• Feb 12, 2017 Decreasing supply could spur rise in home prices
    Gary Sandler
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    Published 12 February 2017

    The law of supply and demand is quite simple: Prices rise when demand outpaces supply, decline when there’s an oversupply, and remain stable when the quantity of the commodity, product or service desired is equal to the quantity available. Demand for real estate certainly waned following the collapse of the housing market in 2007, as a plethora of foreclosures and new regulations infected the marketplace.

    It wasn’t until 2012 that the housing market began to recover in earnest, for most of the country. I say for most of the country because New Mexico’s recovery took a bit of a different track. The average Las Cruces area new-home price peaked at $252,208 in 2006 before bottoming-out at $177,211 in 2012, according to data pulled from the archives of the Las Cruces Association of Realtors on Feb. 6. The average price then rose incrementally until reaching $201,459 in 2016.

    The average Las Cruces-area existing-home price peaked at $210,438 in 2008, then steadily declined to $171,820 by 2014. Since then it has risen just $4,343, or 2.5 percent, to $176,163. By my fuzzy math, that’s an average appreciation rate of 1.25 percent over each of the past two years. But local market indicators say that things are about to change. That change is being fueled by a shortage of inventory, meaning that there aren’t enough good homes for sale to satisfy the number of buyers wishing to buy them – especially in the $300,000 and under categories.

    Our inventory, which consisted of 1,027 new and existing homes, townhomes and condominiums in January of 2012, now stands at just 724 units. As the number of listings have steadily declined over the years, the number of buyers in the marketplace have steadily increased. Sales rose by an average of 76-units per year during the 2012 to 2014 timeframe before jumping by 202-units between 2015 and 2016, when 1,687 properties changed hands. Are you beginning to see the problem? Duane Jokinen, local Realtor and managing broker at Steinborn Inc., Realtors certainly does. “Bidding activity is definitely increasing”, said Jokinen.

    The percentage of buyers who paid at or above the asking price for their homes is another indicator that prices are on the rise. In the resale market, those buyers were responsible for 21.9 percent of the sales last July, with more than a quarter of them paying an average of $2,475 above the asking price. Fast forward to December, when 25.8 percent of buyers paid the asking price, or more, with 61.9 percent of them paying an average of $2,700 above sticker.

    The data also revealed that in January of 2016, sellers received an average of 95.9 percent of their asking prices. Today, they’re realizing 96.6% – a half-percent increase. “We are definitely seeing more multiple offers than we have in the past”, said Joseph Arnone, qualifying broker for Exit Realty Horizons in Las Cruces. Arnone went on to say that “we are seeing quite a few back-up offers as well”.

    And finally, the average and median prices of the new and existing-homes sold in January of last year were $159,949 and $140,000, respectively. This January, they were $168,523 and $155,500. Those increases amount to $8,574 and $15,500, respectively, with new-home prices accounting for the bulk of the increase.

    By all indications, we are rapidly approaching the point when a growing number of buyers will collide with a small number of available properties, causing an economic train wreck for the buyers and higher returns for the sellers. The real estate and home buying communities have already begun to realize that demand has been increasingly outpacing supply, and that the extent of the shortage we are currently experiencing could become progressively more acute as we enter the spring and summer selling seasons.

    So, how far and at what pace might the pendulum that’s been poised on the buyer side of the arc for such a long time swing towards the seller’s side? That depends on how many new listings and buyers are added to the mix going forward. Let’s say that 100 buyers and an equal number of sellers enter the marketplace over the next few weeks. Since the increased weight on the scale is equally distributed, the balance doesn’t change. The key to moderating the transition from a buyer’s market to a seller’s market is to have the number of new listings coming online exceed the number of buyers entering the marketplace, thereby slowing appreciation to a manageable pace. Are you listening, sellers?

    Since markets don’t typically change overnight, buyers who have been on the fence and waiting for just the right moment to buy may want to seriously consider whether the next few weeks or months may be the opportune time for them to act.

    See you at closing.

    Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He can be reached at 575-642-2292 or Gary@GarySandler.com.

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      Gary Sandler