for lessors. Dallas offices include the homes of 24 Fortune 500 companies. Demand for retail continues to tighten the market. Over 2.1 million square feet of new retail space is planned to be finished by the end of 2012, a 100% increase over last year. Occupancy is good at 90% and should continue to improve with the uptick in housing demand in the outlying suburbs. Commercial real estate in rural Texas towns has also improved from demand in the energy sector as evidenced by the strength of rents south of San Antonio and in the energy counties around Midland/Odessa. Barring a catastrophic event in the Texas economy, we should continue to see strength in most portions of the commercial market in our state. With an improving market, office sales have improved 40+% with over 50% of the transactions being under 50K sq. feet.

With improved employment, over 800,000 sq ft of retail space will be delivered to the market, and another 4 million planned. Rents are slowly improving even though vacancy has grown to 12.8%. Buyers are pursuing high quality, triple net in prime locations. The trend should continue till saturated, and the attention will turn to the lower rated tenants and locations.


Austin continues to be an economic success story in the face of nationwide uncertainty, with employment at an estimated 4% annual growth rate and the addition of 33,700+/- jobs annually. Austin is coming off of their best home resale market since the records started in the 1960’s. Austin has an extremely limited supply of resale homes – 2.6 months of inventory, which is a 40% decline from a year ago. Residential and commercial rents continue to rise due to lack of supply.

Austin apartment owners are in an enviable position with 94+% occupancy, even with 9,000 new units coming on line. Almost all channels of Austin’s economy are comfortable at or above prerecession values and income. Apartment sales continue to improve with almost a 40% increase in sales from 2012. Median prices have improved to $86,500. Compared to a cyclical low in 2010, the median price per unit has increased approximately 80%. With the good fortune of job creation, drawing over 60,000 people per year to the Austin area, the market should continue to hold its values and strength. Asking rents will continue to rise 5% or more, which means the housing affordability gap has closed for class ‘A’ renters with upward pressure on ‘B’ and ‘C’ renters.

With employment improving 4+% annually, office space continues to see rents and sales improve even as occupancy drops to 88%. Of the 520,000 sq. ft. being delivered this year, over 45% is medical. Medium sized transactions of 50,000 sq feet or less accounted for the majority of the activity this year and the potential of continued strong values in sales and rents over the next few years seems probable.

Retail continues to be challenged nationally as evidenced by the downsizing of most retailers, except grocery and medical. That said, local retail is doing ok with approximately 120,000 sq feet brought on line this year. Rents and sales should continue to rise with some concessions.

The bottom line is that our metros offer the amenities and economic stability that so many investors are looking for. Texas real estate will continue to grow as individuals and businesses move here. The bottom line is the same across all channels: the property you look at today is going to be more expensive or gone tomorrow.

Another look at rising interest rates

With Texas seeing the resurgence of a seller’s market the last year, there has been concern over what could stop it. One concern is the ending of rock-bottom interest rates, and how it will impact the real estate market.

We will begin to find out. Last month the nation learned that the days of ridiculously low interest rates, the lowest we have seen in our lifetime, will soon be reaching the end of their rope — and in some ways already have. With the recent strength of buyer demand, rebounding home prices and an easing of the unemployment rate, Federal Reserve Chairman Ben Bernanke disclosed that the time for the Federal Reserve to start pulling back the reins on its massive $85 billion-per-month bond-buying program is nearing. The idea behind the program was to stimulate the economy by buying bonds in the open market in order to depress interest rates, which has been quite effective.

Many questioned the Fed’s methods, and were concerned about the size and scale of the three rounds of Quantitative Easing, the name used to describe the bond buying program. However the Federal Reserve was able to nudge down a broad range of interest rates to extraordinarily levels for a long time.

No one had expected these artificially low rates to last forever, and they had already been rising in the weeks leading up to the Fed’s announcement. Mortgage rates were still hovering at record lows of about 3.5 percent in early May, only to cross the 4 percent threshold a few weeks later for the first time in more than a year. Today, the national average for a 30-year fixed mortgage reached 4.58 percent, according to Bankrate.com, which, in the grand scheme of things, is still well below historical norms. Since last year we have seen an 1.8+/- point increase in mortgage rates, yet sales have continued to improve.

The low rates have enabled qualified home buyers (and owners looking to refinance) to access cheap financing, adding to already-record-high levels of home affordability. It’s helped bolster a surge in both home sales and price increases (since lower rates help make larger principals possible).

We all knew that this day would come, so it is interesting to see the sudden concern over raising rates. All of us knew upward movement of rates has always been inevitable, the news rattled the markets and real estate industry, which has mixed feelings about whether the market is ready for higher rates.

The fear is that higher interest — coupled with rapid home appreciation — will uproot the affordability that has recently been luring buyers back to the housing market in droves. And they may be correct. Austin and Houston consumers have already found themselves in a position where they notice homes are more expensive than what they’re used to or can afford. The other Texas markets have just begun to see the market turn to a seller’s market. We are coming out of the most affordable time of our lives to buy a home.

Let’s suppose a consumer obtains a 30-year fixed loan and puts 20 percent down on a house priced at $170,500, and if they were lucky enough to catch a 3.5 percent interest rate, the monthly mortgage payment would come to $612.50. But at 6 percent, which is closer to historical norms, that monthly bill would jump by more than $200. Remember for every 1% increase in rates, the consumer is able to buy 12% less.

The view of most economists is that today’s rates aren’t sustainable long term and an increase, as long as it’s gradual, should have a minimal impact. More importantly, it will allow private-sector investors to reclaim the mortgage market and have a truer, market-determined mortgage rate without the Federal government’s subsidy.

This analyst’s view is that rates slowly starting to rise are an indicator of a housing sector that is returning to health. Those concerns that demand will suddenly surge from buyers trying to snag low rates while they still can, only to drop off when rates climb past a certain point, are also somewhat blown out of proportion if you look at historical trends.

In our Texas metros, it’s the surge of home prices, not interest rates, that have been the biggest motivation for buyers this past year. After values staying stable over the last five years in most Texas metros, we have seen values rise because of supply and demand. Presently, realtors and buyers biggest concern is locking something down before prices get too high, which has been exceptionally challenging due to the relentless shortage of homes for sale. Multiple offers and bidding wars all are signs of a strong market with great demand and not enough supply.

Let’s answer the original question: will interest rates have an effect on the local housing markets? Absolutely, but we anticipate the impact to be rather small. We don’t think there will be a dramatic impact on the purchase market. People may qualify for less than they would have before, but the demand is still there. Everyone needs shelter. Whether they rent or buy. However most surveys will show that ‘owning a house is the desired avenue’ for most in our country.

We have seen the effects of rising rates before. Home buying and consumer spending slows for a couple of months as the consumer makes up their mind of the need and shock of losing better money rates. Then it picks right back up. If you look at what has happened over the last month, most local realtors have seen a spike in offers as consumers want to buy while rates are still low. Most understand that the ability off rates coming back to record lows is a thing of the past.

Over the last five years, during the recession, nationally incomes plunged right alongside falling home prices. Texas was spared most of this because of great job creation. Most values stayed stable, but there was not great appreciation due to the concern of national growth and ability to recover. However in this last year, prices nationwide have been seeing stronger appreciation, especially in Austin and Houston where demand is up dramatically (over 30% year-over-year in April). Median household income, on the other hand, has remained relatively stagnant at 2008 levels. That’s where low interest rates had been playing such a huge hand, giving consumers more purchasing power for homes they might not have otherwise been able to afford.

With the lack of resale listings in all Texas metros, and the inability of new home starts and rentals to keep up with demand, values will be the major focus of buyers as rates increase. In the next few months because of this, we should continue to see a surge in home sales and demand. As rates increase we will eventually see a slow down as the consumer tries to understand the inability to buy the dream homes they were looking at last year or last week.

Most realtors and consumers are finding that the house or rental they looked at has been put under contract. And this may happen a number of times to them before they secure any shelter in this stronger market. So yes rates will slow us down, but not for long.

The apartment or house you look at today will not be there tomorrow!

San Antonio Rising

If you think that San Antonio’s economy is a bit slower than the rest of the state, then you need to look again. If you have been in Texas for a while, you probably think of military bases, manufacturing, and a slower lifestyle when you picture San Antonio. Now, you should also include big oil, the future of computing, and a strong wealth of high tech industries.

Growing up in Texas, once you got south of San Antonio, it was a long boring drive to Port Aransas, or hunting around Kingsville. All that has changed with ‘fracking’ and the Eagle Ford Shale boom.

We covered the strength of San Antonio’s economy in our February 1st edition of the Independence Voice. Since then, I have had the good fortune attend the March 2013 economic update of the Eagle Ford shale. The findings were surprising, and for those fortunate enough, life altering. San Antonio’s economic future looks strong, for a while.

Since the first Eagle Ford Shale well was drilled in 2008, there has been increased demand for labor, housing, and qualified personnel in the cities and counties affected by the oil fields and related businesses. Below is a map of the 14 counties (green) where the fracking environment has had the biggest economic impact. The field is approximately 50 mile wide and 400 miles long. Its economic impact is felt not only in those counties where activity is actually happening but in the surrounding counties as you can see below. There has been a flurry of increasing drilling activity in the area, with 26 well completions in 2008, 1649 in 2011, and 2983 in 2012.


This tremendous economic development affects not only San Antonio, but all of South Texas and the rest of the state. The Institute of Economic Development at UTSA has determined the following financial impacts:

• Almost doubling to over $46 billion in total economic output (up from nearly $20 billion in 2011)
• Oil and related businesses supported 116,000 jobs (up from 38,000 in 2011)
• $3.25 billion in salaries and benefits paid to workers (up from $2.6 billion in 2011)
• Over $22.8 billion in gross regional product (up from $10.9 billion in 2011)
• More than $1 billion in state revenues (up from $312 million in 2011)
• More than $828 million in local government revenues (up from $211 million in 2011)

Thankfully, one of the most significant effects from the boom may be seen in the state’s income. Like so many states in 2008 – 2009, the state ran in the red on their budget due to the recession. Taxes on oil and gas production have soared past estimates from the state’s comptroller’s office for fiscal 2012. And with production expected to continue to rise over the next several years, the economic benefits will continue.

The history of the Eagle Ford’s development, which started in late 2008, was temporarily interrupted by the recession and at the same time a sharp decline in energy prices. In Texas, domestic drilling collapsed in 2008–09 with the economic crisis, and the rig count fell more than 50 percent. It was back on track a year later by 2010, and has continued growing at a rapid pace. Texas produced more oil in 2012 than Alaska, North Dakota, and California combined, the next three highest oil producers in the U.S.

During this time, the value of land in the formation has increased exponentially, making some people very rich in a very short period of time. In turn, some of this new wealth is cycled back into the economy in the form of increased consumer spending. If only 5% of the new wealth makes it back into the local economy, it will still be an increase of $400+ million annually. Many South Texas ranchers saw new income from lease payments. Previously the only income was from whatever livestock could survive on the desert plants. This all changed with the income from oil leases. Lease payments are made to reserve the mineral rights on a specific property, usually stated as a fixed amount per acre, giving the leasing company the right to test, explore or produce oil and gas. The state estimates that over 4.6 million acres have been leased in Eagle Ford counties at $1,200+ per acre. There are reports of lease rates as high as $20,000 per acre in the hottest-producing areas, but the average of 23 counties is difficult to estimate. However lease rates vary not just by location, but also by when they were signed. Conservative estimates of $1,500 per acre and 5 million acres produces a remarkable $7.5 billion in compensation since 2007.

As stated above, most of the 23 Eagle Ford counties are rural, with a history of cattle ranching, hunt¬ing and some traditional oil and gas drilling. However for the five counties where the job growth rate has been the strongest—McMullen, Dim¬mit, La Salle, Live Oak, and Lee, retail sales grew at an annual rate of 55.1 percent, or $100.9 million, from first quarter 2010 to third quarter 2011. For the entire 23 county area, seasonally adjusted retail sales increased at a 15.4 percent annual rate, or $580.7 million. During this period, comparable retail sales rose 7.2 percent in the U.S. and 6 percent in Texas.

All this activity in South Texas has allowed San Antonio to come through the recession stronger than most. Besides the 4,000+ jobs created annually in Bexar county by the oil play, the city has had the geographic fortune of being the metro where the crossroads of two of the largest commerce highways. Interstate 35 is the main north-south artery through the US, as well as a major hub for entry into Mexico and Latin America, and Interstate 10, giving easy access to the processing and shipping facilities in Houston.

The geography helps draw major manufacturers, such as Toyota. In addition there is an expanding medical complex and university scene, and a downtown kept lively by tourists, convention-goers, and service members from the city’s three military bases. Joint Base San Antonio is the largest base organization in the Department of Defense, comprised of three primary locations -Fort Sam Houston, Lackland, and Randolph. It employs more than 92,000 military and civilians, is home to nation’s largest military hospital, and has an economic impact on the local community of $27 billion.

USAA, one of the largest financial services and insurance companies, is San Antonio’s biggest private employer. They just leased about 128,000 more square feet of office space to accommodate up to 1,000 more workers. You also have fast growing companies including Rackspace, Petco and SunEdison that have all added local jobs.
I mention Rackspace, a billion-dollar hosting and cloud-computing company that has found San Antonio’s low risk of natural disasters or disruptive weather perfectly suit the requirements of gigantic data centers. Rackspace is to San Antonio what Dell Computer was to Austin in the early 90’s. Rackspace’s economic footprint and continued corporate expansion as well as corporate spinoffs expansion has made San Antonio a magnet for high tech jobs. Austin is often considered to be the “tech hub” of the state, but the San Antonio area was ranked at 13th for growth in high-tech jobs from 2006 through 2011. During this period, the area saw growth of 23.6 percent in that sector while the nationwide rate was 1.4 percent during the same period.

Rackspace in turn has spawned the co-workspace and start-up incubator Geekdom. This group was started by Rackspaces entrepreneur CEO Graham Weston. It is basically a business incubator for those individuals wanting to get more involved with the IT field. It provides a place for individuals to sort their ideas out before they are established enough to purchase their own location for business and bring on more individuals to be a part of it. This co-creation of evolving IT jobs is not only stimulating the economy of San Antonio, but its corporate location in the CBD may have the same affect that the tech firms had on downtown Austin.

This high tech cooperative encourages budding entrepreneurs and startup companies in the area, which in turn allows the founders to lead their community to generate even more local jobs. Reports show that for each high tech job that is created, an additional four jobs are created which in turn continues helps boost the economy in the San Antonio region.

Taking it a step beyond the entrepreneurial level, local efforts are targeting education at high schools and middle schools to ensure they are offering the appropriate curriculum and technology training to develop the future high-tech workforce. With the increased national spotlight on science, technology, engineering and mathematics (STEM), the local business and technology community is already increasing their focus on these areas.

San Antonio’s strong STEM movement forces the local economy to move into new areas. This focus is hoping to get children interested in these respective areas from a young age and let them know that these are the most promising topics to focus on when choosing continuing education and working towards a successful, financially rewarding career.

The potential strength of the new San Antonio economy will be something to watch. In the arenas this analyst normally watches, real estate and finance, I believe they are where Austin was in the early 90’s. The lower cost of living, wages, and real estate will continue to attract many corporations. San Antonio also has limited residential, office and other real estate offerings, much like Houston and Austin had 3 years ago. The opportunity for improved values in the San Antonio market seem remarkably healthy for a while.
If you have not looked at San Antonio for investment or relocation, this may be the time.

How strong is our real estate market?

The strength of the home market in San Antonio and Austin continues to build as realtors and homebuilders record another strong quarter of activity, which will in all likelihood lead to a strong year.

I thought it would be good to address some of the questions we get for both markets.

“You keep saying that there is insufficient inventory to support the inmigration to Texas. Can you elaborate?”

First, lets discuss Austin’s new home market. At the end of last year, there were 14,855 developed lots on the ground, according to Metrostudy. Now, lot inventory has only increased by about 800 more, with over 1,500 delivered in the last ninety days. If the Austin market does 8,500 to 9,000 home starts this year, we won’t have enough lots for next year. Realize in Austin it takes around thirty months or more to go through the entitlement process to get a developed lot. Also realize that the vast majority of developed lots are already contracted for, even though there may be no activity presently on the vacant lots you see. So at the current rate at which lots are being delivered and absorbed by the market, production builders will not have enough lots by the end of next year. Again, it will take a while to get new lots entitled, putting pressure on supply, which in turn raises prices on what is left and what is coming down the pipeline. As higher lot pricing increases the price of new homes in many areas we expect some push back from the consumer, who will be forced to the resale market or more affordable locations.

San Antonio’s new home market had just over 29,500 lots at the end of last year, with approximately 2,500 lots being delivered this quarter. San Antonio home builders will build about the same amount of homes as Austin, with around 9,000 starts in 2013. At current absorption rates, that gives San Antonio about a 42 month supply of lots based on current start rates. In both markets 24 months is considered equilibrium. Above that is a buyer’s market, below a seller’s market. The entitlement process in SA is somewhat faster allowing development within 12 months if needed.

However in both markets the excess VDL (vacant developed lots) supply is concentrated in more remote locations where the recovery of the new home market may not occur for some time. So both markets will experience a tightened supply and greater demand.

“Everyone needs shelter, so if they can’t buy, will they be able to rent?”

Both markets are healthy, with about 143,000 units in Austin and 134,000 in San Antonio. This includes apartments, duplexes and most single family rentals. Austin occupancy remains around 96%, leaving just over 5,700 units to lease. There will be about 10,000 new units delivered in Austin, but with current job creation and inmigration they will be absorbed quickly.

San Antonio occupancy fell a little, to 94%, with just over 4,000 units being constructed this year. South Central and Southeast Class C properties brought overall occupancy down with 86% and 70% occupancy. With continued development in the Eagle Ford shale nearby, this could be an opportunity for investors.

Both markets should experience good absorption and appreciation as long as job creation continues. About 60,000 and 42,000 people per year are moving to Austin and San Antonio, respectively. This increased demand is what is driving the market.

“Do you expect this kind of demand to continue?”

Job creation, pricing, financing, convenience, and water will dictate the strength of the market. For the next 3 to 5 years Austin looks to continue with demand outstripping supply. It makes me nervous saying this because there are so many variables that affect this and I was around for the 80’s oil bust. That said, job creation continues to look good for longer than 5 years based on Austin’s recruiting, finance , regulations and the economic slowdown of the last 5 years. San Antonio began seeing this last year a solid improvement and should continue for the next 2 to 3 years.

“What are some new trends you are seeing in real estate?”

One dramatic change we are seeing in both markets is the demand for in-fill development in Austin and San Antonio. In-fill development is taking underutilized interurban parcels and redeveloping them. It typically starts with rental properties being remodeled to class ‘A’ in conjunction with restaurants and retail. This in turn generates demand for purchase product nearby.

An example of this is the Mueller Redevelopment, a 700-acre Planned Unit Development (PUD) in the northeast central portion of Austin. The project is being developed on the former site of the Robert Mueller Municipal Airport, which closed in 1999. There is projected to be 4.2 million square feet of non-residential development, anchored by the 30-acre Dell Children’s Medical Center, Dell Pediatric Research Institute, the first building in The University of Texas Health Research Campus, the administrative headquarters of the Seton Family of Hospitals, SEDL, Strictly Pediatrics Subspecialty Center, and more than 20 retail stores and the Austin Studios film production complex. In all, there will be 650,000 square feet of retail, 4,600+/- homes, and 140 acres of open space. Mueller embraces and provides opportunities for using the ‘form based cores’ the city is seeking in redevelopment. The projected economic development and job creation is to be done in a way that complements and extends the compact and pedestrian-friendly pattern of the community. Mueller will be home to as many as 10,000 jobs,

A few miles from site is Highland Mall. Once a jewel of shopping in Austin, the last five years have been a challenge with major stores leaving and the owner’s facing financial problems, leaving over 1.2 million square feet of retail empty. Austin Community College has partnered with a developer to bring a high density, pedestrian friendly environment with 1.3 million square feet of institutional space, 1,200 residential units, 800,000 square feet of office space, and 150,000 square feet of retail space.

Following along the old Airport Corridor, starting at Mueller, going past Highland on down to North Lamar and Airport you have Crestview Station, a mixed-use development in Central Austin’s Crestview neighborhood. The plan is anchored by a Capital MetroRail station and will have approximately 500 single family homes, 500 multifamily units, 150,000 square feet of retail and commercial space, and green space. Crestview Station will be another high density, pedestrian friendly community in the near north corridor. All this should have a positive effect on the surrounding neighborhoods.

In San Antonio, the same factors for redevelopment are driving the Pearl Brewery redevelopment. A 22 acre conveniently located site was built as an independent brewery over a hundred years ago. When it closed in 2001, the city encouraged redevelopment using the existing facilities, embracing the old architecture and heritage of the site. When finished the proposed buildings will encompass 188,000 square feet of leasable space and will be used for a combination of multifamily residential, retail, restaurants, and office space as well as over 600 new trees and landscaping. Other parts of downtown San Antonio such as the old Judson candy factory are also being redeveloped, allowing an alternative choice to those who want to live closer to downtown.
All this redevelopment should have a positive effect on the surrounding neighborhoods, improving values and allowing an alternative to the traditional far-flung master planned communities. Ten years ago, in-fill development was nonexistent in Texas, and based on their current success should continue to be strong. But only time will tell. It definitely changes the neighborhood dynamics from ‘dying or deteriorating’ to ‘high demand’ in a short period. As the cost of land, materials, labor continue to escalate than these type of urban communities should continue their success.

Another dramatic change in new housing will be housing cost. Lumber futures are 30% more than they were a year ago and above boom prices, with similar increases for steel, sheetrock, and other materials. Why? During the recession the demand for these decreased dramatically, sending prices plummeting and closing mills and factories across the nation and the world. So expect material costs to continue increasing at least another 35% over the next three years. On top of those costs will be the cost of land increase. In a classic case of Economics 101, little supply and high demand will force land prices to continue to escalate for production builders.

The Central Texas region will continue to experience intense tremendous suburban growth. Although we have pointed out the enormous amount of residential development currently underway within the urban core, the thousands of new units being created there are only a drop in the regional bucket of total residential units needed. Even with the success of the urbanizing efforts currently afoot in Austin and San Antonio, there simply is not enough supply for the demand.

The purpose of this exercise was to show you how strong demand is and will continue to be in Austin and San Antonio and to make the case for buying in this market. With finance rates so low there is not a better time to buy. With every 1% increase.

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.

2012: A Year in Review – San Antonio, Houston, and DFW

Last week we talked about the major 2012 happenings in Austin real estate. This week we wanted to focus on the other Texas metros and the strength of their markets.

San Antonio

Over the last year, San Antonians have shown more confidence as the city’s economic base expands – signs of an improving metro economy and of higher wages in a city that has long been known as a low-wage town.

Sales tax revenues jumped 12.2% in the six months from April through September compared to the same period in 2011, a pace of growth that was the highest since 2006, when the metro area showed robust expansion. On a percent basis, the bump in sales tax revenues in San Antonio was greater than in Houston, Austin, Dallas and Fort Worth in the same six-month period.

And the good news didn’t stop there. 2013 census data will show that San Antonio incomes are rising. With new jobs in fields like medical technology, personal income prospects go up, and that attracts better possibilities for retail activity and a whole range of services. The San Antonio economy stands to record better job creation over the next year as drilling in the Eagle Ford Shale intensifies, development accelerates, and the local leisure and hospitality sector continues to post strong growth.

Year to date through the third quarter, businesses in San Antonio added 18,400 jobs. While employment in most major metros remain shy of pre-recession levels, San Antonio has surpassed their late 2007 pre-recession number by over 25,000 jobs.

That growth continues to attract investors from across the continent. 2012 payrolls in San Antonio rose 3% with the addition of over 26,000 jobs. This is a dramatic improvement over 2011, when metro wide growth increased just .5%.

If present growth trends for new jobs continue through 2013-14, the city would add about 20,000 positions by late spring, even after accounting for losses in city, county and state government positions. That would take the area closer to the record 31,000 jobs created during the boom year of 2006.

That improvement is evident when looking at real estate. Single family permits year to year are up 20% from 2011, while multifamily permits are ahead by 18%. San Antonio’s population grew by approximately 47,000 people, which includes about 26,500 prime renters in the 20 to 34 age range. With only 1,000 units are being constructed this year, up from 400 last year, demand should outstrip construction.

Downtown SA revitalization efforts are beginning to show strength along the Broadway corridor with over a 1,000 apartment units coming on line in the next couple of years with continued strong absorption.

Regional office, industrial, and retail properties posted an expansion of 2.3 percent in square footage. This is impressive due to the amount of large office space vacated over the last couple of years. The city’s industrial properties showed strong growth in rental revenue of 6.8 percent in the six-month period, largely as a result of the Eagle Ford Shale.

The tourism sector continues to be a strong performer. Combined room demand and rental revenues showed a growth rate of 7.3 percent in the April-September period. Although still healthy, it was slower than the 9.2 percent for the same period in 2011.

Christus Santa Rosa, a health care group, purchased 50 acres within the 2,400-acre Word-Borchers ranch along the Guadalupe River, which will be turned into a master-planned development over the next 15 to 20 years. The health system plans to develop a short stay surgical hospital, emergency center, and medical offices to supply the growing retirees’ boom in the area.

Expansion of the Texas Biomedical Research Institute will solidify San Antonio’s place in the biomedical industry and help create strong demand for office, retail and residential in Western SA. Activity in the Eagle Ford Shale made a $25 billion dollar impact on South Texas economy, which in turn made San Antonio’s south submarket one of the tightest in residential, office and industrial absorption.

San Antonio is the last of the Texas Triangle markets to enter the economic recovery. This means most of the markets in the SA metro area are just at their tipping points, which in turn is attractive to investors as they look to getting in on the upside of the market. Buyers looking for distressed or value-add opportunities will look to SA in an effort to locate opportunity that has become scarcer in the other Texas metros.
San Antonio’s west side saw the doubling of SeaWorld San Antonio, which aided surrounding retail and hospitality. The expansion of the Port San Antonio East Kelly Railport should continue to attract suppliers for the shale boom south of SA and in turn help all channels of real estate and finance in the area.

All in all San Antonio’s economic forecast for 2013-14 will continue to improve.


Houston has one of the strongest economies in the nation, accounting for one out of every ten jobs created in the US. Analysts expect continued job growth for the next two years. The greater Houston area added 98,000 jobs in 2012, almost a 4% growth from the previous year. Conservative estimates forecast 72,400 jobs in 2013 and 74,400 jobs in 2014. Residential and commercial real estate sectors are poised for growth as a result.

Growth is similar to the experiences in the early 80’s, but with a better balanced economy with energy making a smaller percent of employment growth. Houston’s employment options and affordable cost of living have made it an attractive destination for people from all over the country.

Existing home sales increased by 7.5 percent this year and are forecasted to rise to 8.1 percent in 2013. Houston currently has the highest home prices it has ever had. The metro market cannot have this strong job growth and some of the strongest rent increases in the nation on multifamily rental rates and not have home prices rise in the next 12 to 24 months.

Since construction debt remained non-existent through the first of 2011, most developers were not ready for the post-recession renter surge. As of the end of this year, over 14,000 rental units were under construction with much of the focus on the 1960 corridor, yet absorption has kept pace, forcing interest from equity sources for more apartment building through 2013. West inner core, class ‘A’ apartments continue to be the most desired, leading a thirteen year high on rent rates.

The foreclosure problem in Houston has improved dramatically. For every two existing home listings in Houston, there is one home destined for foreclosure that makes up a set of shadow inventory. This is much improved from 2007, when there was one existing home listing for every four to five Houston foreclosures.

How did the recession and downturn in the national housing market affect the prices of homes in the Houston area? The Houston housing market has fared much better than the national housing market. Prices in Houston started declining in July of 2007 and fell approximately 7% (based on incomplete data for 2012). Mid-year we began to see values stabilizing. You should keep in mind that this figure is for the overall market, not for individual areas.

Above average job creation and limited new office supply will continue to support Houston’s market recovery through 2013, although area wide vacancy will end up over pre-recession levels. That said, Houston will be one of the tightest office markets in the nation. The continued expansion of energy and technology support the increased space demands of office and industrial. With just 450,000 square feet delivered in 2012 (a fifteen year low) several large projects have been announced, and the planning pipeline continues to expand.

Phillips 66 split from ConocoPhillips, and will look for a new headquarters in the Houston area, most likely in the Katy energy corridor area. ExxonMobil continued staff consolidation will bring 2,000 more employees to the Woodlands campus from Virginia. These expansions, with supporting industry, have pushed the planning pipeline to over 13 million square feet of competitive office space in the future. The market continues to be tight presently, but should continue to be monitored as these many projects come on line.

The medical center continues to expand with over a million square feet having come on line this year. However, absorption continues to be good with little contiguous space left over 50,000 square feet.

Houston’s strength of job creation and the worl’ds continued need for energy will allow all channels of real estate to be good through 2014.

Dallas / Fort Worth

D/FW real estate has been slower than the rest of the Texas metros, but finally turned to near pre-recession levels by mid-2012. Because of the lack of new development, inventory fell and has put positive pressure, finally causing appreciation in most channels.

The DFW region has experienced a 32% jump in starts the third quarter of 2012, and new home inventory is at a twenty year low with little development in the pipeline. Lot inventory is challenged with less than an 18 month supply in most desirable areas (24 months being equilibrium). 21,000 of those lots had little to no activity this last year, so it shows the need for new residential development.

Couple that with some of the tightest rental conditions since 2001 and its clear that all residential should see values rise, including rents. Apartment and office deliveries accelerated this year but fell short of historical norms. 9,600 apartment units were delivered this year with 15,000 under construction and over 35,000 in the planning pipeline. That said, rents and values should continue to improve for the next couple of years. Even though housing is on the rebound, the bounce back is stronger in more affluent neighborhoods, like in the loop areas.

With over 75,000 jobs created this year, apartment developers continue to focus on close in locations in northwest and central Dallas. Fort Worth saw strength in the southeast quadrant, north Arlington, and Grapevine. Since peaking in 2009, vacancy has almost been halved to less than 6%.

Office continues to be challenged with an overdeveloped office market still not recovered, particularly in the outer rim areas. The overall market vacancy still hovers around the 20% mark, higher than the other Texas metros.

2013 should be stronger for retail, particularly with grocery retailers expanding with 5 percent sales growth in the metro area. Overbuilding of retail in other portions of the DFW market will continue to be a challenge through 2014, but an opportunity for investors.

Two important finance and real estate figures live and work in Dallas – Richard Fisher, President of the Federal Reserve Bank of Dallas, and Harvey Rosenblum, the Director of Research. These men are some of my favorite financial writers and mentors. They both want to see the big banks broken up. Me, I’d shatter them into itty bitty pieces.

Still, it’s not a bad idea to listen to one of the big banks – J.P. Morgan CEO Jamie Dimon – when it comes to real estate. He says housing is positively flashing green. Now, if we could only get federal regulators to loosen up the banking and mortgage rules.

As you can see, Texas metros continue to be the bright spot in the nation’s economy, but come with their challenges. Each metro continues to have challenged sub markets that may take years to fully recover, but all in all Texas real estate continues to improve and grow.

Austin and San Antonio Housing Markets

After reviewing the Texas commercial real estate market last week, we would like to review residential sale prices in the Austin and San Antonio metropolitan areas over the last twelve years. Texas housing markets has shown steady strength in 2012, and this will give you a comparison of how we stack up to previous years. In Austin the biggest appreciation year was 2000, due to the tech boom. San Antonio’s biggest year was 2003 from booming medical and biomedical industries.


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Texas was not immune to the bursting of the housing bubble, as evidenced by both cities showing a decline in values in 2009. Even with the down years, Austin and San Antonio home prices have increase 41% since 2000, outperforming the national average of 32% (measured by the Case-Shiller 20 City Composite Index) in the same period. Further, values in Central Texas did not decline as much as those nationally, and have recovered far in advance of the rest of the country.

San Antonio

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As you can see both markets have performed well over the past decade – Austin averaged 4.4% annual appreciation and San Antonio averaged 4.8%. This is nice, steady growth – far different than the extreme speculative driven appreciation seen in California, Nevada, and Florida.

The distribution of sales based on price range can also tell us important things about a residential market. In the following charts we have highlighted those years and price categories that had greater than 10% market share.

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In Austin sales below $120,000 fell below the 10% threshold in 2006 and have continued to decline since then. Likewise, sales between $120,000 and $160,000 represented less than 10% of market activity in 2011 and 2012. In all likelihood, this will continue due to the restraints on developments in these price ranges. This doesn’t mean there is not a market for homes at this price. Quite the opposite – however the cost of land and development has made it harder for home builders to bring homes to market at these values. Any resales in these price points are absorbed quickly by the consumer, whether an end user or investor.

At the same time, sales between $200,000 and $400,000 have become well-established contributors to our market over the past few years, representing 34% of sales in 2011 and 36% of sales so far in 2012.

Buyers wanting to see 50% of “sold inventory” would have to extend the target price above $200,000 for the first time this year.
Let’s review at San Antonio.

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Sales from $100K to $150K remain strong due to the strength of federal and military jobs from the three bases in the area.

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.

Are all home prices increasing? Not necessarily. All four metros in Texas have submarkets that have large inventories of developed lots and no absorption. And all four metros have submarkets where average sales prices have actually declined over the past twelve months. Low inventory and strong demand continue to exert upward pressure on prices, however, and I believe that effect will be felt pretty much across the board over the next year or so.

So why go through this exercise?

For me, even though I have been a Texan for over 45 years, what is the attraction?

Well, besides it home of everything deep fried (visions of Texas state fair stick with me), there’s strong job creations and low cost of living. Any of the four metros have plenty to do and you can wear boots 365 days of the year at any age. But it is more than that. If you talk to young and old moving here it is the cost of housing and the abundance of opportunities drawing them to our state.

If you take a cost of living calculator and compare Los Angeles with Austin the cost savings are over 30%; Los Angeles to San Antonio over 32%; Los Angeles to Houston closer to 34+%.

You can afford to actually live in Texas. Not merely exist. Our cost of living really makes it for us here, where homes tend to cost less per square foot, gas is about $0.70 cheaper a gallon, etc. Even our higher property tax rate doesn’t make up for the difference you’ll feel in your pocket books coming from a more expensive area, and you’ll enjoy knowing those taxes go directly to the school district your home is in – meaning it goes right to the school your child actually attends, verses to the state where it gets dished out or wasted as they see fit.

We have no personal income tax (one of only seven states) and if you don’t like the high sales tax (minimum of 6.25% and maximum 8.25%), learn how to spend less. Our total tax burden is among the nation’s lowest at 7.9% of income (45th nationally), well below the national average of 9.8%.

Besides, where else but Texas do you see people hang maps of their state in their homes as a point of pride?

Where else can you get good Tex-Mex? I don’t know if people move here because of Tex-Mex, but I have two kids who lived in other states and came back asking for it. Food in Texas makes your taste buds sing.

Not only does Texas have some of the best food offered in America, it’s served in portions that would surprise even Paula Deen. When you’re in Texas you’re welcomed with open arms and a full plate of food, what other reasons do you need?

So yes, there is a reason for so many moving to Texas, about 1,300+ people per day according to the IRS. I am sure that most get sick of Texas pride and bragging. But as evidenced above there are good reasons for the attraction.

The pride Texans have for our state predates the Civil War and is an intricate part of our every day life…but don’t take my word for it. Come to any city in Texas, find a busy area of town and shout something like “Texas sucks and I wish we could give it back!!”…Best you make funeral arraignments ahead of time. Sure, every state has a little pride, but nothing beats Texan pride (this is where all non-Texans roll their eyes).

Equity and consumers will continue to be attracted to moving to our state, based on great fundamentals and a lot of pride. Great football, great friendship, great BBQ and great quality and cost of life and much more should insure the growth of this state.