The Perfect Storm
There is nothing in Santa Fe as hot as the real estate market. Record median home prices continue to make headlines. Absorption rates, a once esoteric topic, are now commonly discussed as inventory dips. Multiple offers on new listings may have you asking what the heck is going on. The spike in home prices has several causes, and in some ways, it’s the perfect storm. Straight from storm center, here is what we can tell you.
The first part of the storm dates back 13 years to the Great Recession in 2008, when the financial market crashed. At that time, new home construction was outpacing demand and the market was oversupplied. The resulting crash put many builders out of business and new home starts went from 1.7 million down to 500,000 a year. Housing economists estimate that 1.5 million new homes are needed every year to keep up with population growth, but home construction stayed under that benchmark right up until the pandemic hit last year. Here in Santa Fe local homebuilders were building just over 1,000 homes a year prior to the crash, and that fell to just a couple hundred.
The rising cost of building material is another aspect of the storm. The last administration got tangled up in price wars and tariffs, and commodity markets like lumber started to rise. When the pandemic struck and a global shutdown ensued, commodity markets again panicked. Further, labor shortages combined with a construction boom have created a supply chain boondoggle which is hampering many aspects of the building process. It is estimated that the rising cost of lumber alone has contributed an additional $34,000 to the cost of each new home.
So, the housing shortage is a national crisis and every state in the country is experiencing something like what we have going on here. Desirable parts of the country are seeing even further pressure as the “work from home” phenomenon is allowing people in urban areas to relocate to places like Santa Fe while keeping their urban jobs.
This is the final part of the storm. When somebody sells their modest home in Silicon Valley for $1.8 million and buys a comparable home in Santa Fe for $500,000, it seems like the deal of a lifetime and they are willing to outbid all other buyers to get it.
Navigating this market is tricky. Sellers in this market have it easy. The hard part is determining which of all the offers is the best. We have been creating offer analysis sheets to our clients, laying out the strengths and weaknesses of each offer, with various terms, conditions, escalation clauses and such.
The highest price is not necessarily the best offer. If you are buying in this market its best to have a good plan and build your team. Have an experienced real estate agent and mortgage broker. And be prepared for a little heartache but know that there will always be another home entering the marketplace. With patience and fortitude, you will be rewarded.
Roger and Melissa have a combined 37 years selling real estate in Santa Fe. Melissa was president of the Santa Fe Association of Realtors in 2017 and Roger is the current SFAR president. They are happy to help with all your real estate needs and can be reached at 505-699-3112 or email@example.com, or visit them online at santaferealestateconsultant.com.