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What's in Store for 2008?

Where we've been and where we're going

The recent housing cycle in Texas peaked in 2006, but the falloff has not been as rapid or as deep as in other states. Total sales volume declined, and homebuilders face an excess of unsold new homes. Nevertheless, home prices continued to climb and the months' inventory of unsold homes remained within the general guidelines of a "good" market.

The outlook for 2008 is for further reduction in sales volume and construction activity, with slower, but still positive, price gains. Barring any unforeseen calamities, the overall housing market in Texas should be much stronger than most other areas of the country.

Four major conditions will influence the Texas housing market for the rest of the decade:

1. General economic conditions: A major risk to the real estate market in 2008 is the prospect of a general economic recession. So far, employment and income trends in Texas favorably support housing demand.
2. Uncertainty in the capital and mortgage market: The period of "easy credit, easy terms" that fueled the recent housing cycle is over, but mortgage credit for qualified buyers (those with documentable jobs and income and savings for a down payment) is available and at historically attractive interest rates. The banks, investment funds and other capital market institutions are reeling over the lasting effects and default rates. Foreclosures will remain historically high throughout the year and may not decline until well into 2009.
3. Demographic trends: Texas continues to lead the nation in numerical population growth and in-migration. Growth over the next several decades will help keep the state's housing market moving forward despite short-term disruptions.
4. Housing affordability: The median home price in Texas is about two-thirds of the national median home price, which makes Texas the most affordable high growth state in the United States. The price of housing will be one of the strongest magnets for population and business growth in the state during the next 25 to 30 years.

San Antonio on a state level is duplicating what Texas is doing on a national level in regard to population growth, in-migration and housing affordability. San Antonio experienced an appreciation rate of approximately 7.48% from November 2006 through November 2007.

Total reported sales in 2007 declined a little more than 5%. Sales volume in 2008 is projected to fall another 5% as buyers (a) must meet stricter mortgage underwriting criteria, (b) marginal, sub-prime buyers are excluded from the market, and (c) the psychological impact of a national housing decline influences many to "wait and see".

The general trend toward a buyer's market is evidenced by the increase in inventory of unsold homes. Buyers should find bargains in 2008 especially in unsold new homes as builders move to reduce inventories. The statewide average and median home prices in 2008 is expected to grow slower than the long-term rate of increase but significantly better than the overall national experience. Predictions range from 2% to 3.5% increase in the average priced home in Texas. This increase will be constrained by sales of excess new-home inventory at lower prices and the number of foreclosed homes that will enter the market. Both conditions will influence not only the specific homes sold but also the surrounding neighborhoods.

The longer-term outlook, however, is most favorable. Population growth, affordable housing, available and affordable labor, and an attractive business climate will fuel future market increases and expansion.

Source: Texas REALTOR/First American CoreLogic/Skye