San Antonio Housing Market: Back to Earth

The Texas housing market in San Antonio’s formerly high-flying new region has returned to earth.

First-quarter housing starts dropped 25.5 percent, in stark contrast to the first quarter of 2006 when builders worked at an exuberant pace.

Now the realities of last year’s real estate frenzy are casting a shadow over the market, as builders sell off the excess inventory that started stacking up late last summer and in the fall, according to Metrostudy, a housing research firm.

“We need to sell some homes,” said Jack Inselmann, vice president of Metrostudy’s U.S. Central Division.

There were 3,093 completed new homes on the market at the end of March, 60 percent more new homes than were on the market at the same time last year. But this is no crash.

“It’s a little early to touch the panic button,” said Michael Moore of Ironstone Development, the first vice president of the Greater San Antonio Builders Association.

The number of people moving into new homes has actually increased, along with demand for Texas mortgage loans.

Closings — counted as families actually moving into new homes — were up 17.4 percent in the first quarter of the year, which physically counts all of the lot development, housing starts and completed new homes in the San Antonio area.

“We’re closing more homes than we’re starting,” Inselmann said. “That means we’re reducing inventory.”

Texas home prices are rising, too.

Around 54 percent of new homes were priced less than $150,000 last year, but so far this year only 35 percent of new homes were below that mark.

San Antonio builders are coming off a record year in 2006, when more than 19,000 homes were started. If builders start around 16,000 homes, which Metrostudy expects this year, it would make 2007 the third-best year on record, after 2005 and 2006.

“How bad can it be?” asked Moore.

Still, builders are feeling the crunch for now as they navigate this home mortgage market.

Many have laid off employees and are offering deals and incentives not available to home buyers last summer. There’s also more competition in the market, as new builders continue to arrive in San Antonio.

The collapse of the subprime mortgage market has also been troubling for homebuilders, especially those who work primarily with first-time home buyers.

People with shaky credit records or other factors that made them a high-risk for loans can no longer qualify for mortgages. Several national lenders faltered this spring after making high-interest, bad credit home loans to subprime borrowers who could not keep up with their monthly payments.

Bob Gardner of Gardner Financial Services said the sudden absence of subprime loans has taken many San Antonio residents out of the market.

“It’s not that there’s not jobs and demand for housing, it’s just that we can’t qualify as many people,” he said.

The tighter, more traditional lending standards are here to stay, and will continue to impact the housing market. On Thursday the Associated Press reported that Sens. Charles Schumer, D-N.Y., Sherrod Brown, D-Ohio, and Bob Casey, D-Pa., introduced a bill that would mandate tougher federal standards for mortgage lenders. They also advocated greater public and private financing of consumer education programs aimed at helping homeowners avoid foreclosure.

“We won’t see the full brunt of it for a while,” Gardner said. “Once the attitude changes about who qualifies for a loan, that doesn’t change for a few years.”

Across Texas’ major markets, home building is expected to decline about 20 percent this year. But with a national real estate scene that’s more horror movie that summer entertainment right now, Texas still looks great in comparison.

“Don’t let the national scene scare you in San Antonio,” Inselmann said. “Things are fairly tough on the East Coast and the West Coast. They’re real tough. Don’t let that scare you in San Antonio.”

And the current new home crunch is good news for mortgage applicants, Gardner says. New home shoppers who look for an inventory home — one that’s already completed and waiting for a buyer — can probably strike a deal.