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…