Thursday, January 21, 2010

Albuquerque real estate stats that you can use!

Well, 2009 is over. What does that mean? For the Albuquerque residential real estate market, there are some very positive signs that we have hit bottom. There are some who are suggesting that there may be a “double bottom” but that remains to be seen. The last five years. Here are some numbers that might be encouraging. Let’s go back to the peak, which was 2005. There were a total of 13, 448 closed single family detached resale homes that year. In 2008 there were 8,144 closings. That is a 39.44% decrease over 3 years. There were 7,905 closings this year! While still a decrease, that is only -3.08% from last year. August 2005 had 1,267 closings, which was the highest number of resale closings in one month ever in Albuquerque! From that month on there was a steady but gradual decrease, month by month, until November of 2007 when the bottom fell out. Every month of the following year starting August 2005 had fewer closings than the past year for 46 straight months! In January of 2009, we had 324 closings in the entire Board. To put that in perspective, it was the lowest number of closings in a single month since 1995. February of 2009 was no better. The severity of that number is compounded when we remember that the population of Albuquerque is around 835,000 now as compared to 1995 when there were about 550,000 people here in town. It turned in 2009…just a little! So then what happened? Slowly things started to pick up. Some people say that the first-time home buyer credit artificially moved the market. That may be part of it, but in any event, finally after 46 straight months of decline, in July of 2009, there were more closings than the same month in the past year. Since then, 5 of the last 6 months have been up over 2008! Total single family closings in the metro area in 2007 were 10,961; as I mentioned above, in 2008 there were 8,144 and in 2009 there were 7,905. While slightly below 2008, the monthly trend is on an upswing. While I do not believe we can identify the bottom in terms of months, as I said above, January and February of 2009 were record setting low. The increase in closings over the last 6 months is the first good sign! The second good sign, is a significant decrease in supply. The listing inventory has decreased from over 5,821 single family homes on the market in December of 2008 to 5,176 single family homes on the market in December 2009. That is an 11.08% decrease in the inventory. Are we really at the bottom? One way cycles can be identified is to look at annual rates of appreciation or depreciation. The Board of Realtors has been keeping track of those annual numbers since 1983. In 1988 there was a -2.06% depreciation in average price from the year before. In 2000 there was a -0.16% depreciation which was the first negative year since 1988. In 1993, five years after the negative number in 1988, there was a 9.38% appreciation compared to the prior year. That was the highest rate of annual appreciation between 1988 and 2000, which would indicate the top of the cycle. Bottom to bottom of that cycle was 12 years. From 2000, the bottom, we had 5 years to the top of the next cycle which was 2005 with a 12.06% appreciation Unlike the prior cycle, we had a sharp drop in 2008 with a -4.08% depreciation, from $243,089 to $232,626 - the highest average price decrease since the Board of Realtors has been keeping track! In 2009, for the first time ever we had a second year with a precipitous decrease in average price. We ended the year with an average price of $216,687 which is a-6.85% decrease from $232,626! First time ever that there have been two years in a row of price decreases. This is the third good sign because lower prices mean increased affordability. Now, as to demand. Population growth is everything where demand is concerned. Whether by job expansion, immigration or the creation of “organic buying entities” (young adults get a job, move away from home and buy their first house), these factors drive new construction. In 2006 there were 6,611 new home building permits in greater Albuquerque. In 2007 there were 4,037. Only 1,874 permits were issued in 2008 and in 2009 only 1,669 were issued. While that is a devastating statistic for the builders, many of whom either left Albuquerque entirely or were forced to shut down their operations, it means that very few new homes were put into supply. Providing there is any growth in the number of buyers for homes, that will help continue to absorb the supply, which is what we are seeing. What’s all this talk about a “double bottom”? The final talk of worry on the street is the predicted wave of foreclosures as a result of the Adjustable Rate Mortgages adjusting to higher payments causing additional defaults. Here is one possible scenario, if the prediction even comes to pass. Anybody who loses a home in foreclosure will have to move somewhere after they lose their house. Their options are a few; leave town, move in with friends or parents, or rent until their credit and cash is restored. The most likely scenario as I see it is the rent option, either into a house or an apartment. As the demand increases for rentals, investors will likely respond to that demand, purchasing the foreclosures and providing homes to rent. In this scenario, the homes that come on the market will be absorbed and prices will not fall because the purchase demand from investors will sustain. Here is the prediction…with a grain of salt or two. To recap, decreasing supply, an increase in pendings and closings, a decrease in prices which improves affordability, very low interest rates and the lowest new home construction rate in years all point to the beginning of a recovery for the Albuquerque residential resale market. How fast and how soon? The first year after the bottom in the last two cycles has seen about a 1.6% appreciation. Don’t expect a rebound to old prices for a few years, but, hopefully, a steady climb out of the bottom! Happy 2010!
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