The skyrocketing cost of building a home in Albuquerque
(Transcript Snippet): ” Tracy:
Right. But what we do know too, is there are a lot of new neighborhoods. We have a lot of new homes available right now and coming and a lot of new neighborhoods that they have now got ready, that they’re ready to start building. And it’s in all areas of town. Right. We know that they’re still building by the base you know, at the end of one to bow by the Kirtland air force space and [inaudible]. Yep.
Tego:
Yeah, no, there’s a lot in the pipeline and there’s definitely new construction. I, I will say. And I, I mean, this isn’t anything about the builders. It’s just, people are going to have sticker shock on what things are, because I just saw a study the other day, where they looked at a building costs in the last year, about 22% increase in just the cost of materials to build a new right.
Tracy:
And you know, we’ve talked about it on the show, the cost of materials that jumped way up, especially lumber, stucco, concrete, whatever.
Tego:
Well, everybody talks about lumber. Cause that’s, that’s the
Tracy:
Commodity that goes on the commodities exchange that they can really track. What really well,
Tego:
Here we go. Tracy. Here’s okay. So you have a chart. I’ve got a step for that. I didn’t even know that. No. So, okay. So we were talking about lumber, right? Lumber, 115%. Everybody kind of knows that story, but everything steel aluminum up 27% windows doors up 13% flooring up 8% appliances up 8% concrete up 10% brick stucco up 11% drywall up 14%. I’ve heard that one drywall
Tracy:
Framing block up 36%,
Tego:
36%. So, you know, anything that’s concrete stucco that stuff’s gone up quite a bit. Of course, anything that’s wood-based has gone up a bit.
Tracy:
This is a year over year, raw material and labor cost. So we know labor has also gone
Tego:
Up. Yeah. So just to bring that back to the, the positive is there are a lot of new home construction options out there for folks right now. And you know, there, it’s just, the, the prices are higher. That’s just the way,
Tracy:
Right. The good news is, you know, you’re getting new, your repair costs over the next 10, 15 years should be very low. You’re getting energy efficient. I don’t know that any of those new home builders, aren’t building more energy efficient Greenbelt, whatever than they were 10 years ago or whatever. I think most of them are doing a very efficient, you know so that the utilities are less, the home can be more comfortable than maybe it is now.
Tego:
So I think the, just to kind of bring this back, I mean, well, I want to try to tie this together. This whole story about the lack of supply costs have gone up substantially, right? Not, not on just, you know, resales have gone up, we’re tracking somewhere around, you know, 12 to 15% here in Albuquerque year, over year. New construction has gone up even more than that. Interest rates are still down at 3%. But this lack of supply nationally in, in here locally as well, it doesn’t look like it’s going away is what I’m trying to get at.
Tracy:
Right.
Tego:
If you’re waiting for the market, the crash, I’ll just say it. I, I think you could be waiting a long time or waiting for never happened. I mean, there’s always going to be a pullback, right? That’s going to happen, but a market crash doesn’t look like it’s in the cards anytime soon, right?
Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). Though the survey showed 77% of respondents believe it’s a “good time to sell,” it also confirms what many are sensing: an increasing number of Americans believe it’s a “bad time to buy” a home. The percentage of those surveyed saying it’s a “bad time to buy” hit 64%, up from 56% last month and 38% last July.
The latest HPSI explains:
“Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions.While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners. It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments.”
Let’s look closely at the market conditions that impact home affordability.
A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for buyers for two key reasons:
Mortgage rates have increased from 2.65% this past January to 2.9%.
Home prices have increased by 15.4% over the last 12 months.
Based on these rising factors, a home may be less affordable today, but it doesn’t mean it’s not affordable.
Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. They also went on to explain:
“Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.”
In the same report, Todd Teta, Chief Product Officer with ATTOM, confirms:
“Average workers across the country can still manage the major expenses of owning a home, based on lender standards.”
It’s true that monthly mortgage payments are greater than they were last year (as the ATTOM data shows), but they’re not unaffordable when compared to the last 30 years. While payments have increased dramatically during that several-decade span, if we adjust for inflation, today’s mortgage payments are 10.7% lower than they were in 1990.
What’s that mean for you? While you may not get the homebuying deal someone you know got last year, that doesn’t mean you shouldn’t still buy a home. Here are your alternatives to buying and the trade-offs you’ll have with each.
Alternative 1: I’ll rent instead.
Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List:
“…So far in 2021, rental prices have grown a staggering 9.2%. To put that in context, in previous years growth from January to June is usually just 2 to 3%. After this month’s spike, rents have been pushed well above our expectations of where they would have been had the pandemic not disrupted the market.”
If you continue to rent, chances are your rent will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home.
Alternative 2: I’ll wait it out.
Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let’s look at that possibility.
We’ve already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite:
The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.
Based on these projections, let’s see the possible impact on a monthly mortgage payment:By waiting until next year, you’d potentially pay more for the home, need a larger down payment, pay a higher mortgage rate, and pay an additional $3,696 each year over the life of the mortgage.
Bottom Line
While you may have missed the absolute best time to buy a home, waiting any longer may not make sense. Mark Fleming, Chief Economist at First American, says it best:
“Affordability is likely to worsen before it improves, so try to buy it now, if you can find it.”
Albuquerque’s Real Estate Market: It’s still frantic out there!
(Transcript Snippet): “Tego: It’s still pretty frantic out there in the real estate market. Is that a fair word? Tracy: You know, Tego? I didn’t think we were going to talk about this, but let me tell you about Wednesday this week. Right? So we had, well, Wednesday and Thursday, we had four open houses, midweek for homes that had just gone on the market with us. I’m on two, three of them were in the Northeast Heights. And one was in far Northwest. We Rio Rancho on Thursday from four to six. Okay. And the Wednesday three open houses. I was at one of them and other agents from the team were at others. The house I was at had over a hundred visitors now, individual groups. Sometimes it was one person, three people formed with their realtors. Some without some have realtors, but were on their own, whatever, just coming to see the open house. Well, and it was Tego: The first time in and we’ve been doing this, right? Yeah. Tracy: It was the grand open house. First time anybody could see it. Yeah. I’m sure we had over 60 individual, not individual, 60 groups of people through. I mean, it was well over a hundred people at the house that I was at. The house Jane was at same thing over a, well, over a hundred people through that open house. Corey held a house open on Saint. She’s the one who started this conversation among our team. And she was like, we had over a hundred people there. I’m sure of it. So her seller went to the ring doorbell and literally counted all of the people. And the seller says they had 500 people through their house that day. Corey said it was crazy. And luckily one of our title reps stopped by to give her some bottles of water to hand out and he stayed. So she wasn’t there alone. But even though one in Northern Meadows, which is far Northwest Rio Rancho, you have to want to go there. You don’t run into those signs. Right. The reason Tego: That one was in such high demand is it was, it was a lower price point. And definitely below the median, you know, our median is now up over $250,000. So, Tracy: So in any event she was exceptionally well attended as well. So what, what does that mean? We still have a lot of buyers in the market. A lot of people looking for the right house. Yep. And you know, it’s interest rates are low. There’s a lot of reasons we talked about them last week, Tego: As demand has not dropped off, Tracy: I would say in our market, based on this week and the number of showings we’re having on houses, we’ve listed, demand is not dropping.
https://welcomehomeabq.com Tracy & Tego Venturi Venturi Realty Group Keller Williams 1119 Alameda Blvd NW Albuquerque, NM 87114 (505) 448-8888 info@welcomehomeabq.com
Albuquerque’s Real Estate Market: It’s still frantic out there!
(Transcript Snippet): ” Tego:
It’s still pretty frantic out there in the real estate market. Is that a fair word?
Tracy:
You know, Tego? I didn’t think we were going to talk about this, but let me tell you about Wednesday this week. Right? So we had, well, Wednesday and Thursday, we had four open houses, midweek for homes that had just gone on the market with us. I’m on two, three of them were in the Northeast Heights. And one was in far Northwest. We Rio Rancho on Thursday from four to six. Okay. And the Wednesday three open houses. I was at one of them and other agents from the team were at others. The house I was at had over a hundred visitors now, individual groups. Sometimes it was one person, three people formed with their realtors. Some without some have realtors, but were on their own, whatever, just coming to see the open house. Well, and it was
Tego:
The first time in and we’ve been doing this, right? Yeah.
Tracy:
It was the grand open house. First time anybody could see it. Yeah. I’m sure we had over 60 individual, not individual, 60 groups of people through. I mean, it was well over a hundred people at the house that I was at. The house Jane was at same thing over a, well, over a hundred people through that open house. Corey held a house open on Saint. She’s the one who started this conversation among our team. And she was like, we had over a hundred people there. I’m sure of it. So her seller went to the ring doorbell and literally counted all of the people. And the seller says they had 500 people through their house that day. Corey said it was crazy. And luckily one of our title reps stopped by to give her some bottles of water to hand out and he stayed. So she wasn’t there alone. But even though one in Northern Meadows, which is far Northwest Rio Rancho, you have to want to go there. You don’t run into those signs. Right. The reason
Tego:
That one was in such high demand is it was, it was a lower price point. And definitely below the median, you know, our median is now up over $250,000. So,
Tracy:
So in any event she was exceptionally well attended as well. So what, what does that mean? We still have a lot of buyers in the market. A lot of people looking for the right house. Yep. And you know, it’s interest rates are low. There’s a lot of reasons we talked about them last week,
Tego:
As demand has not dropped off,
Tracy:
I would say in our market, based on this week and the number of showings we’re having on houses, we’ve listed, demand is not dropping.
Tego:
And the reason I say it that way, I’ve seen a lot of national stories lately where they’re talking about, oh, it’s starting to slow down. Or the, you know, number of homes on the market is starting to grow substantially, stuff like that. We’re, we’re seeing a little bit of increase in the number of homes on the market, but it’s still nothing significant.
Tracy:
So take a last, we talked, I think maybe there were around 900 houses on the market, in our MLS. Where are we at right now
Tego:
As of today, just over a thousand. And that’s in Metro Albuquerque. That’s not the entire MLS because I don’t want to look at grants and Santa Fe and some of those other markets. So, you know, just Metro Albuquerque, it’s about, it’s just over a thousand homes. And to give you an example, you know, earlier in the week, I think it was Wednesday when I looked, it was about 900. So it ebbs and flows every week. You know, number of homes coming on, number homes going on,
Tracy:
But we haven’t been over a thousand for a long time.
Tego:
No, we, we really haven’t done that. That is kind of, you know, a, a milestone. The thing that’s curious about that, and I’ll be curious to see here in the next few weeks to a month, what happens? It’s very common that this time of year is when we peak in the number of homes for sale in the Albuquerque area and starting, you know, August, September, it starts to drop off all the way through till usually February that’s normal seasonal trends.
Tracy:
So what we know this date opened up this month, July just a week or so ago, right? Just over a week ago. And the last year COVID right. We had this huge drop-off of people putting their homes on the market. So this August, September won’t be the norm compare. I mean the August and September from last year, won’t have been the norm statistics, but we have 30 years of data. Right. So generally we see things start to pull back a little bit, but we don’t expect that to happen this year. Well, I mean, with the state opening up and people feeling like they can get their house on the market and have it shown and yeah, I
Tego:
Think, I think the takeaway Tracy, is that, yeah. Okay. We’re going to get a little variable. We might get a little increase in the number of homes on the market. The thing is, this is still a very, very strong seller’s market. Right. And it kinda doesn’t matter what price range you’re in. You know, there’s always going to be those anomalies where, you know, there’s just something about the home that makes it difficult to sell, but for the most part, everything is selling. If it’s in the right price range,
Tracy:
Right. For the condition and location. Yeah.
Tego:
And this way it keeps saying, I’m going to say it again. We could have 4,005,000 homes on the market and a greater Albuquerque area tomorrow and still be in a balanced market and not, not in a, not in a buyer’s market. So
Tracy:
One of the things that you talked about at our team meeting was home builders and how many houses they could build a year and still not be caught up to the demand nationally. That was a national
Tego:
Number. So, so let me just back up a little bit, the national association of realtors did a, a recent study and let me pull it up here. I wasn’t ready for it. Sorry.
Tracy:
I just, I think it’s really interesting. Well, it’s, it’s,
Tego:
It really tells the, of our housing market. And we’re going to get to this story in the Atlantic here in a minute to just we’ll skim on it because we don’t want to get too crazy politically. And it’s the Atlantic too. I know listeners of Kiva probably go in the Atlantic. You believe anything from the Atlantic, but actually they, they really hit some really good points about the housing shortage nationally. But what happened was national association of realtors brought in a consulting group to do a study of, you know, what’s going on in United States with housing and what they found, it was actually not too difficult to figure out was you have so many what they call household formations, right? Basically people that are starting a house that are buying a house in, in the number of houses needed is, is one number. Your next number is how many homes were actually built. Right. And what they’ve calculated is that I forget the timeframe. I think it was 10 years that the United States overall nationwide, we are not, excuse me, there’s no timeframe involved with this. I’m sorry. We are somewhere between four and a half and 5 million homes short of what we could use for the demand that’s out there. And then what they said was if, if we were as a country in the entire country to build 2 million homes a year, it would take, what was the stat
Tracy:
10 years, 10 years
Tego:
To get back to, you know, what the demand is calling for. So we haven’t
Tracy:
Had to 2 million homes built a year in a very long time, or no, since 2004, since 2004. So it’s the peak of the building years. And so to 2 million a year would take 10 years to get caught up with the shortage of the homes on the market in this year.
Tego:
I think they’re talking, maybe we’ll have a million nationwide. I believe that was the number if I’m not mistaken. And so to bring that back down to local, yes, I know these are all national stats and national data. The thing is we’re seeing the exact same things here in Albuquerque. We know that there’s way more supply than there are, excuse me, way more demand than there are buyers. We know that then there are for sale. Then there are for sale, man. I’m just saying that all wrong, talking fast. I know. And, and we know, you know, based on talking to builders and developers, that they’re just not able to, to bring product online as fast as the demand calls, right.
An important factor in today’s market is the number of homes for sale. While inventory levels continue to sit near historic lows, there are indications we may have hit the lowest point we’ll see. Odeta Kushi, Deputy Chief Economist at First American, recently said of our supply challenges:
“It looks like inventory may have hit a bottom (we’ve seen this in the higher frequency data as well). Unsold inventory in May was at 2.5 months supply, up from 2.4.”
To put it into perspective, the graph below shows levels of inventory rising since the beginning of the year:We’re still not close to a balanced market, which would be a 6 months’ supply of homes for sale. However, we are seeing a slow but steady increase in homes coming up for sale. And that leaves many buyers and sellers wondering the same thing: what does that mean for me?
Buyers: More Options Are Arriving, so It’s Time To Act
If you’re a buyer, more inventory coming to market is a welcome sight. More supply means more options and less competition, which could mean fewer bidding wars.
“In June, newly listed homes grew by 5.5% on a year-over-year basis, and by 10.9% on a month-over-month basis. Typically, fewer newly listed homes appear on the market in the month of June compared to May. This year, growth in new listings is continuing later into the summer season, a welcome sign for a tight housing market.”
If you’re having trouble finding your next home, this news should give you the hope and motivation to keep your buying process moving forward. Experts project mortgage rates will begin increasing, which will make purchasing a home less affordable as time passes. You can still capitalize on today’s low interest rates, so stick with your search as more homes come to market.
Sellers: Our Supply Challenges Aren’t Over Yet, so Now Is the Time To Sell
If you’ve been putting off selling your house, you shouldn’t wait much longer. The year’s month-over-month gains in homes for sale have helped buyers, but we’re still very much in a sellers’ market.
As the graph below shows, even with the number of homes for sale rising, we’re still well below the supply levels we’ve seen historically:Of course, more homes are coming to market now, and more are expected in the coming months. Selling your house this summer gives you the chance to get ahead of the competition and maximize your sales potential before more homes are put up for sale in your neighborhood.
Bottom Line
More homes for sale means more options for buyers and more competition for sellers. Whether you’re looking to buy or sell, let’s connect today to discuss your options and why it’s still a good time to make your move.
