2 min read November 2022 — Housing is one of the key drivers of the current inflationary environment. As housing prices across San Antonio begin to cool, the question remains by how much will prices decline as a result of the ongoing normalization.
Headlines across the country are making the case that the housing market is amidst a shift. After two years of frenzied buying, driven by out-of-town relocations, remote work and low interest rates that saw housing prices become a core driver of the Consumer Price Index’s measure of inflation, the market seems to be cooling as buyers pull back, particularly as interest rates are expected to keep rising.
Whether current price declines signify a return to affordability is a different question, however. According to the San Antonio Board of Realtors’ October 2022 report, the average and median price of a typical single-family home increased 8% year-over-year. A typical San Antonio house costs, on average, $382,518 whereas the median price similarly stands at $323,190. The region’s average annual household income sits at $71,917, with the median household income at a more modest $53,420, according to real estate platform Point2homes.
While San Antonio is more affordable than coastal markets — or even other Texas markets, it has nevertheless seen prices reach a point that locals struggle with, particularly when it comes to rentals, with the Alamo City’s residents having to work 55.1 hours on average, up 4.8 hours from five years ago, to cover their rent. Erin Cisneros, San Antonio President of JB Goodwin Realtors, said in an interview with Invest:, “The challenge is affordability. The city is growing so quickly that demand is driving up home values.”
While inventory is anticipated to become increasingly available, the impact of rising rates, which makes it more difficult for low- and middle-income earners to qualify for mortgages as a result of growing monthly payments, means that even if prices continue to decline, there’s no guarantee that they will fall into the hands of would-be homeowners, particularly as deep-pocketed investors look at the current environment as an opportunity to convert homes to long-term rental units.
Zillow Senior Economist Oprhe Divounguy told San Antonio Business Journal, “Home prices have kind of plateaued. We’re not seeing the big price adjustment that a lot of people were hoping for…With mortgage rates this high, it will take a price adjustment to get people back in the market.”
Similarly, when looking at SABOR’s most recent report, transactions have seen a 19% decrease year-over-year, signifying a less competitive market as potential buyers sit on the sidelines in the hopes of seeing interest rates settle before making any potential purchases. This means expanding inventory will be a key driver on whether prices will significantly decline or remain mostly static.
“Builders saw the largest cancellations of contracts that they had ever seen in July 2022 due to interest rate increases, driving many new construction homes back on the market. It increased our inventory and actually created a better balance. It is challenging for the builders as they have lost a lot of time and cannot get all of the supplies they need. They are offering many incentives to try to bring those buyers back in the door. They are buying down interest rates in order to overcome the fear that buyers had from the change in mortgage payments every month,” Cisneros said.
While interest rates remain a key factor on whether buyers would move forward or not, and inventory being a component to watch with regards to price movement, in San Antonio as elsewhere, the ongoing correction does not signify a collapse to greatly discounted prices that buyers witnessed in 2008. Cisneros explained that concern would remain a key obstacle. “I think misinformation and fear are the biggest challenges we face. National statistics cannot be applied to our local market. People have short-term memories, especially when you look at interest rates. They don’t remember a time before 3% rates… Today, after a dizzying few years, we need to remind people why homeownership is important. We need to help people to analyze the renting versus purchasing scenario. We can also help families with long-term goals when it comes to building investments and investing in their home. For us, it is about getting back to basics to help overcome fear.”
READ MORE: Is Charlotte actually seeing a housing correction?
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