The housing forecast looks positive for new home builders and buyers in 2019, though several factors could change that, as the weather did last year.
At the annual San Antonio Housing Forecast meeting sponsored by the Greater San Antonio Builders Association on Thursday, housing industry analyst Jack Inselmann presented the latest figures on the housing market in 2018 and gave his outlook for the new year.
More than 600 area homebuilders, engineers, title company representatives, bankers, developers, and others attended the meeting, which included a presentation on the Mayor’s Housing Policy Task Force recommendations.
“One of the big issues last year was all the rain we had,” said Inselmann, senior regional director at the real estate research firm Metrostudy. “Because the story of 2018 anyway was lot supplies. What impacts the development of lot supplies more than a lot of rain? Not very much.”
By the end of October 2018, San Antonio had already experienced the wettest fall on record, with 23.33 inches of rain during September and October. Though San Antonio’s housing starts for 2018 came in at 11,748, a 6 percent increase over 2017, it could have been higher, Inselmann said, had it not been for the rain.
“If we’d had typical rainfall, then we would have finished the year probably somewhere around 12,000 lots delivered,” he said. “The rain pushed everything back by 90 days.”
Thus, barring similar rains, he expects 2019 to continue the upward trend.
“We’re going to see our numbers grow. We have a tight housing inventory now. By summer, we’re going to have a lot of homes on the ground,” Inselmann said. “Too many? I don’t know. Let’s see what the economy is doing. Let’s see if we can get past this government shutdown and get back to regular economic business, [then] we’ll have a clearer picture.”
Along with weather, San Antonio’s job growth compared to other Texas metropolitan areas, income levels, and mortgage interest rates will affect the number of new housing starts and closings in 2019. Housing starts are considered to be a critical indicator of economic strength.
“We need the jobs to maintain at least the level of demand that we have or to grow the demand in the housing market,” Inselmann said. “It’s very important that our job growth remains strong. We go through cycles. We had a good seven-year run.”
Texas added 360,000 jobs in 2018, compared to over 268,000 in 2017. In San Antonio, preliminary figures from the Texas Workforce Commission show job growth was down, however, at 14,300 in 2018 compared to 22,200 the previous year. Much of that decrease was in the financial and professional and business services sectors.
In addition, San Antonio has the lowest median annual income of any major metropolitan area in the state, at just under $60,000.
San Antonio’s housing starts in the lowest price range – under $200,000 – have dropped to almost 10 percent of the market in the last five years. Lot inventory in that price range has also decreased. The percentage of housing starts continues to grow the most in the $200,000 to $400,000 ranges. But at $267,600, San Antonio’s average home price remains the lowest among major metropolitan areas in Texas.
“This tells you we still have a very affordable market,” Inselmann said. “There’s no disagreement over that. My whole point in talking about affordability is we’re just not as affordable as we need to be. Based upon the kind of jobs that are created, where our median income falls, especially compared to Austin, Dallas, Houston, we need to have a more affordable product.”
Inselmann also plotted local housing starts and prices by geographic segments that showed where the growth is occurring and where he expects it to grow in 2019.
“The West Side continues to be No. 1, and it has been ever since I started doing analysis in 1980,” he said, citing the area’s 30 percent share of all the region’s housing starts.
The Interstate 35 corridor to New Braunfels had 17 percent of all housing starts in the region. “As it has done that, it has forced the market further and further east,” Inselmann said. “Things have gotten more expensive in the New Braunfels area and harder to get things done.”
Thus, he called Seguin an “emerging market” even though there were only 45 starts there in 2018. That is because Inselmann also tracks future housing lots. There are 151,000 future lots in the San Antonio area, with 10,000 to 11,000 a year coming on the market. He said in the Seguin Independent School District alone, over the last three years, future lot numbers have increased from 1,000 to 3,500.
Jeff Buell, president of the Greater San Antonio Builders Association and an owner of Sitterle Homes, said last year was good for homebuilders, and he predicts the same in 2019. “As builders you always want it to be great, but good is also good,” he said. He said the rain was a setback in 2018 and that hurt lot deliveries and closings for the year.
Buell was not as concerned about slower job growth due to the amount of in-migration San Antonio experiences, especially of retirees.
“I do think that in 2019, we will build, and we will sell more homes than we did in 2018,” Inselmann said. “We’ve got the lot supply for it. We have the initiative. Builders are getting their plans in place and are ready to go. We just need the rest of the economy and everything else to work with us.”
With an annual median income of $60,000, the ideal purchase price for someone at that income level is $120,000. That is a home they can put on a 15-yr fixed rate with 20% down, and the monthly PITI payment will be about 25% of their take-home pay. That still allows them to invest for retirement, invest for kids’ college, and do other things.
However, going to a 30-yr mortgage gives people the unfortunate option of buying up to a $300,000 home.
It also means they will end up paying 2-5 times more interest than they otherwise would.