Published 3 September 2022
According to an Aug. 28 report from the Las Cruces Association of Realtors, the inventory of new and existing Las Cruces-area homes, townhomes and condominiums grew by 240 percent between mid-March and the end of August. The inventory, which stood at 133 units on March 19, grew to 320 units over the 5-month period. The higher number of homes for sale is just one data point illustrating the change from a solid sellers’ market to one more favorable to homebuyers.
Another indicator of change is the decline in our local year-over-year rate of home value appreciation, which dropped from 28.6 percent in March to just 5.1 percent in July. One of the most significant changes affecting the buyer/seller supply and demand model, however, is the increase in mortgage interest rates that has taken place since the first of the year. According to an August 25 report from mortgage giant Freddie Mac, the rate on the 30-year fixed-rate mortgage rose by 72.4 percent since Jan. 1. The effect the higher rates have on buyers’ ability to qualify is significant.
Take, for example, a homebuyer desiring to obtain a $350,000 mortgage. Had that buyer applied for a mortgage on Jan. 1, his or her monthly principal and interest payment would have been $1,517 at the then-rate of 3.22 percent. A buyer who applies for that same $350,000 mortgage today would pay $1,998 per month at the 5.55 percent rate quoted by Freddie Mac on Aug. 25.
The annual income required to support that $350,000 mortgage also grew considerably, rising to $98,318 at 5.55 percent from the $77,713 required to qualify at 3.22 percent — a $20,605 difference. The most eye-opening statistic, however, is the amount of mortgage the original $1,517 monthly payment would support at today’s rate. If our fictitious buyer’s maximum qualifying payment was indeed $1,517, he or she would only qualify for a mortgage of $266,000 at 5.55 percent – representing a drop of $84,000 in buying power.
So, what effect might the loss of buying power have on home prices? An analysis of Las Cruces-area sales activity in the $400,000 to $500,000 range over the past 60 days may provide a clue. A total of 78 homes were listed for sale in the price range on Aug. 28. Thirty-eight were priced below $450,000 and 39 were priced above that number. The number of pending sales in the lower half of the range were 86.7 percent higher (28 vs. 15), while the number of closed sales below $450,000 was 76.2 percent higher (37 vs. 21). Homes in the lower half of the range also sold 15.6 percent faster than their higher-priced brethren.
The bottom line is that property owners are beginning to realize that they must be more competitive to attract buyers to their properties. To that end, many are reducing prices, adding incentives such as closing cost credits, or sprucing up their homes. Some are doing all three.