Is This Market Bouncing Back or What?

The Santa Fe New Mexican

“Many buyers with long-term expectations are getting exceptional value in the current market,” National Association of Realtors president Richard Gaylord said in a recent NAR survey. “Once the inventory is drawn down, price pressure will return because the costs of construction are rising — today’s buyers are very well positioned to build wealth over time.”

Regarding inventory, the absorption rate for homes on the market “is the most important statistic to report right now,” says Santa Fe Realtor Alan Ball in an Aug. 15 report on the residential market. “As we are in mid summer (historically peak season is July through October), the latest trend lines show the excess inventory staying high or growing while sales are not sufficient… to bring down the length of time a home will take to finally sell.”

A chart accompanying the report shows that, between Dec. 31, 2006, and July 31, 2008, the number of listed homes steadily rose from 1,636 to 2,311 (up 41 percent). The estimate for the amount of time needed to absorb existing inventory ranges from 14 months for homes priced up to $500,000 to more than three years for homes priced above $1 million (of which there were 422 on July 31).

Darci Burson, qualifying broker for Sotheby’s International Realty, says in an Aug. 1 “State of the Market” report that buyers “continue to be in the driver’s seat with plenty of inventory to choose from in virtually all price ranges… Regardless of price point, we find that when a property offers a compelling value propostion, buyers tend to come out of the woodwork.”

Ball says the sale of 1,478 homes during the past 12 months is “nothing to sneeze at,” and noted that a glance at the housing markets in California, Florida, Arizona, or Michigan should provide some solace to local sellers.

“I think it is OK to be optimistic and still acknowledge the seemingly endless downward trends we have been working through for going on two years,” Ball said.

The number of homes and apartments being built across the United States sank in July to the lowest level in more than 17 years, according to the U.S. Commerce Department. The number of new homes under construction in July was down by more than 39 percent compared with July 2007.

As sales slump, realty companies tend to trim down. The number of Realtors in the Santa Fe Association of Realtors has declined 7.6 percent during the past year: from 1,142 in August 2007 to 1,055 last month.

Most of the realty firms in Santa Fe have seen staff reductions of 15 to 35 percent since early 2007. The few companies that have grown during the period include Exit Santa Fe Real Estate, which has increased from 14 to 18 agents; and Santa Fe Realty Partners, which has grown from 20 agents to more than 65 — including eight who moved over from Prudential Santa Fe Real Estate and 15 who previously worked at the Santa Fe office of Sotheby’s.

Sotheby’s has consolidated operations from a peak of six locations two years ago to three today. One of the closed offices, last fall, was in the large Eldorado subdivision, which is practically built-out. Coldwell Banker Trails West Realty closed its Eldorado office in January 2006 and is now in the process of dropping its three-year-old Guadalupe Street office.

Santa Fe Properties has about a dozen fewer active brokers than last year. “Some of those brokers have become what we call ‘referral brokers,’ those who have been in the business a while and decided they’re going to retire or travel,” said Liz Cale, principal broker at Santa Fe Properties. “And some people have decided they need to get a steady job. I can tell you both Santa Fe Properties and Sothebys disbanded their new-agent divisions last year because we knew we were getting into a challenging market and we wanted to really focus on our business with our full-time, experienced brokers.”

Although none of the brokers interviewed believes Santa Fe is suffering from a dramatic increase in foreclosures, as are many areas of the country, all but cash buyers have been affected by the sagging mortgage market. “From week to week, the criteria for loans get stricter, so that kind of alarms potential buyers,” Cale said, but added that the rich inventory and continuing, historically low interest rates make the current scene “really a buyer’s opportunity.”

Working against that are the facts that some potential buyers are experiencing liquidity problems because they can’t sell their existing homes, and that the feeling of uncertainty in a major election year can spill over into the real-estate arena, making potential buyers more nervous.

“I think there are a lot of buyers in town, and some are waiting to see what’s going to happen,” she said. “Some feel like there still will be price adjustments, but if the broker is really educating clients about the market, those clients will already have adjusted their prices.”

Overall, Cale was optimistic about a resurgence of the local real-estate market in the near future. So was Fulton Murray, chairman and qualifying broker at Prudential Santa Fe Real Estate. “I would say the last several weeks have been very encouraging,” he said. “Hopefully we’ll get back into more of a normal market soon.”

But Richard Mares of Mares Realty hasn’t seen any kind of improvement yet. “I have a lot of friends in the industry who say they’re still struggling like Holy Toledo,” he said. “The funny part about it all, in this market… we’ve been here before, but people in Santa Fe don’t catch on that the market has moved in the other direction and they need to price their properties correctly. My experience is that if you price something smartly, it is going to sell.

“I think there are as many buyers today as there were yesterday,” Mares said. “It’s just that the buyers are waiting for the sellers to reduce their prices, and sellers are waiting for the buyers to walk up to the price, and that’s where real-estate agents come in. The problem is that we’re still listening to the seller and not having the courage to tell him up front, ‘The market’s not going to do that for you.’ We’re still doing what we did when the market was hot: taking listings over price, knowingly.”

While inventory levels are high at all price levels in the Santa Fe area, high-end sales have been strong, and prices in some of the more affluent areas keep climbing.

Overall, the combined city-county median home price was $412,500 in the second quarter, down 8.3 percent from a year ago. For comparison, the median existing, single-family home price in the western United States was $290,600 in the second quarter, which is 17.4 percent below the second quarter of 2007. Prices fell nearly 25 percent in Phoenix and Las Vegas, and almost 30 percent in Los Angeles.

“I think the most important thing for people to realize is that real estate is very regional and the national news is not necessarily going to be true in Santa Fe,” said Chuck McKinley of Coldwell Banker Trails West Realty. “We do rely on feeder markets and so we rely on people being able to sell their homes in other parts of the country, but I think it’s going to be healthier. We were at kind of a crazy growth pace and that’s not necessarily healthy.”

McKinley said he thinks the market appears to be coming back. “The pendings have increased somewhat and showings have increased quite a bit, which of course is the first sign, so it feels much stronger than it was three months, six months ago.”