Annual Housing Forecast             

Omni Colonnade

January 7, 2008

San Antonio Board of REALTORS®

Thank you for the opportunity to participate in this year’s housing forecast program.  It is a privilege to join such a distinguished group of speakers to bring this report to you. 

Every year that I attend this event, I learn something new about our great City and the impact that development and real estate have on our local economy.  As one of the fastest growing cities in the country and the 7^th largest city in the U.S., San Antonio experienced an outstanding real estate market for single family home sales, price appreciation and historic growth in 2007.

I’m here this morning to talk about the “resale single family” home market.  You will hear from Jack Inselman later in the program as he discusses “new construction” numbers.  I point out the distinction between new and resale because as much as one impacts the other, we do not combine our numbers to give just one complete report.

Regarding the resale single family home market, you will hear me say several times this morning – “2007 was equal to our “second best year” for resale single family home sales in San Antonio”.  2007 accurately compares to year 2005, which  two years ago was our best year ever. 

The real estate market is often portrayed as “cyclical”, having varying degrees of peaks and valleys.  History serves as a guide for us, especially as we show you a comparative analysis of our past numbers with you today.   But, we have to realize there are many unique issues and circumstances that impact the future of our local real estate market.  It was author Mark Twain who said, “History does not repeat itself – at best it sometimes rhymes”. 

In general terms, there is a correlation between housing downturns and recessions; however, it is not clear whether our self-correcting market will cause a recession this time around.

Why is it unclear?  It is unclear because 2007 faced a year of challenges:   For example -

n some markets (not Texas – and not San Antonio) saw housing price declines

n many markets experienced lower home sales

n many markets saw lower new home construction

n some markets saw job cuts in construction and lending

n Other  challenges dealt with subprime loan problems  … and

n rising foreclosures in some markets 

This next screen shows the subprime loan exposure as it relates to foreclosures.

The industry recognizes that subprime lending did cause a problem – but let’s also put it into perspective nationally. According to the REALTOR Association’s chief Economist, much of today’s subprime mortgage problems can be attributed to greed.  Wall Street wanted the 10-12% return that subprime mortgages yielded as opposed to the smaller returns from more traditional mortgage products … and we all know the problems that this created.

 Prime loans represented 50% of the market, 35% of homes were free and clear of loans, FHA/VA represented 6% of the loans; while sub-prime saw only 9% of the market. 

As we can see in this chart, it’s not surprising that the highest foreclosure rates nationwide were found in subprime fixed rate and subprime ARM loans. The 41% increase in foreclosures has resulted primarily from investor-heavy purchases in Arizona, California, Florida and Nevada.  The majority of these individuals are flippers whose investments did not payoff.  More importantly, the # of foreclosures in many states (like Texas) is actually declining or under the national average.

n However, one of our biggest challenges in 2007 was the negative spin that the media put on ALL real estate – when not all markets were declining markets. One of the biggest mistakes reporters make is talking about national trends.  The challenge is that national numbers are pretty much irrelevant.  Real estate is like the weather – it’s all local. 

There is plenty of good news about the real estate housing market.   2008 will see a shift from speculation to serious home purchasers.

What I want to provide to you today is that in 2008 – we have a year of opportunity.  Why?

n All real estate is LOCAL.  I will show you in a few minutes that the San Antonio real estate market performed well in 2007 and our market has unique and key circumstances that will help keep our market for existing single family homes strong (like job growth, affordable interest rates and price appreciation).  We just need to have the media help us promote that “Real Estate is Local” … and not generalize that all markets be painted with a brush of negativity.

n Another opportunity is that we will have plentiful mortgage funding  (funds are available to qualified buyers). 

This next chart shows the NAR National Housing Outlook.  In particular, see how affordable interest rates have been over the last two years and the prediction that the 2008 average will only potentially increase to a 6.5% level.

                                      2006                    2007                    2008

Existing Home Sales   6.48 million        5.67 million        5.69

New Home Sales          1.05 million          .80 million          . 69

Housing Starts             1.80 million        1.35 million        1.14

30-Year FRM                 6.4%                    6.4%                  6.5%

           1 year ARM                  5.5%                   5.6%                  5.1%

n Next, we will see safer and affordable mortgage products. This will happen as the REALTOR organization continues to push Congress to reform Fannie Mae and Freddie Mac to increase their conforming loan limits. This is an effort to support President George Bush’s initiatives to curb the increase in foreclosures due to certain subprime lending practices and complicated mortgage products by allowing modification of certain loans or freezing the interest rates for up to five years).

n Prime borrowers will see low favorable conforming rate loans; jumbo borrowers will see rates coming down a bit after the August credit crunch; non-prime borrowers will see a move away from risky subprime loans into safer FHA loans.

n In addition, last month President Bush signed into law a bill creating a temporary tax break for homeowners who are able to persuade lenders to forgive part of their debt and extends a tax deduction for private mortgage insurance for some families (those earning $109,000 or less).

This will hopefully increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow families to secure lower mortgage payments without facing higher taxes.

Speaking of opportunity and the positive outlook for the San Antonio real estate market, let me show you an example that real estate is truly local.  This chart shows price changes for various metro areas.  This screen shows a few of the metro areas; however, the handout that you will receive at the end of the program will actually include 31 Metro Areas.

According to a study released in December by First American Corporation’s Loan Performance Home Price Index, home prices fell in 21 states from October 2006 through October 2007 and dropped in 21 of 31 major metro areas.

As you can see in the chart, the price of single family homes tumbled 15.7% in Riverside, California and other price decreases  can be found in Las Vegas, Phoenix, Miami, Los Angeles, Cleveland, Washington, D.C., Detroit, St. Louis, and Philadelphia –  some experiencing double digit price declines. California, Florida, Nevada and Arizona also appear in the top lists of states with the highest rate of foreclosures in the nation (during November).

Also on the chart, you will see the top 10 cities that show price gains. Honolulu topped the list of 31 local market areas in the Index report with a 17.9% gain, followed by Salt Lake City (up 11.6%); Austin (up 8.6%); and our favorite – SAN ANTONIO came in the #4 position with a 7.89% gain.  In addition to Austin and San Antonio, other Texas cities making the top 10 list include:  Dallas and Houston. 

As you can see, real estate is local -  and we need to promote the positive aspect of our market in San Antonio.

Next – let’s look at a few graphics that depict the status of resale/existing single family home sales in San Antonio.

Resale Market  (slide)

It is estimated that we will end 2007 with approximately 22,700 sales of existing single family homes.

As you can tell from the graph, this compares to 25,069 sales in 2006 (our banner year); 23,043 sales in 2005; and 19,527 sales in 2004.  

These current numbers put San Antonio sales of existing single family homes for 2007, approximately 8% lower than 2006; but it is comparable to our second best year of 2005.  Yes – it’s down – but hardly depictive of a down market.

(Inventory:  Resale Market): 

Next, let’s look at inventory.  A contributing factor to price appreciation is housing supply and demand – defined as how many homes are on the market in relationship to the average number of sales occurring in the marketplace.  The benchmark of a 6.5 month supply in housing is a strong indicator of continued price appreciation.  As you can tell from this graphic, our 2005 average for months inventory was 4.5.

(show chart)                January            4.9

                                    February          4.9

                                    March              5.0

                                    April                5.0

                                    May                 4.9

                                    June                 4.9

                                    July                  4.8

                                    August                        4.4

                                    September       4.2

                                    October           4.1

                                    November       3.9

                                    December        3.8

In 2006, our average was down to 4.1 months.

(show chart)                January            3.9

                                    February          3.9

                                    March              3.9

                                    April                4.0

                                    May                 4.0

                                    June                 4.0

                                    July                  4.0

                                    August                        4.1

                                    September       4.2

                                    October           4.4

                                    November       4.3

                                    December        4.2

In 2007, our average was up to 5.7 months.  (based on 11 months of data – January – November):

(show chart)                January            4.4

                                    February          4.8

                                    March              5.0

                                    April                5.3

                                    May                 5.7

                                    June                 6.0

                                    July                  6.1

                                    August                        6.1

                                    September       6.2

                                    October           6.4

                                    November       6.3

As you can tell from the graphs, inventory levels play an important factor in our housing forecast.

At year end 2007, MLS showed an inventory of 12,000 listings

 Compare this to 2006 levels, that showed an inventory of 9,300 listings at year end.

This shows an increase in the listing inventory of existing/resale homes of approximately 29%

Even though we are below the benchmark, this is a figure that we will monitor throughout 2008 because of its importance and impact on future home price appreciation.  Just as an aside, in our positive real estate market, this is all very relative as we look back to compare what our month’s supply was in the early 90’s at 10-15 months of inventory.

Prices of Existing/Resale Homes:

Next, let’s look at the 2007 price distribution of our resale/existing single family home sales this past year.

As we categorize all price ranges, let’s look at the breakdown in this next screen.

As you can see, our largest price category is in the $100,000 - $179,999 range at 43.5% of the MLS sales.  What’s also important to note is that 21.7% of the MLS sales are in the under $100,000 category – making 65.2% of the resale market under $180,000.

(Chart)

Up to $100,000                     21.7% of the sales

$100,000 - 179,999              43.5%  (the largest price category)

$180,000 - 249,999              16.6%

$250,000 – 399,999             12.5%

$400,000 – 549,999               3.3%       

$550,000 – 749,999               1.4%

$750,000 – 999,999                 .6%

$1million +                                .4%

What’s noteworthy in this next slide is that the single largest subset in the price distribution chart is in the price range of $120,000 - $139,999 at 12.8% of the sales.

As we look at this breakdown, please note that San Antonio’s average sales price for existing single family homes for 2007 is $183,080 - -  an increase from $171,650 in 2006.

The median sales price for 2007 is $150,100 - - an increase from $142,200 in 2006.

As you can tell from this next graph, , San Antonio has experienced a healthy price appreciation in the existing single family home market since 2002.

(SHOW SLIDE OF AVERAGE PRICE INCREASES FROM 2002 TO 2007)

2002                          $131,200 …… to

2003                          $138,600 …… to

2004                          $144,000 …… to

2005                          $157,583 …… to

2006                          $171,650….. to

2007                          $183,080

Highest Average Sales Price by Area:  (Resale Market)

Geographically, if we look at our MLS map areas to determine the locations of areas that had the highest average sales price during 2007, we find that:

n Area 10 (NW San Antonio – North of Loop 1604, east and west areas of I-10) came in the #1 position – with an average price of $369,018.

n Area 25 (Kendall County - Boerne) had the 2^nd highest average sales price at $341,155……….and

n Area 18 (the Stone Oak area) had the 3^rd highest average sales price at $283,369.

Largest # of Sales by Area:  (Resale Market)

If we look at our map area to determine locations around our city that had the largest number of sales in 2007, we find:

n North Central Area 18 (Stone Oak) had the largest number of sales;

n NE Area 27 (Schertz – Guadalupe County) had the 2^nd largest number of sales; and

n  NW Areas 1, 2 and 3 followed with the next highest numbers.

(charts should depict estimated numbers for 2007:  Source San Antonio MLS):

Area 18           2,361 sales

Area 27           1,616 sales

Area 2             1,453 sales

Area 3             1,399 sales

Area 1             1,396 sales

San Antonio Subdivisions:  Price Appreciation and Square Footage Values:

As mentioned earlier, we may have experienced fewer sales of existing single family homes in the San Antonio area in 2007 (compared to 2006) – however, the real strength of the market is portrayed in the price appreciation we experienced.

Analyzing the value of various San Antonio neighborhoods is one of the most common requests that we receive from consumers, the media and REALTORS.  Using our MLS database, we analyzed a three year history of 30 subdivisions in our marketplace to look at valuation trends. Your handout that you will be given when you leave shows all 30 neighborhoods; however, let me just highlight a few of them for you this morning.

n Alamo Heights came in with a square foot value of $190 in 2007 – compared to $164 per square foot in 2005.  The year to date average sales price in Alamo Heights is $419,011.

n The 2007 average sales price for the NC neighborhood of Bluffview was $481,571 ($125 per square foot); an increase of approximately 8%.

n In Deerfield (NC), the average sales price increased to $317,809 in 2007 – with a $105 per square foot value.  Comparing this square foot value to 2005, we see a 14% increase.

n The NW neighborhood of Braun Station showed a square foot value of $82, compared to $73 in 2005 – a 12% increase.

n The North Central neighborhood of Hunters Creek showed a square foot value of $103, compared to $88 in 2005 – a 17% increase.

n Coming in at $208 per square foot (or an average sales price of $656,875) – Olmos Park shows a 22% increase when comparing the 2006 square foot value.

n The NE neighborhood of Olympia showed an average sales price in 2007 of $206,941 … or $88 per square foot.  This compares to $82 per square foot in 2006 (a 7% increase).

n In Shavano Park (NC), the average sales price in 2007 was $593,389 ($164 per square foot), showing a 21% increase in price from 2006; and ….

n In the Dominion, the 2007 average square foot price of $184, with an average sales price of $820,019 is a 15 % increase from 2006.

Based on the number of sales and price appreciation in 2007, we saw an increased demand in properties South of Loop 1604.  Part of this could be the desire to move closer in to avoid traffic congestion and commute time.