An investor buying spree, not a housing shortage, drove San Antonio's home price surge

Investors purchased 46% of homes in Bexar County in 2021, according to a report by the National Realtors Association.

click to enlarge San Antonio realtor Linda Lombardo. - Courtesy Photo / Linda Lombardo
Courtesy Photo / Linda Lombardo
San Antonio realtor Linda Lombardo.

Between the onset of the pandemic in March 2020 and this July, the price of a home in San Antonio has more than doubled, according to local data.

Even so, home buyers in the Alamo City continued buying. Some were told the value of the homes they dropped big money on would always go up. Some were told a housing shortage would keep their investment's value afloat.

Indeed, one May 2021 report from mortgage company Freddie Mac estimated a shortage of more than 3 million homes across the country.

However, new data from the U.S Census Bureau and a recent report from an online homebuilder's platform suggest there is no shortage. Instead, according to bureau data, the ratio of U.S. residents to homes has been steady since the 1980s.

What's more, the data suggests that instead of a structural shortage of homes, the previously red-hot market was instead the result of investor demand, fueled by a steady supply of cheap borrowing costs and low interest rates.

With active home listings in San Antonio up already 68% since last year, a glut of backordered new homes and economists speculating that the Federal Reserve will again raise interest rates this fall, signs suggest the skyrocketing of home values here may be over.

'No structural shortage'

Despite news reports about a dearth of available housing — such as a recent CNBC report suggesting the U.S. was short by more than 5 million homes — some real-estate market experts are branding the shortage a myth.

"There is no structural shortage of homes," Nicholas Gerli, founder of Reventure Consulting, said in a market report posted last month on his firm's YouTube channel. "In fact, we're building too many homes right now in America because the underlying demographic fundamentals of the housing market are very poor right now."

As of the latest Census Bureau count in 2020, there's one home for every 2.3 U.S. residents, a figure that's remained steady since the 1980s. That also appears to hold true in San Antonio, where there's one housing unit for every 2-3 residents, according to Data Commons, a platform that aggregates data from the U.S. Census and other sources.

Rather than a lack of available homes, Gerli blames a "low-interest-rate environment for the last two years." Low borrowing rates made it easier for investors to buy up homes, spurring artificial shortages.

Investors snapped up more than 1.3 million U.S. homes in 2021, a 64% increase over the previous year, according to Gerli's data. A similar surge has played out locally, where investors purchased 46% of homes in Bexar County in 2021, according to a report by the National Realtors Association.

"Those were mostly during the springtime, and it was a lot of people buying a lot of houses," San Antonio realtor Linda Lombardo said. "They wouldn't just buy a house; they'd buy 10 houses."

But the market has cooled significantly since then. The Federal Reserve hiked interest rates to put the brakes on inflation, resulting in increased borrowing costs and a bigger volume of available homes.

Even so, prices haven't yet dropped. The median listing price in the San Antonio metro area hit $390,000 last month, according to a July 2022 report.

More homes on the way

There were 9,686 active listings for homes in San Antonio in July, according to the San Antonio Board of Realtors, nearly double the number of active listings three months ago and nearly 70% higher than a year ago. What's more, active listings for newly built homes in San Antonio jumped 15% between May and June, according to a report from home builder HomesUSA.

"The whiplash began in March last year when San Antonio area builders were caught flat-footed by the sudden and astonishing demand for new homes," HomesUSA CEO Ben Caballero said in the recent report. "While struggling with shortages and supply chain issues, builders pulled out all the stops to increase production, only to be whiplashed again by the sudden reduction in demand caused by cancellations due to rising mortgage rates."

Even as builders are finally catching up with demand, the demand has all but vanished, causing some to get desperate, San Antonio agent Lombardo said.

"Some of the builders, during the height of the craziness, felt like they did not need realtors to sell their homes," Lombardo said. "A certain builder in town was telling people they'd give them a $3,000 credit if they ditched a realtor and stuff like that."

But Lombardo said that attitude changed as the market cooled. Her email account is now inundated with promotional material from builders, who are begging realtors to help them move homes and offering bonuses to do so.

Fears over rising interest rates pushed San Antonio resident Clancy Kelly to buy a home in March.

"We decided that we needed to buy something," Kelly said. "We realized the market was through the roof and that the interest rates were about to go up, so we just had to get a place."

After being outbid on several properties, Kelly and his wife ultimately ended up buying a newly built 1,500-square-foot house for $300,000.

"The builder set the price and basically said, 'You should buy it if you want it,'" Kelly added.

Not 2008

An influx of newly constructed homes, combined with higher borrowing costs, means homes in San Antonio are sitting for longer and forcing sellers to cut their asking prices.

The number of price cuts on homes for sale in San Antonio has nearly doubled from 8.4% in March to 15.8% in June, according to data from Zillow.

Although the average home price in San Antonio topped $400,000 in June, that represented just a 20% increase from a year prior, the second-lowest monthly home price inflation so far this year.

January saw the lowest level of home price inflation, with prices increasing 18% from the prior year, according to the San Antonio Board of Realtors' annual monthly reports.

Even if the party is over for home sellers looking to reap big profits, the hangover is unlikely to be a repeat of the great recession of 2008, Lombardo said.

"If you could fog a mirror in 2008, they'd give you a mortgage, and people could get into mortgages that they could not afford because they lied about their income," she said. "They defaulted on their loans, and there were a lot of foreclosures — and that was the collapse."

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