Little changes in and around Santa Fe make it feel different than a year ago. Packard’s is gone after many years of selling fine Native American handcrafts on the Plaza. Lucesse has moved its fine boot shop to the Plaza. The Railyard is ever more vibrant with the opening of Op Cit bookstore, the renovated Jean Cocteau theater screening an eclectic collection of films ranging from “Roberta”… a delightful 1935 film with fabulous dancing by Fred Astaire and Ginger Rodgers, and a score by Jerome Kern… to “Game of Thrones,” the series written by the theater’s new owner George RR Martin.

The Christmas season is always special here with the Native American dances and Posadas from traditional cultures anchoring seasonal celebrations. Farolitos light the plazas and byways, and the beautiful voices of the Desert Chorale in concert reverberate through the St. Francis Cathedral. Snow fell early, and skiers hit the lifts before Thanksgiving, and all runs are still open, though December was dry.

Home sales were fairly strong with 555 closings, more than in any fourth quarter since 2006. The average home price held just above $400,000 where it has been since a year ago. The available inventory of homes for sale is about average, just above 2000 homes, or about 11 months’ supply at the current pace of sales. This is down from nearly 45 months’ supply in the 4th quarter of 2008.

The St. Louis Federal Reserve president recently forecast a 3.2% growth in the U.S. economy in 2014. That is a modest rise, but many business and household budgets are still tight, so slower growth seems quite possible. We expect mortgage loan rates to remain near current levels.

The wavy red trend line on the Quarterly Residential Sales chart illustrates the typical annual cycle of sales in nearly every year since 1992. The peaks (the 3rd quarter) and valleys (often the 1st quarter) are smoothed out, resulting measure a good gauge of past sales trends, and the best tool for forecasting future sales. The red sales trend line has risen in the past two years by about 120 sales per quarter, an increase of 12.5% per year. Home sales turned upward in the last half of 2011 and we expect it to continue through 2014.

The Average Home Price chart rises from $369,000 in the first quarter of 2012 smoothly up and holds at just above $400,000 through 2013, except of course for the crash during the “fiscal cliff ” in the first quarter which made discretionary buyers fearful. Average prices last January were lower than any month since January 2004 when our monthly records begin. Without the “fiscal cliff ” drama, the red trend line for Average Home Price would be above $400,000 instead of at $385,000 as it is now. Let’s assume that the sharp first quarter drop in the average home price was caused by a synthetic, one-time political adventure. The “fiscal cliff ” was a significant setback in prices, but not indicative of the underlying dynamics of our market.

A supportive “double bottom” pattern would be apparent in the chart, with recent home price averages dipping twice below $400,000 then recovering. Santa Fe home prices have completed a solid base, and a new uptrend will ensue. A year ago, Case-Schiller (a Standard & Poors real estate advisory service) forecast five years of price increases at 8.7% annually. That looks possible for 2014. After that we expect the average price to taper off to 7.5%.

The Residential Sales Value chart ($mm sales per quarter) shows the 1st quarter effect of the “fiscal cliff ” and the rebound to $264mm, the best sales level since 2007. In the fourth quarter of 2013, the Southwest part of the city (Area 4N and 4S) accounted for the most sales with 97 totaling $22.6 mm. The Southeast quadrant of the City (south of Alameda and East of St Francis), was next with 76 sales, and a total $41.5 mm. Both the Southeast and Northeast quadrants recorded 8 sales over $1 mm.

The developments Northwest of the city limits ($20.1mm total), excluding Las Campanas, did well with 30 sales, four over $1mm. Las Campanas was strong with 14 sales and 5 over $1mm. Las Campanas would have had the highest average price ($1mm) except for one sale, at $7mm, of a stunning estate near Eaves Ranch in moderate priced Turquoise Trail which made Area 11 the surprising average price leader. So the market is healthy in Santa Fe, and seasonally reduced demand makes it a good time to buy. Inventory is adequate, and prices are likely to head up from here.

The third quarter of 2014 will see more homes to the market, more buyers in town, and higher prices. By then, the Opera will be in full voice, the new Violet Crown theater complex will be ready to open in the Railyard. For now, the sunny winter streets are calm, shopkeepers are friendly, and most restaurants can seat you with no reservation.

Our thanks to Ed Reid, 

author of the Santa Fe Properties Market Report.