December 2008

When all else around you seems to be sliding downhill, it can be a challenge to keep climbing and looking upwards. This is assuming you would prefer the top of the hill instead of the bottom of the mudslide. Did anyone listen when the wise economists in distant lands predicted the bursting of the housing bubble would lead to widespread economic woes and financial ruin for so many? Apparently not, and now they are coming out in various periodicals and writing books telling us they told us so. It might make us feel a little better to know that the mess we are in was predictable, yet we fell in love with high flying real estate markets and we just had to push the edge and ignore that sage advice.

This issue includes, as always, a table of statistics I call Absorption Rates. This is specific to the county of Santa Fe, NM and to residential homes (single family, condos and townhomes). We are now seeing the numbers slide a little further downhill as we enter the winter season, when sales usually slow down. Inventory has come down a little also, keeping the calculations on the attached table from looking seriously worse. The right side column, # of months to absorb inventory shows a slight increase in the last month, but the changes are very small and there is a remarkable consistency to this year’s numbers. Beginning about April 2008, we entered the range of average time to sell we remain in. In all price ranges, the number of months it would take to sell all homes listed for sale is between 15 and 19. This is arrived at by comparison of sales during the most recent 12 month period and the number of homes listed for sale. I calculate the average number of homes sold per month and divide into the inventory figure to solve for the absorption rate. There are other ways to measure our market performance. I happen to believe that this calculation is the most important statistic we can generate right now. Inventory is still too high.

Our area’s Realtor organization (SFAR) manages a comprehensive database of sold data and listed property. A commonly used number in that database is called Days On Market (DOM). The weakness of that number is that it only shows days for the listed or sold property for the current listing agreement with one Realtor brokerage. If 123 Main Street was listed for 156 days by XYZ Realty, there may be a previous listing of the same property that didn’t sell during that prior listing term. Thus a specific property might have been listed for 365 days plus the new/current listing of 156 days (total of 521) which works out to approximately 17 months. Are you selling a home in Santa Fe right now? You can place your home in the top 10 or 20% by doing all those things your Realtor advises; fix anything that needs fixing, paint, restucco, reroof, clean daily, remove all the clutter, and yes, don’t forget to lower the price to the lower end of the range for your home. Or you could stay in the middle or toward the top of the pack and leave the home in average condition, keeping the price up there where it would take an unusual buyer to agree to pay that much. Buyers are looking at more than one home when they shop and they usually figure out which home is the best buy. If you are not willing to move the price into the range of what is selling, why is it listed for sale at all? You might not really want to sell, or maybe don’t care when and if it sells. Maybe taking it off the market and finding a tenant would be a better strategy at this time. There is no mystery on pricing a home. Study the comparable recent sales and price yours below the one down the street that has been sitting there with a for sale sign for many months. Your listing agent will do the research for you. Listen carefully when they share facts about recent sales of similar properties.

In a wider scope, Santa Fe has escaped the largest price drops and foreclosure wildfires that many other markets are dealing with. Truly we did not enjoy 20 to 40 % annual appreciation during the early part of this decade (a false promise for those that banked on that continuing), so we are now seeing a moderate amount of price cutting and a reasonable number of foreclosures. But they are out there nonetheless. Foreclosures are at a record high for historical data almost everywhere. You probably know someone that is 60 or 90 days past due on their mortgage (not to mention other bills) or has been laid off from their gainful employment. They might be too proud or too ashamed to tell you, but you likely know at least one person living with the effects of this economic nightmare we are in. The October issue of this letter went into some detail about the costs of the real estate slowdown to our local economy. An educated guess of 32 million was tossed around. That was a conservative figure, measuring the annual decrease in money flowing through our local economy due to the direct effect on Realtors, surveyors, mortgage loan officers, home inspectors, appraisers and title insurance employees. But that only tells part of the story. What about the reduction in gross receipts taxes? What about the reduction in business in all the shops, restaurants, stores and service providers? Are you finding yourself cutting back on what you spend and how much you drive? Cheaper gas makes commutes easier but if you don’t have the discretionary income to spend as before, you might be eating at home and watching TV instead of attending local performance art and dining out. NetFlix could be your favorite pen pal.

The non-profit organizations in and around Santa Fe must be feeling it too. Most non-profit organizations rely on your support by checks you write or time you spend volunteering or pitching in. Charitable foundations rely on interest earned on investments to fund their donations and gifts, and those earnings are certainly sharply reduced from previous years. Early next year we could have shocking news on how much less these groups have been able to bring in during 2008, with only 3 weeks left. The trickle down has stopped trickling for many.

We are almost completely a service economy these days. Does anyone know anyone that works at manufacturing products? How many farmers do we really know? Nearly all of us provide a service for others, and as money flow decreases, some services are found to be less important, such as dry cleaning, frequent haircuts and the coffee kiosk special triple decaf latte. Yet other services that provide essential support for the less fortunate are growing in need. And the number of those less fortunate is increasing right now.

Why does that concern us? Obviously you will draw your own conclusions about what it means. I am convinced that the troubled times we are in require us to pay attention to more than just our own personal situation. Financial security, a healthy living environment and opportunities for our children just might rank near the top of whatever you are hoping for in the future. Then I guess the next (multi-part) question is; what are we doing to increase our financial security, to improve the health of the world we live in and how can we create positive opportunities for our children and grandchildren?  But Alan, you might say, I thought this was a newsletter about the Santa Fe real estate market? Indeed it is. That subject is intertwined with everything we do. As the real estate market in Santa Fe has changed from its prior role as an ATM machine for many, the effect of much less money circulating through our economy has a major influence on many who have nothing to do with real estate and related businesses.

Again, why does that concern us? I submit that if only a small percentage are thriving and making money right now, it’s an empty victory when so many others are barely able to stay current with costs for essentials like housing, food, childcare, medicine and insurance. So we cannot celebrate your success today if you have only done a wonderful job of providing just for yourself. Let us praise and support those working toward solutions that do the greatest good for the most people, rather than those finding ways to further line their own pockets. We are in the season when we are asked what we are most thankful for and when evolving tradition has us spending enormous amounts of money to purchase gifts that often mean almost nothing. And it may be a very difficult holiday season for many that are now learning how to save and conserve and get by with less. When all else around you seems to be sliding downhill, it can be a challenge to keep climbing and looking upwards. Let us accept the challenge today.

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