January 23, 2009

What happened between 2004 and 2006 is that mortgage money became SO easy to obtain, we

"presold" many, first-time home occupying "units." In other words, we prematurely put people

into homes before they were really ready to buy. We repeatedly heard the chant, "you better

hurry up and buy before you are priced out of the market." What then happened is that the frenzy

heated up, prices started moving really quickly and investor/speculators started entering the

market.

What that created was false demand. Who responded? The builders. They stepped up

production and a lot of houses were sold to non-occupants. Finally, the supply of new buyers was

used up, just like when we draw a well down. The well isn't ruined, just exhausted. The listing

inventory of new spec houses rose, the listing inventory of resales rose, and demand decreased.

Naturally what followed was a decrease in price. The average sales price in Albuquerque got as high as

$240,000, and last month for the first time in six years it was under $200,000.

In 2006 there were 6,611 new home permits in greater Albuquerque. In 2007 there were 4,037.

Through the date of this letter, there have been 1,793 permits pulled in 2008! The creation of new

supply is down 72%! That is GOOD! Apartment vacancies are approximately 7%! That too is

good!

In the meantime, there is the slow but constant replenishing of new households through organic

growth as well as some new jobs. I don't believe that an economic stimulus package can replace

the fundamentals of supply and demand. The consumer right now is repaying credit card debt

that they used to "pre-purchase" goods. As they pay off their debt, they will regain an appetite for

consumer goods such as cars, houses, furniture, etc., and the economy will come back. When, of

course, is anybody's guess. For those of us who are lucky enough to live in Albuquerque, I think

we are in the right place at the right time! Whew!

So the big question; Is it a good time to move. Here are 2 scenarios. If you are moving up it is a

fabulous time to buy. For example, a 10% decrease in price on a $500,000 house is $50,000, while a

10% decrease on a $200,000 house is $20,000. It is a great time to buy up. If you are selling a

property to maximize profit/return and not re-buying, it is not a great time to buy.

On a very positive note, now might be a GREAT time to refinance. Rates today are in the mid 5%

range. Find your preferred Coldwell Banker Legacy broker at www.ColdwellBankerLegacy.com to  walk you through

the decision making process.  As far as the housing market is concerned, last month 457 homes went under

\contract in Albuquerque. Not the numbers we hit in 2005, but still, the market is alive!