Recently, a professor at New York University, a leadinghousing market economist, said he expects millions ofAmericans to abandon homes with sinking values in an effortto cut losses on bad investments. “We may face a situationwhere millions of homeowners are going to walk out oftheir homes in the next couple of years.” He estimated thatsomewhere between 10 million and 15 million homeownerswill soon find that their houses are worth less than thevalue of their loans.
Now I ask you, assuming you canmake your monthly payment, if youfound your nice comfy homestead suddenlyhad a market value less than themortgage, would you immediately moveout, put your family in an apartment orlive under a bridge? Or would you stayput, pay your mortgage, and go aboutliving your life? This is the kind of nonsensethat scares people.
I will say that the Banking LiquidityCrunch is becoming a larger problem inthe commercial arena. Lately, a strongand savvy real estate investment trust,investing in the commercial loans, hit abig liquidity problem and is threatenedwith bankruptcy. That is scary. Lendersare requiring more equity in deals, andare much stricter with the creditworthinessof the borrower. This is slowing theinvestment market. Debt will likelycontinue to become more difficultto obtain as this year wears on. WallStreet is expecting the commercialmarket to sag over the next severalyears and is making adjustmentsnow. Real estate is local, but debtis international. When Wall Streetsneezes, Main Street gets sick.
A title company’s commercial business unit told methey had a record 2007 in commercial closings. However,the company was off about 7% in January. It projects 2008to be as good as or better than ‘06, but not as good as therecord ‘07. Residential still was off 30% or more in starterhomes, with foreclosures at a manageable and steady rate.Home starts and sales in the $200,000 and up range are stillrelatively strong, very few “spec” homes being built and thelot supply is tight at only about 3 months.
Let’s put this into prospective. Remember the RTCdays? Back at the worst of the recession in late 1980’s, housingstarts dropped from about 4,000 a year down to 1,700.San Antonio saw 12,600 home starts in 2007, after a record19,000 in 2006; but we may fall back to 12,000 this year, fifthbest on record and 700% of the 1989 home starts.
Mark Dotzour, Real Estate Center at Texas A&M, notedthat “home prices are still increasing in most Texas metroareas, foreclosure rates are much lower than the nationaltrends, and the inventory of unsold homes in Texas is currentlyat 5.7 months, well below the national average of 10.1months. . . (however) the rate of price increases in most Texasmetros (is) getting smaller.” And Texasis still seeing strong immigration fromother states –– 141,000 people moved tothe Lone Star State last year, near the topin the U.S.
On the commercial side, thereis nearly two million square feet (SF) ofnew office buildings now under constructionor planned along Loop 1604 fromStone Oak to UTSA: Tesoro Petroleum– 600,000 SF; Stream Realty on LockhillSelma – 233,000 SF; Galo Properties at1604 & IH–10 – 500,000 SF; Transwestern– 144,000 SF in The Rim; possibly anew building for KCI of about 250,000 SF;and several smaller buildings in ShavanoPark and University Park near Prue Road.Class A rents for new buildings are above$25 /SF (full service gross) and absorptionis good.
For retail, look for lots of newcenters: Loop 1604 at IH–35 (Weitzmanand HPI); Loop 1604 at Bulverde(Birnbaum and HPI); redevelopmentof Terrell Plaza; and a large new centerin Woodlake. San Antonio has thedistinction of being one of the most activeretail construction sites in the U.S.,alongside Las Vegas and Phoenix. But Istill continue to warn about unanchored strip centers beingoverbuilt.
While 2008 will be a year of adjustment and transition,we are still at the dawn of San Antonio’s Golden Age.
