Industry experts say real estate normalizing after ‘sugar rush’
After a tumultuous 2022 marked by a sharp slowdown in demand for residential real estate, San Antonio real estate professionals and consumers are left wondering what it all means for 2023.
Two local industry groups recently heard from experts predicting that while consumer and investor confidence is down, all signs point to the market returning to a more normal state.
“Going into 2021, sentiment was expected to be down given that we were in the middle of a pandemic,” said PwC analyst Leah Waldrum at a meeting of the Urban Land Institute San Antonio (ULI), reporting on its most recent survey of industry professionals.
“In 2022, the market remained strong after a quick recovery and people were very optimistic,” she said. “Now, at the beginning of 2023, with the weight of the potential economic downturn,” fewer people are expecting to have a good year in real estate.
Less than half of all respondents to the real estate professionals survey said they expect to have a good year financially in 2023, down from 86% going into 2022. “This year’s report predicts that the ‘sugar rush’ will be over,” Waldrum said .
But industry confidence varies by sector, she said, with overall demand for industrial space and multifamily housing making those property types an attractive investment in the current economy.
Destination or leisure hotels come in third, “which is a remarkable comeback from a couple years ago, but certainly reflects the return of personal travel” versus business travel, which has been slower to bounce back, Waldrum said.
Retail and office sectors came in last place due to uncertainties in the market. That’s below the single-family home market, which dropped from second place in last year’s ULI/PwC survey mostly because of rising mortgage rates.
“The housing market had one of the most dramatic reversals in 2022 as rising interest rates and stubbornly high prices have driven the national affordability rate down by 37%,” Waldrum said, adding that with interest rates and low inventories, it’s difficult to see that situation reversing any time soon.
The San Antonio area wasn’t immune to the single-family market slowdown.
In November, the San Antonio Board of Realtors (SABOR), reported that home sales in the area had fallen throughout 2022, steadily decreasing for eight consecutive months.
The decrease of 24% compared to November 2021, with sales of only 1,683 existing homes and 611 new homes, was the largest year-over-year decline since May 2020, according to SABOR, which hasn’t yet released figures for December 2022.
Just under 34,000 homes sold in the San Antonio area through November 2022, down 8% from the year before.
The price of homes in San Antonio, however, did not fall. The average price for houses sold last year was $380,176, up 13% from November 2021. Meanwhile, the median price for all homes sold in 2022 was $323,000, up 14% from a year ago.
Residential rental rates also increased 7%, to an average of $1,772, reflecting a nationwide trend since 2019.
But nothing in the forecast for 2023 seems all that dramatic or concerning for San Antonio, said Sara Briseño Gerrish, board chairwoman of SABOR and a broker association with ReMax Unlimited in San Antonio.
While the word “recession” came up numerous times in talks at SABOR’s recent 2023 Housing Forecast, “Texas is still a strong market,” Gerrish said.
But this might be the year it moves away from what has been a very strong seller’s market to one that’s more balanced.
“I think now with the days on the market increasing, I think today’s buyer actually has more time to think about it, whereas before, you may be making a buy or making an offer sight-unseen or waiving all kinds of contingencies just to compete in that strong market,” Gerrish said.
And San Antonio, as part of the Sun Belt, is continuing to attract migration from other parts of the country, Waldrum said. Describing data from home and apartment listing service Redfin, she said 40% of all people searching in 2021 and 2022 for homes outside their current area chose San Antonio.
Mortgage interest rates could also be returning to more normal levels after historic lows during the past few years and that could change the housing picture. Among her buyer clients, Gerrish has seen rising interest rates in the last few months contributing to some hesitancy to enter the market.
The SABOR event on Thursday featured Ali Wolf, chief economist with housing market research firm Zonda and White House advisor on housing, who also spoke to the ULI-SA group.
Wolf said the real estate market could be correcting itself going in 2023 as long as the jobs outlook remains healthy and rates don’t go up.
“I’m not trying to say that interest rates are good, but going from 7 to 6 is at least moving in the right direction,” Wolf said. On Friday, the current average 30-year fixed-mortgage rate was 6.31%, down 32 basis points from a week ago, according to bankrate.com.
“We’ve been in a slowdown for nine-ish months, at least according to some of the estimates that we’re looking at,” she added. “As we’re seeing this, we know that housing traditionally slows quicker than the rest of the economy, and that’s what we’ve been going through. But what we also understand is housing rebounds quicker on the other side as well.”