Still Better Off

November's unemployment data shows that New Mexico (and Albuquerque) continue to dodge the worst of the recession. Albuquerque's unemployment rate for November was 4.4%. It actually dropped from October when the rate was 4.6%.

Next month, I will go into more details about individual sectors of the economy as I take a look at the full year's data.

Happy New Year everyone. It should (has?) to be better :).

How Low Can You Go?

Housing starts for the metro area for November: 64.

A couple of years ago, that was a bad weekend's tally.

Not that it matters a whole lot, but the 'leader' is Albuquerque with 29, followed by Rio Rancho with 23.

And, WE are in GOOD shape!

Every month, the employment picture looks bleaker when compared to the same month last year.

First, the entire state of New Mexico, comparing October '07 to October "08:

• Job growth was .o1% -- the lowest in 17 years
• Manufacturing (including the high-paying tech industry) lost 2,500 jobs
• Construction lost 1,500 jobs
• Leisure and hospitality shed 1,400 jobs
• Financial services also lost -- a total of 700 jobs
  

Keeping us (barely) in the '+' column are:

• Eduction and health services added 4,400 jobs
• Mining (mainly exploration) added 1,000 jobs
• Government added 1,900 jobs
  
• Information (including our growing film industry) added just 100 jobs

When the focus is narrowed to just the Albuquerque area, the picture does not improve. Overall unemployment on a year-to-year basis increased from 3.3% to 4.6%. And, payroll employment fell a total of 1,500 jobs on a year-to-year basis.

Imagine what it must be like in one of the states with real problems!

Some Good News For A Change

General Mills will be expanding its existing Albuquerque plant early next year. The $100 million addition will manufacture snack products. The current plant manufactures breakfast cereals.

When complete, the new facility will employ an additional 60 people. That isn't much in the grand scheme of things but the $100 million construction budget will be very welcome to a construction industry that has fallen on hard times lately.

Another Casualty of the Credit Crisis...

...and this one hurts.

Eclipse Aviation Corporation, the first company to successfully navigate the technological maze and create a very light passenger jet, told its workers today that it could not pay checks for the period just ended on November 12th.

Eclipse has been seeking a loan of between $200-300 million. Not surprisingly, it has been unable to raise the funds.

New Mexico Unemployment - September Data

Normally I give a synopsis of the data but this month the Employment News Release (of 10/23/08) appears to not believe the figures -- so I will quote instead:

New Mexico's seasonally adjusted enemployment rate was 4.0% in September 2008, down from 4.6% in August but up from 3.4% a year ago. The national rate was 6.1%. The state's unemployment rate drop in September likely resulted from a statistical sampling anomaly.

The New Mexico economy is weak but the national economy appears to be even weaker. New Mexico employment sectors with the closest ties to the national economy are among those that are underperforming.

Albuquerque's economy, being connected to the national economy through several large national employers, has started to lose jobs.

Not good news, to put it mildly.

When Bad News Is Good

The foreclosure rate in Albuquerque rose to .9% in August... up from .5% in the same month of 2007. Once again, however, the national figure makes us look like the Belle of the Ball. The August rate for the nation was 4.4%.

Leave Us Alone -- Please!

A long-running joke in this state is that many people (including some post offices around the country!) seem to think we are actually a part of Mexico. The latest unemployment figures for the state and Albuquerque/Rio Rancho make that look like a good idea.

We are still in far better shape than most. But, the economic sectors of our economy most closely tied to the national economy are the ones that are doing the worst. Manufacturing, financial and professional/business services are all underperforming.

• The state's unemployment rate in August was 4.6% -- up from 3.4% last year.
• Job growth stands at .06% -- an increase of 4,700 jobs from a year ago.

• Albuquerque/Rio Rancho's unemployment rate was 4.7% -- up from 3.4% last year.
• Over the year, employment has declined .2% -- a loss of 600 jobs. That is the first net loss we have suffered since 2002. Some of the winners and losers:
  
• Construction lost 800 jobs.
• Professional & business services lost 800 jobs.
• Leisure and hospitality lost 400 jobs.
  
• Government services added 1,200 jobs.
• Education and health services added 1,100.
• Information (where movie jobs are slotted) added 400 jobs.
  

Heading for the Basement

The door slammed - hard - on home construction in the Albuquerque/Rio Rancho area in August.

• A mere 76 permits were pulled in the metro market. That contrasts sharply with August of '07 when 272 permits were obtained.
• The drop from July of '08 was just as dramatic... 196 permits were pulled last month.
  

Congratulations - Part II...

How do you like owning the financial sector of the United States? Before you get too cheerful about that, remember you are going to pay a lot for something that is worth very little....

How much? Current 'worst case' scenarios are up to a trillion dollars. But, I think we have already reached that figure and then some. Fannie and Freddie guarantee more than $5 trillion and we own them. And now, of course, we are guaranteeing up to another $700 billion.

Where will you and I get the money. Print it, of course. And the last time I checked that was called inflation: Big time.

Congratulations...!!

...you (and I and every other person in the U.S.) now own a very, very large chunk of Wall Street's financial sector:

• Bear Stearns (We guarantee $30 billion)
• IndyMac (FDIC insurance kicks in as bank fails)
• Fannie Mae and Freddie Mac (government takeover... no matter what the spin)
• AIG (same)

Cost to you and I and everyone else... depends on who is counting, of course, but if the tab is less than a couple of trillion(!) dollars I am going to be elated. And, very surprised....

Fannie and Freddie and You and I

Following the 'take over' of the two mortgage giants, rates have fallen off the table. All the Fed's previous rate cuts are now acting on mortgage rates. That was the intention when the cuts were announced, of course. Rates did not fall due to fears of ongoing instability in the credit markets. (Which of course did happen.)
Now that we have stepped in to bail out Fannie and Freddie, we may see lower rates for awhile. Hey -- why not? We (all of us taxpayers) will be paying for the carnage... we might as well get something out of it.

We'll see...

Forbes Magazine has been a consistent booster of Albuquerque and the latest comment from that direction is no exception. Job growth is projected to be 1.6% through 2012 (no mention of when that will start) and housing starts are going to be on the upswing by 2009.

Flatlining

As I've been saying for months, we have missed the excesses of the subprime debacle. But our market is still very sluggish and there is a simple reason. Job growth is lousy. Unemployment remains below the national average but inches up every month. And job growth is essentially non-existent.

• NM unemployment was 4.1% in July -- up from 3.9% in June
• Albuquerque's figures are similar. 4.2% -- up from 4.0%
• Job growth state wide is just .9% for the past year and most of the gains are in the energy intensive area of Farmington.
• By contrast, Albuquerque's job growth for the past year is just about zero (.3%).

By far the biggest problem with our real estate market is a high inventory. No way are we going to reduce that with flat job growth.

Another Reason to Love New Mexico

I've been saying that our market looks pretty good to a lot of others. How would you like to be selling in any of these:

• -28.4% Las Vegas, NV
  -28.3% Miami, FL
  -26.5% Phoenix, AZ
  -24.5% Los Angeles, CA
  -23.2% San Diego, CA***
  -22.9% San Francisco, CA
  -20.2% Tampa, FL
  -17.4% Detroit, MI
  -15.4% Washington, DC
  -14.8% Minneapolis, MN

The above are the markets with the sharpest declines over the past 12 months. Not a Top-10 list to join!

Just Before the 'Fall'

Albuquerque's market was just beginning to cool off in the middle of last year. And, we were a few months from the financial markets melt down. So, looking at year-to-year for the 2nd quarter is interesting. It provides a pretty clear picture of the damage to our market caused by national events. All of the following compare April-June of 2008 vs. 2007:

• Average price: (3.09%)
• Sold properties: (27.83%)
• New listings: (25.67%)
• Days on Market: 71.79%

So, everything is negative but one -- Average Days on Market. But what remains remarkable to me is that in the current horrible national environment, Albuquerque performed the way it always has and avoided the excesses so apparent in other areas. (Would anyone like to try and sell a house in Phoenix?)

Good News in Low Numbers

Housing starts continue to decline in Albuquerque/Rio Rancho. And, except for the builders and their tradespeople, that is good news. A major difficulty with our market at the moment is too much inventory so fewer new homes can only help.

• Permits issued for the metro area (189 in June) were down 15.6% from May.
• By contrast, June of '07 saw 605 permits issued.
  

Back to the Future

Getting mortgage money has become much harder. That statement is true -- but only to a certain extent. What has really happened is that we have gone back to the type of lending practices that were the norm prior to the sub-prime debacle.

• Seller-assisted programs that allow the seller to provide the down-payment for the buyer will be phased out on October 1st.
• The number of investment properties a person may own and still get a conventional loan will be limited in the future.
• A good credit score and documentation are now the norm.

Of course, other programs aimed primarily at first-time borrowers are not changing too much.

• FHA will still allow gifts from the family to help a buyer with down payments and closing costs. The downpayment, however, will increase to 3.5% from 3%. And, the monthly MIP payment will depend on the borrower's credit score among other criteria.
  
• NM-MFA (New Mexico Mortgage Finance Authority) remains largely unchanged. A buyer whose income is within the guidelines will find this type of loan very attractive.
  

Staying Out of the Deep End

Economically, Albuquerque (and New Mexico) continue to do far better than the nation as a whole.

• June's national unemployment rate was 5.5%
• New Mexico's rate was 3.9%
• Albuquerque's rate was 4.0%

Housing, of course, remains a huge problem around the country and foreclosures are a big part of the reason. Here again, we are in far better shape than most. I don't have a break out specifically for Albuquerque, but New Mexico continues to rank near the bottom.

• In the second quarter, U.S. filings were up almost 121% over the second quarter of 2007 with 739,714 filings.
• In contrast, New Mexico had 1,150 filings state wide. That is a 60% increase over the same quarter in 2007 -- but a 2.7% decrease from the first quarter of this year.
• The states with the highest foreclosure rates: Nevada, California and Arizona all showed increases over the first quarter of this year.
  

Shadows and Substance

For the past decade, New Mexico has made a concerted effort to attract films and production facilities. In the last three to five years, that effort has started to pay off. The latest 'maybe-perhaps-sounds-good-if real' is the announcement that Masque Entertainment will built a studio with eight sound stages and post-production facilities in Rio Rancho. The film business is notorious for brave announcements that quickly dissolve but if this one proves to have some substance it will be a big additional step in making New Mexico a serious option for West Coast productions.

And, speaking of substance, New Mexico continues to rank close to the bottom in foreclosures. The latest RealtyTrac has us ranking 37th among the states. Nevada, California and Arizona continue to lead the pack with West Virginia, South and North Dakota happy to be at the bottom of this particular list.

Credit Market Still Suffering

Lots of not-so-good news on the mortgage front. Thornburg Mortgage, of course, has been the poster child for a well-run company that was caught in the credit fallout. Now, IndyMac has joined the list. On Monday, regulators concluded it was no longer 'well capitalized' but the company does not anticipate raising any capital in the current credit climate. Instead, it will cut about 53% of its work force and simply focus on servicing the loans it has already made.
Also yesterday, shares of Fannie Mae and Freddie Mac tumbled more than 18%. Lack of capital is again the culprit.

Economic Bits and Pieces

Unemployment for May:
Both New Mexico as a whole and the Albuquerque area continue to best the national figures.

• The state's unemployment rate is 3.8%, up from 3.5% in April. Last year at this time the rate was 3.6% so there has been very little deterioration.

• The Albuquerque area, has slipped a little further to 3.8%. That is an increase of .4% from the same month last year.

Employment gains:

• Again, the state is doing better than the Albuquerque area. Overall growth was 1.1% -- and that puts New Mexico in 9th place among all states.
• By contrast, Albuquerque employment rose just .4% in May and only .5% during the last year. The leading sector (no surprise) is Educational and Health Services with a yearly increase of 1,600 jobs since May of '07.

Lose some -- win some:

We lost a lot of jobs at Intel a few months back... roughly 1,000 depending on who was counting. (The oldest chip fabricating plant was shut down.) About two weeks ago, Hewlett-Packard announced that it would be bringing 1,300 jobs to the Rio Rancho area. But, while the loss was immediate, the gain will take some time: site choice, design and construction will all have to take place prior to hiring.

Albuquerque Unemployment Rate Drops

Another indication that our real estate market suffers more from perception than reality.

Unemployment for the state dropped to 3.5% in April -- down from 3.8% in March and also less than the 3.6% of April '07. The national average was 5.0% for April.

Albuquerque, at 3.5%, tied with the state figure. By far the most job growth was seen in the education and health services sector - a solid 3% during the last 12 months.

A Greener Albuquerque

Hey -- who says the desert is mostly shades of brown :)? Albuquerque became the first city to sign a pledge to build a green economy.
The pledge commits the city to focus on 'green-collar' jobs: those contributing to preserving or enhancing environmental quality.

Foreclosures

Another illustration of perception vs. reality. Foreclosures remain one of the driving forces in real estate markets all over the country. RealtyTrac's April report notes that filings were up 65% over April of '07.
New Mexico, however, remains relatively immune. We rank 37th in the nation. Worst hit: Nevada, California and Arizona.

Help with Mortgages

New Mexico has far fewer problems with foreclosures than most states. But, for those needing help and assistance, there is a new program to offer counseling. The hotline will be set up soon and will run through September. The number is: 888-995-4673.

New Mexico and Albuquerque area employment

The state and local economies continue to do better than the national economy -- although it is clear we have slowed down.

New Mexico's March unemployment figure is 3.7%, far better than the national figure of 5.1%. One year ago, the rate was exactly the same. Albuquerque's rate is 3.8%. Again, far better than the national average but up slightly from the 3.4% for March of 2007.

Job growth for the state is just .06% this March while for Albuquerque the figure was .08%.

The bottom line? We seemed to have kept most of the gains of the last few years -- but growth at the moment is not significant enough to overcome the national housing problems.

March Housing Starts - Albuquerque & Rio Rancho

Same news as February -- and, again, that is good news for homeowners.

Permits were down 40% for this March vs. March of '07.

Why good news? Less competition for sellers of existing homes.

Housing Starts in Albuquerque Area

They are way down (20% for Feb of '08 vs. Feb. of '07), of course. And, that is good news. Fewer new homes means less inventory down the line and inventory remains one of the big problems in the market as we enter the spring/summer selling season.

More on Yesterday's Comment

Just a few hours after noting the loss of potential buyers in our market, Fannie Mae, the government loan insurer, raised the bar on which loans it will insure:

• It will no longer buy loans made to borrows with credit scores below 580.

• It will no longer buy mortgages made to borrowers who have lost a home due to foreclosure in the past 5 years. The previous limit was 4 years.

Unintended Consequences

I've been saying for some time that the Albuquerque/Rio Rancho market has been hurt more by external events than anything happening here. More confirmation: a lender who does a lot of business here in town (none of it was subprime) estimates that about 40% of potential buyers have vanished from the market due to the elimination of various types of loan programs. Again, I am not talking about the subprime loans that were not a major factor here. These are programs that performed well but were eliminated as the credit crunch devastated lender reserves.

More Reality vs. Perception

New Mexico’s seasonally adjusted unemployment rate was 3.2 percent in February 2008, little changed from January’s record low of 3.1 percent. The national unemployment rate, currently 4.8 percent, remains higher than New Mexico’s. A year ago, the state’s unemployment rate stood at 3.8 percent.
Albuquerque’s seasonally adjusted unemployment rate was 3.3 percent in February, unchanged from January’s rate. Over the year, unemployment in the area has decreased three tenths of a percentage point from 3.6 percent.
So, why are we having so much difficulty with the housing market? Go figure....

Waiting On Data

Still waiting on the February statistics from our association. I won't be surprised if we had less activity than in January. Every bit of news has been negative during the last few weeks and one of the lessons of the Albuquerque/Rio Rancho market is that for the first time this market is following the national market. And, fundamental to the problems with the economy is that NO one understands all the root causes of the meltdown -- and that is what is injecting an extra level of caution. A good quote from yesterday's financial articles: "Bubbles lead to busts. Busts lead to panics. And panics can lead to long, deep economic downturns, which is why the Fed has been taking unprecedented actions to restore confidence." (NY Times 3/19)

Albuquerque Unemployment Rate

Once again, the difference between perception and reality is glaring. With the market in such bad shape you would think we had rising unemployment. In fact, January's rate was 3.3% -- down from 3.4% in December. One year ago, the rate was 3.8%. Go figure....

Seriously Good News

With all the turmoil in the credit markets and loan programs disappearing overnight, the government backed mortgages have become critically important.

Today, FHA limits were raised for the Albuquerque/Rio Rancho area to $271,050. And, of course, FHA loans require only a 3% down payment. Keeping in mind that our average price is just about $220-230,000 on any given month, that will mean a lot of stability and less funds needed to close for a very big proportion of the local market.

Politics vs. ideology

Politics (in this case defined as 'keeping your job') will shortly move the Bush administration to intervene in the markets. That may normally be a non-starter for conservatives... but, hey, this is an election year. So, the Fed chairman, Ben Bernanke, is suddenly calling for bankers to reduce mortgages for those in trouble and the administration raised limits on the volume of mortgages that can be Federally insured.
None of this is necessary in the Albuquerque/Rio Rancho area particularly -- except that anything that reduces the perception that the sky is falling will be welcome. More and more, I am convinced that this market - even though the local economy is sound -- will not recover while every economic indicator is down.

All real estate is local

Once again, January figures show sales down all over the country. But, Albuquerque and Rio Rancho continue to defy the national statistics. Yes, this market is slower but it remains far more stable than others. I'm still assuming we will dodge the worst of the problems. And that most of what hits us will be due to the national psychology more than local conditions.

No Change on Limits

The economic stimulus package now in place will not make a difference in Albuquerque and Rio Rancho, since all the loan 'caps' are based on local prices.

FHA limit is still $200,160
Conventional remains $417,000

Even for those areas that will see a rise, it will take a couple of months for the agencies to work out the numbers.

Albuquerque at Year's End

Just finished writing my Market Update for the whole of '07. Looking forward, the big questions remain:
Will our local economy trump all the bad news from everywhere else?
Will the loss of loan programs (the good ones!) significantly reduce the number of buyers?
As the time-to-sell stretches out, will sellers start reducing their prices?

I've been selling housing for more than 18 years now and I have never seen a market that is so contrary to local conditions.

It's the Psychology...

The famous mantra from the '92 election was, "It's the economy." Remembering that on every occasion propelled Clinton to the White House. Now, we have a screwed up national economy but a more-than-ok local economy in Albuquerque and Rio Rancho. It still remains to be seen which is more compelling in buyers' minds.

After 'The Game' -- the Market?

Bad years or good, traditionally the Albuquerque & Rio Rancho markets are slow from late fall to the end of the Super Bowl. So, now we will find out if a good local economy and very low interest rates will be enough to counter the national credit problems.

Why Albuquerque Keeps Ducking the Worst

I've been saying that New Mexico normally does better during economic downturns then the rest of the country. In fact, according to Lee Reynis, director of UNM's Bureau of Business and Economic Research, "We have almost never had a recession here.... Rarely does employment growth turn negative." If we were to follow the rest of the country into a recession, it would be the first time since the 1950's.

One other note: foreclosures in New Mexico were down 26% in 2007 vs. 2006. Just four other states followed our example: Oklahoma, Pennsylvania, South Carolina and Utah. At the other end of the spectrum: Texas, Colorado, Arizona and Nevada were among the top 10 in foreclosures.

I said quite some time ago that we always seem to 'muddle' through. You are looking at a typical NM muddle :).

Some Facts & Some Theory

Unemployment for December continued to be very low in New Mexico and Albuquerque: 3.5% & 3.7% respectively. Both are a small 'uptick' from November but still well below the national average of 5.0%

New home permits were down a very large 60% from December to December. That is a big drop, of course but I consider it good news for everyone but the builders themselves. On the outskirts of Albuquerque and Rio Rancho the builders' excess inventory is slowing up individual home sales. When their inventory is sold off, then the re-sale market will come alive again in those areas.

And, speaking of inventory, that is the key to forecasts about when the market will turn around. Depending on the source, that will occur in the second or third quarter as confidence returns and inventory shrinks.

The Blame Game

Check out They Lied to Us for the bottom line on who did what during the credit debacle. Bottom line for me: the financial people were simply making too much money to pay attention. Does anyone remember Alfred E. Newman of Mad Magazine? His signature comment was, "What, me worry?"

Thinking About Albuquerque/Rio Rancho

OK -- if our local economy continues to be in good shape (income up, unemployment down and foreclosures moderate to low) why is that not reflected in the real estate market?

Caution about the economy?
Fear of buying at close to the top of the market?
Lack of mortgage programs?
Too many choices?

Something else?

Let me know your thoughts....

The Fed Reacts -

- and so do rates in Albuquerque.

After the Federal Reserve lowered its funds rate by .75%, mortgage loans were at 5.625% in Albuquerque. That is almost as low as the historically low rate of 5.5% from a couple of years ago.

So, with a strong local economy and very low interest rates, we'll see if buyers come back into the market.

What Economic Downturn?

Fast on the heels of the announcement about SCHOTT SOLAR building a plant in Albuquerque's Mesa del Sol development comes another -- and bigger -- announcement.
FIDELITY INVESTMENTS will build an operations center in the same development. The facility should be completed in late '08 and employ about 1,250 people. Even better, the expected salary range for most of the positions will be in the $37-65,000 range.

Albuquerque Jobs

Three recent events highlight the 'now you see 'em, now you don't' aspect of job announcements:
Almost certainly real: SCHOTT SOLAR will build a solar energy production facility in Mesa del Sol on the south edge of Albuquerque. Beyond construction jobs the company will employ 350 people at its first phase.
Probably real: ECLIPSE AVIATION, with a total work force of about 1,600, plans to hire an additional 700 people this year.
We'll see: TESLA MOTORS is once again saying it will build an assembly plant for its electric sedan on Albuquerque's West Side.

Unemployment Figures

If 'all politics is local' is true, that is probably because all economies are local.

While the national economy continues to slide, the Albuquerque region (including Rio Rancho) continues to avoid the worst. November unemployment stands at 3.0% How many other areas of the country do you think would like to see that figure?

Down They Go...

Ben Bernanke, the chairman of the Federal Reserve, said today, "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risk."

Sound like another rate cut in the offing to you? The next policy meeting is Jan. 29 and 30.

Connecting the Dots...

Stocks are down sharply from the first of the year on consistently bad national economic news. KB Home posted a large loss for its 4th Quarter. Next up, almost certainly, is another drop in interest rates to start 'cooking' the economy. (What politician wants to enter an election cycle during an economic downturn, to say nothing of a recession??)

So, no surprise that the market anticipates that event. According to FANNIE MAE, mortgage rates have reached their lowest point since 2005. As of Jan. 7th the average for a fixed-rate 30-year loan was 5.7%.

Luck of the Draw

One reason Albuquerque's housing market has survived far better than others (so far) is that we are simply less expensive overall. The same type of housing that is over $500,000 in LA, for example, will cost about $200,000 or less here. So, subprime loans were not a critical tool for getting people into houses when prices went up.
Another reason is that getting out of a bad loan is far easier here. New Mexico does not allow pre-payment penalties so refinancing is far less expensive.
The result: far fewer foreclosures saturating the market.

Oh, NO... another blog!

So, the question, of course, is ‘Why this one? Why now?’

For 18 years I have been listing and selling homes in the Albuquerque area. For the last 10 years, I have been informing my clients about the local market on a monthly basis. (Click here to sign up for the Market Update.) Our economy has rarely marched in sync with the national economy and we have never experienced the big boom and bust swings that can turn a real estate market on its head in a matter of weeks. So, that frequency has always been enough – until now. A lot has changed in the last few months. And, crucially, events outside of Albuquerque are starting to have an impact.

• Credit sources drying up overnight.
• Mortgage programs that affect both high- and low-income families ending abruptly.
• And, why the heck should the failure of a bank in England or France or Germany cause problems with our sources of credit?

I’ll be trying to highlight some of those issues as they appear and include links to articles that are far more informed than I.

Come along for the ride…