Economists say runaway home prices in San Antonio should level out in the coming months, and in the future may even decrease by a little bit — a little more if there’s a recession.

But while the roaring fire of the pandemic-era housing market may be dwindling, to call it extinguished would be premature. According to figures released this week from the San Antonio Board of Realtors (SABOR), prices are still rising year-over-year and even month-over-month. And compared to pre-pandemic numbers, total sales are still elevated and inventory still tight.

It’s just that those indicators of a hot market have been getting cooler every month recently. And if you follow what the economists say, winter is coming.

“We’re 100% confident the price appreciation will slow down significantly,” said Adam Perdue, a research economist with the Texas A&M Real Estate Research Center. “And there could be one to two years of price declines.”

Perdue, like most economists, is normally reluctant to issue certainties— even more so in this particular housing market. “Absolutely everything in the last two years is unprecedented,” he said.

But it’s that very craziness that has made him and many other economists confident that the city’s housing market will need to stop and catch its breath.

The San Antonio area’s median home price was $348,200 in June, marking a 20% increase over last year and about 44% over June 2019. These soaring prices can’t be sustained in the long-run, these economists say.

Why? There are at least two ways of telling that story.

The way Perdue tells it, San Antonio’s price growth can be almost entirely captured by adding the city’s historic annual price growth (2-5%) to the boost in purchasing power granted by lower interest rates. That’s because lower interest rates means lower mortgage rates, which in turn means a smaller monthly payment.

“You could buy more with less,” Perdue said. “Everyone who kept their jobs got a increase in their purchasing power as a gift from the Federal Reserve,” he said.

That elevated purchasing power pushed prices up. And now that interest rates are rising again, “that gift has been more than taken away,” Perdue said. By his calculations, homebuyers have lost almost a third of their purchasing power compared to this time last year.

The average rate for a 30-year fixed-rate was 5.5% last week, according to Freddie Mac, up from its historic low of 2.65% in January 2021.

Suddenly money costs more to borrow, but home prices are still stuck at elevated rates. That means prices will likely remain flat while incomes, and to a lesser extent the housing supply, work to catch up.

Perdue said he wouldn’t be surprised to see 1% to 2% price drops, or even 5% in the event of a recession.

Another way of telling this story comes from Moody’s Analytics, which reports that San Antonio’s home prices have climbed beyond what local incomes can support. This is what they call “overvaluation,” and the San Antonio-New Braunfel’s market is 34% overvalued by the analyst firm’s measure.

That doesn’t mean home prices are expected to fall by that much, said Todd Metcalfe, Moody’s head housing economist. Instead, price growth will likely slow to a crawl while incomes rise enough to narrow the gap.

“Overvaluation could fall even as prices remain the same, as long as wage growth remains strong,” he said.

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Moody’s expects some slight price declines in San Antonio, basically in line with what Perdue and the Texas A&M Real Estate Research Center predict. The region’s “overvaluation” is above the Texas average, but still mild for a city, Metcalfe said. Cities with strong employment figures and in-migration, like San Antonio, are also less likely to see price decreases.

The financial intelligence firm actually doesn’t expect dramatic price declines anywhere in the country, but what declines do happen will be harder felt in areas like Dalton, Georgia, (Pop. 33,000) where it considers the housing market to be 55% over what local incomes can support.

Neither Metcalfe nor Perdue see a 2008-style collapse in housing prices, as market fundamentals are vastly different. A tight supply of homes still supports higher prices. In contrast to the building spree that preceded 2008, the last ten years have seen a shortage of homebuilding. And the low mortgage payments that many homeowners locked in aren’t going away.

But for all the talk about what may and may not happen to San Antonio’s housing market, for now, it’s still hot.

SABOR’s June 2022 report shows a few hundred shy of 4,000 homes were sold that month. While that’s 9% less than June 2021, it’s still 11% over sales in June 2019.

Homes in June stayed on the market for an average of 28 days. Again, that’s slightly slower than the housing market at the peak of the craziness — it was 26 days in June last year — but it’s still far quicker than it was in June 2019, when homes stayed on the market for an average of 53 days.

On the ground, real estate agent Debra Maltz, with Kuper Sotheby’s International Realty, said over text that she’s seeing “more realistic” pricing and less “crazy offers.”

“2021 was such a crazy, non-realistic market that seeing things more like 2019-2020 seems odd, but those were good years, too,” she said.

Waylon Cunningham covered business and technology for the San Antonio Report.