It’s spring again and it’s fabulous to be in Santa Fe. Lilacs have leafed out despite the winter drought. Farmers in the villages of northern New Mexico will turn and plant the fields, clean the acequias, and the traditional cycle of life continues, attending more to the season than to the clock. The ski basin got snow both early and late in the season, making it a good winter on the mountain.

The Santa Fe area residential market was in a funk as usual in the first quarter. The national economy, going forward, is hard to read. The fed says the overall economy is slowing a little but healthy, and they have gotten pretty good at keeping growth around 2% per year. Nationally the housing market recovery, still well short of pre-recession levels, is slower than the overall economy. But home sales in some areas, including Santa Fe, are recovering more quickly. Home sales averaged about 840 sales each quarter at the top of the boom in 2005-2006. They fell to about 420 sales, and have now recovered to about 520 homes quarterly. The average sale price peaked a year later at about $465,000, then fell to around $380,000, where it has stayed for four years.

A new upward trend in home sales has formed over the last two years and it looks promising. First quarter sales numbers rose from 394 two years ago to 427 last year, and accelerated to 500 sales in the first quarter of 2014. This increasing growth rate is encouraging for two reasons: the accelerating trend, and the fact that first quarter sales have been the steadiest (and most conservative) harbinger of future sales trends. We expect the average quarterly home sales to break above 600, perhaps in the second quarter, but most likely in the third quarter this year. The increase in sales is expected for the upcoming few years, with quarterly sales stronger than the previous year. The market is active and the inventory is seasonally low.

Environmental building codes have pushed building costs up considerably. Last quarter we identified the supportive “double bottom” pattern in the average price chart which supports a new price uptrend. We expect to see prices to begin rising. A little improvement in the national economy would help too.

The average sale price for the first quarter fell to $372,000, down from the preceding 3 quarters but up nicely from the first quarter of 2013, when it was $342,000.  For almost five years the average home price has fluctuated around its current level of approximately $385,000. Going out on the limb a bit, we expect it to rise above $400,000 in the second quarter, with a more robust increase in the third quarter. By this time next year we expect to see prices rising at maybe 10% per year, then moderating as a new trend is set.

Normally, the inventory of homes rises during the second and third quarters and drops in the winter months, and this year is no exception. There were 1,646 residential active listings and 352 contracts pending at the end of March compared to 1,843 active listings and 196 contracts pending on January 1. This represents 12.2 months of houses on the market at current overall sales rates. At the low end of the price spectrum, homes up to $150,000, there is only four months’ supply on the market. At the high end – over $1 million – we have over a one year’s inventory for sale. In the middle price ranges there is between a five-to six- and-a-half month’s supply of houses actively listed or with contracts pending.

During 1999, 2000, and 2001 the number of first-quarter home sales in Santa Fe was fairly constant averaging around 585 sales. At the end of the boom and bust cycle (January 2002 through December, 2009) a new base rate of first quarter sales was established at about 430 sales per quarter, down 27% from the level in 2001.

We really can’t say the market has recovered until we reach the pre-boom/bust level of 585 sales per quarter. We are optimistic that we’ll cross that line in the 2nd or3rd quarter of this year. Then, continuing the seasonal cycle, we’d begin next year with around 550 home sales in the first three months (compared to 500 this year).

The Residential Sales Value chart shows a nice first quarter increase in total dollars spent on Santa Fe homes at $185,776,000, up 27% compared to the first quarter of 2013.

Sales of homes over $1 million fell from the strong sales trend of the previous three quarters dropping from 33 last quarter to 23 this quarter. Still, that’s much better than a year ago when there were only 13 sales over a million.

Inventory of homes over $1 million has dropped. At this time last year, there were 289 homes listed over $1 million.  This year, only 92 homes over $1 million were listed.  Santa Fe is growing and even changing a little, but spring showers and the traditional ceremonies of the Native Americans and the original Hispanic settlers help instill in us a strong connection to this land, its history and its future.

Our thanks to Ed Reid,

author of the Santa Fe Properties Market Report.