Investing in San Antonio, Texas

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Investing in San Antonio, Texas

Founded by Spanish missionaries in the early 1700s, San Antonio, Texas is now the seventh largest city in the United States and the fastest growing region of the state. It is located halfway between the nation's east and west coasts and near other major Texan cities such as Austin, Houston and Corpus Christi.

Considered a gateway of foreign trade, San Antonio is recognized by Business Facilities magazine as one of the five major logistical locations in the country for warehousing and distribution. It benefits from its proximity to Mexico and has reaped the economic rewards of the North American Free Trade Agreement (NAFTA). Over half of the goods moving in and out of Mexico pass through the city of San Antonio and this trade is expected to grow. Plus, thirty percent of the city's retail market demand comes from shoppers living in Mexico.

San Antonio was the nation's second fastest growing major city from 1990 to 2000 according to the US Census Bureau. During that decade, the city grew 14.5 percent to a population of 1,144,646. The reported 2007 population estimate is 1,259,735 indicating a growth rate of 1.4 percent per year over the past seven years.

The San Antonio Metropolitan Statistical Area (MSA), which includes Bexar, Comal, Guadalupe and Wilson counties, has a current population of 1,985,996 and a projected annual growth rate over 1.5 percent through the year 2012. The San Antonio MSA grew by 21.6% between 1990 and 2000, which is similar to the overall state of Texas at 22% over the same time.

San Antonio is considered the economic trade center for its MSA with a total civilian labor force of 930,495. Over the years, its number one economy has changed from military to banking, and their number two economy has changed from tourism to medicine.

San Antonio's key accomplishment has been keeping its unemployment rate steady: 4.5% in mid-2007 compared to 4.6% in mid-2008. That's especially impressive because the national rate has climbed to 5.7% during that same time. San Antonio's current unemployment rate is approximately 5.0% as compared to the entire state of Texas at 4.9%.

A Forbes.com study, released April 29, 2008, ranked San Antonio second only to Oklahoma City in its ability to withstand recessionary pressures and was dubbed a "recession-proof" city. A city ideal for investment property.

San Antonio experienced a 3.9 percent increase in its Texas Business Cycle Index from 234.5 in April 2007 to 243.3 in April 2008. The business index, compiled by the Fed, is a measurement of the region's current economic conditions using statistics from nonagricultural employment, the unemployment rate, inflation-adjusted wages and inflation-adjusted retail sales.

San Antonio's business-cycle index outpaced the growth in Austin, Dallas, and Fort Worth during the same period, but lagged behind Houston's strong gains. That growth created 1,100 jobs -- 400 of which were in professional and business services.

San Antonio offers one of the fastest growing job markets in the country with a projected 10-year job growth of 12.2% according to Economy.com. The city also offers lower business and lifestyle costs than comparable cities and a well educated productive workforce.

Some of the largest public sector employers include: Lackland Air ForceBase/37th Training Wing, Fort Sam Houston, Randolph Air Force Base, City of San Antonio, Northside Independent School District, University of Texas Health Science Center at San Antonio, University Health System, CPS Energy, Bexar County, University of San Antonio, Brooke Army Medical Center, Brooks City-Base, U.S. Postal Service, San Antonio Police Department and South Texas Veterans Health Care System.

Some of the largest private sector employers include: AT&T, H.E.B. Grocery Company, Valero Energy Corporation, USAA, Zachry Group, Sanitors, Inc., Baptist Health System, Methodist Health System, Administaff, Eye Care Centers of America, Taco Cabana, VIP Temporaries, Frost National Bank, Southwest Research Institute, Aaron Rents and Sells Furniture, Christus Santa Rosa Health Care, JP Morgan Chase Bank and Citicorp.

Bizjournals, the online media division of American City Business Journals, the nation's largest publisher of metropolitan business newspapers, recently analyzed private-sector employment patterns in America's major metropolitan areas using data from the past five years. Using a nine-part formula, with data compiled since 2003 by the U.S. Bureau of Labor Statistics, they analyzed employment trends in the nation's 100 largest labor markets.

According to the report, these are the top 10 labor markets in the country:

  1. Houston, TX
  2. Austin, TX
  3. Dallas-Fort Worth, TX
  4. Raleigh, N.C.
  5. Seattle, WA
  6. San Antonio, TX
  7. Charlotte, NC
  8. Oklahoma City, OK
  9. Durham, N.C.
  10. Salt Lake City, UT

It's interesting to note that Texas has four of the hottest jobs markets in the country.

And once again, last place belongs to Detroit which has ranked as the coldest job market in America for the past two years. The biggest problem remains Detroit's heavy reliance on domestic automakers, resulting in a loss of 30,800 jobs since mid-2007.

The Milken Institute's Best Performing Cities Index ranks U.S. metropolitan areas by how well they create and sustain jobs and economic growth. The components include job, wage and salary, and technology growth.

Texas performed particularly well in the 2008 index, with six cities placing in the top twenty-five large metros (more than any other state). Thanks to its heavy concentration of oil and gas operations, Texas was a clear beneficiary of rising energy prices and renewed activity in the industry. Additionally, several Texas metros received a boost from continued strength in technology hardware and services.

While the housing downturn has been severe in states such as Florida, California, Arizona, and Nevada, Texas has not experienced a similar decline. San Antonio, TX moved up to the 15th spot from last year's rank of 43.

One of the most attractive factors of the San Antonio real estate market is its affordability, both in comparison to the other U.S. markets as well as within the state of Texas. The median home price for September, 2008 was $145,700 according the local MLS. This is about the same as it was the previous year at $147,700.

Housing prices have remained stable in San Antonio even with the brief bubble that popped up in 2006. When coastal real estate markets experienced a downturn in 2006, investors turned to San Antonio to buy new housing inventory with the intention of flipping them but quickly realized that it was far better suited as a buy-and-hold market. It's ideal for lower risk investing for long-term gains.

Although the San Antonio real estate market has almost completely recovered from its bout with excessive speculation two years ago, housing supply has almost regained its normal balance.

Home price appreciation in San Antonio was 8.25% in 2007 according to the Office of Federal Housing Enterprise Oversight (OFHEO).

San Antonio's forecasted home price appreciation for the next 12 months is 2.04%, 4.25% for the next 24 months, and 6.84% for the next 36 months according to proprietary econometric forecasting models.

PMI Mortgage Insurance Co. recently released its fall 2008 U.S. Market Risk Index report which ranks the nation's 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years. The report shows an increase in foreclosures and unemployment which have significantly heightened the risk of future home price declines.

David Berson, PMI's Chief Economist and Strategist, said, "The risk of future home price declines increased in 94 percent of all 381 MSAs in the country this quarter. The majority of these increases aren't statistically significant, in many cases risk increased by less than ten percent, but risk did increase by a significant amount - as much as 30 percent or more - in some states and MSAs where foreclosures and unemployment increased significantly."

The highest risk of future price declines remains in Fort Lauderdale-Pompano Beach-Deerfield Beach, FL (99.5%), Riverside-San Bernardino-Ontario, CA (99.5%), Orlando-Kissimmee, FL (99.4%), Miami-Miami Beach-Kendall, FL (99.3%), and Tampa-St. Petersberg-Clearwater, FL (99%).

The areas with the lowest risk of price declines (less than one percent) are in Fort Worth-Arlington, TX, Dallas-Plano-Irving, TX, Houston-Sugar Land-Baytown, TX, Austin-Round Rock, TX and San Antonio, TX.

Real estate investment opportunities include high demand areas such as the "old money" neighborhoods of Alamo Heights, Terrell Hills and Rogers Ranch; locations near the South Texas Medical Center, where doctors and nurses are always seeking properties; and regions near military installations, where off-post housing is always in demand.

Because of its central location, warm weather, affordable cost of living and multiple medical centers, empty nesters are attracted to the San Antonio real estate market. In light of the demand for housing, investors might want to pay particular attention to town homes and new retirement community developments.