In contrast to the discouraging sound bytes from the Rust Belt, Florida, and California (the states where foreclosures a generally the highest), price corrections for Santa Fe real estate moved in orderly fashion for the first quarter of 2008, with little signs of panic or jarring dislocation. An April 6 New York Times article cited Santa Fe (and Albuquerque) with less than a six percent default rate on subprime loans, compared to cities like Fort Meyers, Florida, or Modesto, California, with up to 25% subprime defaults. Santa Fe bankers report the number of builders and developers who have defaulted on loans is higher than normal, but while REO’s (Real Estate Owned) on bank books are of some concern, buyers are beginning to step up and take advantage of discounts.
Comparing first quarter 08 with first quarter 07, the median price of a Santa Fe home or condo in the city dropped 15% to $301,500 from $354,125. (“Median” price means as many homes sold above that benchmark as below it.) In the county, which includes Las Campanas, Sierra del Norte, and other high-end neighborhoods, the median price dipped to $480,000 from $517,000, a seven percent fall. In Eldorado, a 5,000 resident community anchoring the county on the southeast, unit sales dropped to 21 from 29, and the median price to $349,000 from $411,000.
Altogether, prices are now closing in on 2005 levels.
For the first quarter 08, 138 homes sold in the city and 103 in the county, compared to 142 and 155, respectively, for first quarter 07. Separately, condos and town homes, city and county, experienced the biggest decline, from 85 units to 61, a 28% differential. The median price adjusted to $230,000 from $311,250.
Assuming a seasonal pick up, it’s not unreasonable to predict total sales for 08 will be in the range of 1,400 to 1,600 units. This would compare to peak years of well over 2,000 units.
As prices keep adjusting, “days on the market”—the period of time between listing and closing—are still climbing for many neighborhoods from a year ago. However, according to the Santa Fe Association of Realtors, the ratio of closing price to asking price has narrowed dramatically in the last three months: from 76 percent in January, to 88 percent in February, to 97 percent in March. When homes sell so close to their asking price, pricing has become more competitive and markets are finding their equilibrium.
Are there some conclusions or at least hypotheses to draw about the Santa Fe market from this sampling of statistics?
- Slower sales in 08 may correlate as much to a lack of liquidity and stricter lending requirements as to a scarcity of buyers, either waiting for prices to come down further or for their homes to sell.
- A number of Realtors report that sales, unlike the bull market of 2003-2006, are driven more by locals changing neighborhoods than by out-of-state buyers. Until the latter perform at historical percentages (around fifty percent, depending on price tier), the market is not in a fully recovered state.
- While re-financing activity in Santa Fe is relatively strong due to mortgage resets, lenders and regulators, getting tough on no-doc or stated income loans (they arguably no longer exist), present a significant obstacle to first-time home buyers.
- Many Realtors report buyers paying all cash, both to drive a harder bargain with sellers and to avoid hassles with lenders.
- In the early 1980s, when Fed Chairman Paul Volker was fighting inflation by raising interest rates, institutional mortgages were costing buyers as much as fifteen percent interest. This resulted in a wave of seller financing at more attractive rates. If the lending/liquidity crisis continues into 09, it wouldn’t be a surprise if a new wave of seller financing helped reduce inventory and stimulate the market.
- If the U.S. economy is truly in a deleveraging cycle, as some economists believe, a credit-induced contraction will affect far more than housing, and it’s quite impossible to predict where prices will ultimately reset. At the moment, however, depending on the region, many economists feel that a retrenchment to 2005 price levels represents a housing bottom, which is exactly where Santa Fe is.
