Tuesday, July 18, 2017

At least once a month, we dedicate a blog to a report on the current state of the Albuquerque area real estate market.

Of course this has made for very pleasant reading in recent times and there's just no sign of a let up any time soon (though no guarantees things will stay as they are, of course).

We therefore thought it might be useful to talk today about what key trends are having such a positive effect on market conditions, the idea being that, especially if you're new to the market, you can quickly gain an understanding of how we've arrived at them. This can be very useful, in terms of developing an appreciation of what a rare set of circumstances we're talking about here.

We will deal with the two key trends in the market at the present time; low inventory of available homes for sale and the continuance of low mortgage rates.

Low Inventory 
Unfortunately there isn't a single reason why inventory has remained so low while demand for homes has been so high. In any usual circumstance, of course, an abundance of highly motivated buyers would equally encourage sellers to list. But this hasn't happened, although it must be said that we are seeing more newcomers at the moment than at the same time last year. While that's encouraging, the underlying issue is that, as demand grows, overall inventory falls further, even with more new entrants. 

On the face of it, this is a wonderful situation for sellers and unquestionably contributes to what we call the sellers' market, the current dominant force in ABQ real estate right now. Reduced competition and more robust asking prices, even offers above asking price, are all key potential benefits of listing right now. 

In reality, however, it's ultimately never a good thing that buyers have a restricted choice. This could cause some home seekers to delay their purchase in the hope that something better will turn up later. That's a big gamble, however, and it seems that the vast majority of buyers are continuing to search, in the knowledge that all other factors, such as the buoyant jobs market, the economy and cheap home loan borrowing, are very much in their favor, further fueling the sellers' market.

As we said earlier, there's no smoking gun that anyone can point to as to why more sellers aren't entering the market when homes are selling so fast. The most likely range of reasons is to do with the horrendous recession we all endured a few years ago. While this is now very much history, there's no doubt that it had a profound effect on the plans of many people, in terms of thoughts of upgrading to a bigger, better property.  

Many homeowners have instead refinanced at lower interest rates and have also made upgrades and improvements to their existing property, such that the traditional cycles of moving home, and motivations to do so, have been at least partially disrupted. Risk aversion has had a much higher profile in recent times and we thus see far more caution exercised than in the past, especially when it comes to life's biggest purchases and let's face it, they don't come bigger for most of us than our own home. 

Many homeowners simply put off moving and have never revisited the option. The irony is that, right now, we have a situation rarely, if ever, experienced before, in terms of the amazing buyer sentiment that's out there.

Like all trends, one day we'll wake up and everyone will suddenly want to sell. That's why it makes sense for sellers to acknowledge the tremendous opportunity that's here at the moment and really cannot sustain forever.

Mortgage Rates
Every time mortgage interest rates have looked like making a significant climb, something has happened to force them back down again. After rising for a couple of weeks, they again ended last week lower, following weaker than expected economic data.

Rates went on a reasonably prolonged upward journey following last November's election result. This progression ended earlier this year, however, when interest in riskier investments, like shares, started to decline for a number of contributing

Without going into great technical detail, suffice it to say that mortgage interest rates are tied to the demand for bonds. Bonds are seen as a safe-haven investment and usually gain in popularity when interest in shares declines. This has the effect of pulling down interest rates and it's a story we've seen playing out again and again in recent years.

Smart buyers fully recognize, however, that mortgage rates have usually been near to historic lows in recent times and that the situation will not, indeed cannot, last indefinitely. We've therefore seen a general rush to buy, informed by the knowledge that locking in a low rate right now will have positive financial repercussions for the life of the home loan. Indeed, we've seen situations this summer where rates have gone on a slight upward rally for a short time, but it's done absolutely nothing to diminish buyer enthusiasm. Every home purchaser these days needs to know that borrowing is so competitive at the moment and, while rates may fluctuate a little over a few weeks, they remain incredibly attractive.

The beauty of these current market trends is that they produce a win-win for both sellers and buyers. Sellers can get better returns, while buyers find borrowing so affordable, enabling them to buy their own home cheaper, in some situations per month, than renting.

It's important to recognize, however, that this is a happy blend of unique circumstances that will not be a permanent fixture of the real estate landscape here in New Mexico, and the nation as a whole. Playing a waiting game for even better times to come is, therefore, introducing more risk into a process that currently seems to be a good fit for just about everyone.

Why not contact us today and make the most of it!


Juan RomeroJuan Romero
Investing in your Future!