July 2009

Every month about this time I sit at my keyboard to write the monthly newsletter you are reading. Each month I gather various stories and bits of information and statistics that I want to incorporate into the letter. And then I read what I intend to rewrite into a clear style and think if only there was some way to make it more positive. I would guess most readers would prefer good news or at least to find that the bad news has faded into the shadows. And I personally would like to write more upbeat news and share more positive information with each of you. But for the umpteenth month in a row, the statistics do not show any measurable improvement in Santa Fe area home sales. Because you are loyal readers and have come to expect certain things from this letter, the usual spreadsheet with a calculated Absorption Rate is attached for your review. Also, as it’s the end of a quarter, a recap of the last nine years of Second Quarter Home Sales is included in this letter. An artistic graph or drawing of the trend lines for the last nine years would look somewhat like an A-frame house, or at least a steeply pitched roof on a Northern New Mexico style home.

So I have summarily dismissed all the news articles I have gathered together in the last 30 days and will not be paraphrasing them in this letter. You have plenty of access to news and opinions and don’t need me to pile on top of the reports about our struggling economy. As for my experience and possibly unique perspective on our area’s real estate market, I have already made predictions and forecasts in earlier letters and can now only wait with each of you for the real estate market to show signs of stability and balance between what buyers want and what sellers need. I called the so-called bottom recently, but who cares? As I said at the time, there will be no noticeable difference for some time. But I cannot pass on this opportunity to mention a collection of articles in the archives of the American Prospect periodical. The website is www.prospect.org and its easy navigating to get to thoughtful articles about the future of credit, the error in valuing material goods over family and health (both for individuals and our planet), the national malaise that good old Jimmy Carter scolded us about so many years ago and why our society should never expect things to return to what they were like five years ago. I just might have to order a subscription! Maybe you are there already?

The last 12 months of residential sales have seen a decline for Santa Fe city and county, with the percentage change from 6-30-08 to 6-30-09 a negative 28%. Selecting year- end total unit sales for the three most previous years, the changes have been a decline of 26% from 12-31-06 to 12-31-07 and then another 25% to 12-31-08. In the chart below, the study of home sales during the Second Quarter for each of the last nine years shows a new low for ‘all prices’ and those ‘homes up to $500,000’. Some of the shifting in the charts reflects the gradually increasing average sales prices of homes here. And some of the shifting is also seasonal, with a typical increase in inventory in the spring and summer. If sales do not show improvement in the next 120 days, we are likely to see numerous homes go off the market and become anything from rentals managed by owners to just bank-owned vacant homes for rodents and weeds. If you do not HAVE TO sell this year, I strongly recommend taking your home off the market for a couple years. This will help bring some balance to the opposing needs of sellers and buyers. If your home is on the market and overpriced, you are either occasionally inconvenienced by showings (honey we have to clean! – there is a showing tomorrow) or you have a tenant that you can’t charge full market rent due to the fact that the home is on the market. And then when you clean and pick up and put away all the folded laundry, you find out the showing was cancelled. It’s just not fun to have a house on the market and have no buyer interest.

SALES – Residential Homes – Santa Fe, NM County and City Second Quarter of Each Year

YEAR

 

ALL PRICES

# of units

 

UP TO $500,000

# of units

 

$500,000-$1MILLION

# of units

 

OVER $1MILLION

# of units

2009

276

198

70

8

2008

350

230

85

35

2007

529

322

164

43

2006

707

473

179

55

2005

721

533

155

33

2004

708

562

119

27

2003

573

476

83

14

2002

612

532

66

14

2001

510

465

41

4

Statistics are from the Santa Fe Association of Realtors and are deemed reliable but not guaranteed. Some transactions are not included.

When you finally get a buyer to write an offer and an earnest money check, they all too often end up terminating the contract. Terminations are, by anecdotal reports, more frequent than they have ever been. It makes you wonder why the buyer went to the trouble. Someone told me the other day of the cocktail party disease about a prospective buyer telling everyone at the party that they are buying a home in Santa Fe. Then they don’t buy it. There are legitimate reasons for a buyer to terminate a purchase agreement, of course. And then there are some that seem to lose interest within about five days. In some states, Arizona for example, buyers have a “free look”. This is typically a 10 day period within which they can review title binders and have physical inspections performed and do loan interviews. If they don’t want to buy after their 10 days, they can walk away without losing earnest money and without getting the seller excited about finding a new place to live. If they choose to go forward, they can put down nonrefundable earnest money and move toward closing. If they fail to close, the seller can keep the earnest money for their costs (and damages?). Many things can go right or wrong, but a seller that moves out prior to closing to accomodate a buyer that doesn’t follow through and close is a very unfortunate person. There should be some compensation for that seller, and who else but the buyer would provide the money?

So much trust is involved in the sale of a home. You may have been there yourself; a seller emotionally drained by having to dismantle their family home and move away from the home where they raised their children, all the while uncertain if the buyer will be approved for their loan. Should a buyer have so much power over a seller’s life? Imagine a world where sellers sell to a “middle man” service company that takes ownership, makes necessary repairs and then puts the home on the market for immediate sale. The homes could be up for auction. That is a form of home selling that has not caught on here. But it has a lot going for it. There is clear separation between buyer and seller in that scenario. Sellers would get less money, but their sale would be certain. Buyers might pay more, but there would not be surprises that would scare them away. They can do all of their due diligence prior to making the offer to purchase. But there should not be a free ride for someone that might just change their mind. That sort of behavior should not be rewarded, I happen to believe.

Soon we will see physical evidence of our fair city’s 400th birthday celebration and have a chance to remember why we live here and wouldn’t dream of living anywhere else. From the International Folk Art Market this weekend to the aspen leaves changing in October to the unplowed streets after a big snowstorm, we can’t trade this place for anything as wonderful, anywhere. So let’s decide to tighten our belts and prepare for some hard work as we try to reduce inventory of homes and find buyers ready to make a decision and stick with it.


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