Monday, July 30, 2007

Home Prices Aren't Falling in Saturated Market

By Autumn Gray Copyright © 2007 Albuquerque Journal; Assistant Business Editor Patrick King started helping his brother look for his first home at the end of summer 2006. Their price range: $100,000 to $130,000. Their luck? They found one and only one in the Albuquerque metro area "that wasn't a total dump" after looking for almost a year, King said. The Kings' story flies in the face of recent headlines declaring that home sales are down, inventory is high, and buyers have the upper hand. In the Albuquerque metro area, the number of homes for sale is record-breaking. But, as the Kings and others like them are discovering, inventory and slow sales aren't pulling prices down— especially for entry-level homes. The Kings eventually found a 940-square-foot house, which they bought for $126,500. "We felt like we had to act quickly because things like that just don't stay on the market long," said King, who was acting on behalf of his brother, Michael, the head custodian at a West Side elementary school. He said most of the homes in that price range needed serious work. The one they bought is "way out in Rio Rancho— one of the early houses (about 20 years old) built out there by AMREP." It's really hard to find anything in the $150,000 range, and anything under $150,000 is very scarce. You're going to be looking at condos and townhomes. Albuquerque's oversupply of homes tends to appear in the $200,000 to $300,000 range. And houses priced at $1 million or more are also not moving. Those buyers "have dried up a lot.” Record listings The Albuquerque Metropolitan Board of Realtors reported a record 6,189 listings of resale attached and detached single-family homes as of mid-July. Throw in those that are for sale by owner or new and being sold by builders, and there's even more. That shatters the previous record set in August 1999, when existing home inventory stood at 5,310. Despite the number on the market, average and median home sales prices are getting more expensive by the month. That's "a direct result from (Hurricane) Katrina and its fallout," says David Murphy, publisher of SalesTraq of New Mexico, a subscription-only real estate database. "It was a natural disaster that was a breaking mechanism for the boom. It slowed down speculative buying." Katrina hit in August 2005, when the national and local housing market was going gangbusters. Home builders had been selling on paper a massive amount of homes at a record pace, sometimes getting contracts on five to 10 homes from a single individual wanting investment properties. But when the hurricane struck, material costs went through the roof and labor became scarce. Projects got delayed. By the time construction was completed on many of these pre-ordered homes, some investors had backed out leaving builders with more property than they could move. Others tried to rent them come 2006 but couldn't after a year of trying and were forced to sell. By then, interest rates began hovering around 6 percent, up from lows near 5.25 percent, and they've continued to climb to around 6.75 percent this year. Bucking the trend In such a saturated market, economic laws would expect prices to fall, like they have nationwide. Nationally, the median home price is down 1.4 percent from a year ago to $218,000, according to the National Association of Realtors. But in the Albuquerque metro area, the median price (the price at which half the homes were sold above and below) has risen $3,000 since April to $201,500 in June. Median prices are up $11,000 since January and are about $16,000 higher than a year ago when 3,602 resale homes— just more than half the number today— were on the market. Average prices, too, jumped from $243,023 in April to $254,298 by the end of last month. That's $15,000 more than last year, according to AMBR. One reason for the higher price is that the housing being built here has changed to appeal to more expensive tastes. That means the escalation of overall prices is as much a reflection of a shift in what's being built as it is on appreciation of existing homes. With granite countertops, intricate tilework, appliance packages and greater attention to interior architectural detailing now standard in many homes, base prices are increasing, pushing up the metro's prices as a whole. "Homes in general have become more high-end in the Albuquerque area," Murphy says. Drive through Albuquerque, Rio Rancho, Los Lunas and Bernalillo, and you're seeing a trend toward more expensive subdivisions and more expensive homes. "Don't get the idea that we're in some super-hot appreciation market, because we're not," he says. You don't have to be too observant to notice homes languishing for months, their sales prices being slashed $5,000, $10,000, even $25,000, depending on the amount of time listed and the location. As always, some neighborhoods are selling more quickly and at higher prices than others. Realtors say many sellers simply priced their homes too high, basing the list price on appreciation they expected after seeing prices skyrocket in 2005. "A lot of sellers are that way, and lot of them are a victim of the amount of money they borrowed (when they bought during the boom) and can't afford to go to market levels," Coldwell Banker's Lee said. Custom features The trend toward high-dollar development started with the custom builders. The Home Builders Association of Central New Mexico's annual Parade of Homes has seen a rise in its million dollar and multimillion dollar mansions annually. Meanwhile, the majority of Albuquerque residents have relied on production builders for real houses at "regular" prices. But that, too, is changing. Even production companies popular with first-time home buyers appear to going more upscale. Take KB Home. It entered the luxury market locally this year for the first time with its Montecito Estates subdivision on the northwest mesa. With home prices starting in the mid-$200s and on up to the high $300s, the community is a departure for the company, known for catering to first-time home buyers. Spokeswoman Elisabeth Monaghan has called the homes "custom production" because options once considered custom— three-car garages, private courtyards, high-end appliances, raised-panel oak cabinets— are standard in some of the plans. Upgrades go a step further with cherry cabinetry, entryway medallions on the floor and home theaters. Monaghan says it's reflective of a demographic shift locally that includes more empty-nesters, more move-up buyers and more transplants. Joe LaMendola, vice president of sales and marketing at Centex Homes, says his company is seeing the same trend. "On the traditional Albuquerquean's wage, people can't afford to buy homes. "The people who are able to afford homes are coming from other places. They're coming to work at the Eclipses and places like that, with pockets full of money from appreciation on their homes elsewhere." Meanwhile, the price of entry-level homes of today have increased dramatically. As of July 20, the lowest price for a new home in Albuquerque was $121,490, and that was for 950 square feet on the Southwest Mesa, according to SalesTraq. That equates to $127 per square foot. In 2003, the lowest price was $80,000. In Rio Rancho, the bottom barrel price for a new home is $157,990. That buys 1,294 square feet, SalesTraq numbers show. Four years ago, the lowest priced new home cost $86,000. "Albuquerque has been less expensive (than Rio Rancho) for new homes in the past 24 months," Murphy said, adding that the first-time home buyer is going to find the best prices on the Southwest Mesa, where resale homes can still be found for less than $100,000. Michaela Trujillo, a teacher at Mountain View Elementary and recent first-time home buyer, said it was easy to get a lot of home on the Southwest Mesa near her price point of $200,000. The 24-year-old just closed on a four-bedroom, 2 1/2-bath Centex house totaling 2,700 square feet. It's in the new Anderson Hills subdivision on the Southwest Mesa, and she paid $215,000. Meanwhile, a comparable new home in the far Northeast Heights would be more than double that and possibly triple. As for the Albuquerque metro area as a whole, predictions are positive, with most in the industry expecting demand for housing to increase in 2008 and for prices to level off initially and then recover. "Barring a calamity, we will weather the (national) storm," Lee said. "We've never had any protracted time of price decline, ... in the last 30 years for sure." In short, says Hardison: "We're gonna be fine." By the Numbers • Prices on entry-level homes have increased as much as 80 percent in just the past four years. These reflect the lowest available costs for a new, single-family home. • While national home sales hit a five-month low in June, the number of sales in the Albuquerque area increased over the same period. However, this year overall is seeing a decrease in homes sold compared with previous years, when significantly fewer houses were on the market. Albuquerque Metropolitan Board of Realtors statistics show 1,011 homes sold last month; 1,248 sold in June 2006; 1,295 sold in June 2005; and 1,157 sold in June 2004. • The Albuquerque metropolitan area ranked 128th in affordability out of 219 cities for the first quarter of 2007. Statistics show the area has become more expensive comparatively since about 2005, after about a decade of relative affordability. • Realtors say the average time a home sits on the market is between two and three months, with those in the Northeast Heights selling faster than those on the West Side.

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