A look back at San Antonio's new-home market

Web Posted: 12/28/2007 12:21 PM CST
Creighton A. Welch
Express-News Business Writer

The effects of a banner year for new homes in 2006 created an unloading of homes in 2007's real estate market.

Because so many homes were started last year, San Antonio faced an oversupply of homes, giving buyers the chance to score some major discounts. With all the new homes ready from last year, home builders cut back their pace in 2007 and are expected to keep up their slower pace into 2008.

The San Antonio market has had its third best year for new-home construction, with 14,328 home starts as of the third quarter this year, according to Metrostudy, a housing research firm. The record level was set in 2006, with 19,500 home starts as of the third quarter.

"New-home construction is definitely down, but it's still up there in the top three years San Antonio has ever had," said Jeff Czar, chief operating officer with Armadillo Homes. "It really isn't that bad. This market really hasn't been faced with what the rest of the country has."

The National Association of Home Builders expects that the final 2007 tally will show that new construction in San Antonio fell by about 28 this year. The group predicts 2008 will show an 8 percent decline from 2007.

"All indicators are that it will be about the same next year, and it will pick up in the third quarter," said Becky Oliver, executive vice president with the Greater San Antonio Builders Association.

The 14,000 new-home starts as of the third quarter this year is about right for San Antonio, market experts say.

"Overall, the market made the corrections it needed to," said Keith Fahey, vice president of marketing for Centex Homes in San Antonio.

The consensus is that builders overbuilt in the San Antonio market at the end of 2006 and start of 2007, leading to excess inventory the builders were desperate to unload.

That was good news for new-home buyers, as the builders offered all kinds of deals and incentives, from paying closing costs to upgrading finish packages.

But it was not-so-good news for sellers of existing homes, who suddenly found themselves unsuccessfully trying to compete with such deals.

"I think the 'for sale by owners' are going to have a harder time because they can't just put a sign in their yard and get a sale," said David Marne, owner of Half Priced Real Estate Co.

In October, the inventory of new homes for sale in San Antonio was about 3,100. Currently, the inventory is about 2,900 homes, Centex's Fahey said, and 1,800 is about the normal amount for San Antonio.

This oversupply has led to a lot of discounted homes and good deals for the buyers.

"There are deals out there to be had," Marne said. "But a lot of the local builders have done a really good job of managing inventory."

Marne said he recently took clients house shopping, and it took trips to three different neighborhoods to find a home that already was built.

"It wasn't as easy as you might believe," Marne said. "I don't think you're going to see a lot of inventory out there."

As the home inventory declines, the chance for a buyer to get a big discount goes away, and that could level the playing field among builders.

"Builders that don't offer the big discounts can compete with the large companies that can offer those discounts," said Darlene Griego, sales manager at The Estates of Arroyo Crossing, a neighborhood in Alamo Ranch on the West Side.

However, Fahey said that it still will take three or four months to work through the excess inventory.

"You'll probably still see some pretty good buyers' incentives in 2008," he said.

The concern about excess inventory also has led builders to cut down on homes they build on speculation.

"With our company, inventory has definitely gone down," Armadillo's Czar said. "It's not a good time to have a lot of spec."

Armadillo, which builds homes in the $120,000 to $240,000 range, closed about 500 homes in 2006 and expects 2007's numbers to be about 20 percent lower. The company builds about half of their homes on spec and the other half based on customer designs.

Centex's San Antonio office closed 1,560 homes in 2006, compared with projections of 1,430. This year, the company projected the same amount and will come in at about 1,360, a 10 percent decline from last year. The company projects to do about the same in 2008.

Fahey said what's keeping their closing numbers stable is that the company has several community sites in such prime locations as Stone Oak and along Interstate 10.

"It got hard (for builders) to develop homes in good locations for under $170,000," Fahey said. But most of Centex's new homes still cost between $110,000 and $170,000.

Those locations — Stone Oak and Interstate 10 — have been some of the most popular places for new-home construction. According to Metrostudy, the far North Side, which includes Stone Oak, had 2,366 home starts this year as of the end of the third quarter.

The Northeast Side, which includes Schertz and Cibolo, had 3,312 new-home starts during that same time.

Taking the cake, though, is the West Side of San Antonio, which had 4,222 new-home starts as of the end of the third quarter this year.

For many of the San Antonio-based builders, 2007 has shaped up to be about average.

San Antonio-based Sitterle Homes closed on 125 new homes in 2007, compared with 121 in 2006 and 120 in 2005.

"We expect to do just a little bit less next year," said Jeff Biell, a partner with Sitterle.

Sitterle focuses on the far North Side of San Antonio.

"We build almost exclusively on that side of town," Biell said. "And we see more demand for homes there."

Sitterle has sold out of its houses in Roseheart, a garden home neighborhood off Bulverde Road. Two weeks ago, the company broke ground on an active adult community that is part of the Cibolo Canyons development. And at the beginning of 2008, Sitterle will begin building homes at Kinder Ranch farther north on U.S. 281, where the company plans to build 2,500 homes during the next 10 years.

On the custom building side, where the homes are typically higher-priced and built for a specific home buyer, sales also seemed to be steady in 2007.

"We had a pretty good year this year," said Don Craighead, owner of Don Craighead Custom Homes.

Craighead, whose average home costs about $970,000, builds mostly in the far Northwest Side and the far North Side, but has seen an increase in the number of ranch homes he builds.

In the custom-building market, there hasn't been much of a lag in selling homes on the ground.

"That market is not nearly as overbuilt," Craighead said. "I don't know any other custom builders who have excess inventory that's not moving."

He closed nine houses this year, the same as in 2006. But the difference this year is size.

"It was a good year for me because I did about the same number of houses, but some were big houses," Craighead said.

New homes and neighborhoods also have begun to see buyers who want more nature and outdoor activity.

"From a lifestyle standpoint, they really enjoy getting outside and walking in the neighborhood," Biell said.

And expect to see a continued drive toward environmentally friendly features, such as low-flow water features, water recycling and high-efficiency appliances.

"Energy-efficient homes seem to be one of the biggest requests we get asked for here," Griego said.

As far as next year, Marne expects the same momentum, and a continued push to more energy-efficient and green building.

"We hear every day about the overall housing market in America," Marne said. "In San Antonio, I don't really think the sky is falling."

And as the new year approaches, the sky probably won't fall then, either.

"I think 2008 is setting up for a pretty good year," Craighead said. "I've got enough business to feel confident for another year."