Housing market turns a corner

The upshot is the average sales price for a detached single-family home eked out a modest 1.7 percent gain, moving from $201,513 in 2011 to $204,513 in 2012, which is the first real improvement in home price since Albuquerque’s comparatively mild housing bubble burst in 2008.

“2012 was the first time I’ve had multiple offers on properties in years,” GAAR President Julie Greenwood told the Journal. “I was floored. I hadn’t expected it.”

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The average home price rose despite one out of every 10 home sold in 2012 being the short sale of a distressed home, often in foreclosure. Short sales are usually priced to the market in Albuquerque, said Peter Parnegg, co-owner of Coldwell Banker Legacy.

CoreLogic, a real estate analysis firm, has said that given strong demand from investors and others, the number of distressed properties is unlikely to drag the market down this year.

Key to the Albuquerque market improvement was a reduction in the supply side of the housing equation. Data from the Southwest Multiple Listing Service, a GAAR subsidiary, shows on average the number of homes for sale each month dropped by one-third from 6,579 in 2008 to 4,334 in 2012.

“The inventory is going down,” said GAAR Executive Vice President Janice McCrary. “That can only be good for the market.”

The 6,579 home listings in 2008 is easily the highest monthly average of homes for sale since 1996 and, possibly, in the history of the metro’s residential market.

Remarkably, before the housing bubble began to show itself in 2003, the metro averaged 4,344 homes for sale each month during the preceding seven years — almost identical to 2012 average of 4,334 homes for sale each month.

‘Through the backlog’

“We’ve worked through the backlog of listings,” Greenwood said. “We’re getting back to normal right now.”

The demand side of the housing equation has remained more stable, pre- and post-housing bubble. The 8,387 homes sold in 2012 is close to the 8,774 homes sold in 2001, which was the first year that sales surpassed the 8,000 threshold in the metro.

In addition, a post-bubble average of 657 homes were sold each month from 2008-12, close to the pre-bubble average of 683 homes sold each month from 1998-2002.

Realtors are saying the local home sales market has stabilized. These homes are located on Moon near Comanche NE. (ADOLPHE pIERRE-LOUIS/JOURNAL)

The ratio between home sales and home listings can be used to determine whether it’s a buyers’ market or a sellers’ market. Dividing average monthly sales into average monthly listings provides the number of months it would take to sell of the backlog of homes on the market.

As a general rule of thumb, six months is considered a balanced market between buyer and seller. Higher is a buyers’ market, while lower is a sellers’ market. Here’s a look at the last 15 years:

♦ During the pre-bubble years of 1998-2002, there was an average 7.1-month supply of homes on the market, tipping it in the direction of a buyers’ market.

♦ During the housing bubble of 2003-07, the average supply was 3.5 months, getting as low as 1.9 months in 2005 — the peak year of the bubble and a sellers’ dream market.

♦ During the post-bubble years of 2008-12, the average supply jumped up to 8.3 months, well into a buyers’ market.

Balanced market indicated

Most significantly, the ratio for 2012 was a 6.2-month supply of homes for sale, due largely to a sharp drop in listings during the first half of the year coupled with a steady increase in sales throughout the year. The supply of homes last year points to a balanced market.

As another general rule of thumb, home prices tend to increase in both a sellers’ market and, to a lesser extent, a balanced market. Prices decrease in a buyers’ market.

Here’s a look at the direction of average detached home prices over the last 15 years:

♦ During the pre-bubble years of 1998-2002, the home price increased at an average rate of 1.8 percent a year, which was on the low side of the metro’s historical range.

Before the bubble, Greenwood said, “You could almost predict the price of your home. You’d get 2-3 percent (appreciation) every year. It tracked with wages.”

♦ During the housing bubble of 2003-07, the home price increased at an average rate of 8.9 percent a year, a sustained rate of high appreciation in value that hadn’t been seen before in the metro and quite likely will never be seen again.

♦ During the post-bubble years of 2008-12, the home price dropped at an average rate of 3.3 percent a year, due entirely to price drops of 4.3 percent in 2008, 7.7 percent in 2009 and 6.9 percent in 2011. Price drops like those were unprecedented in the metro.

The tiny 0.6 percent gain in average price in 2010 is considered an anomaly, driven by the federal government’s intervention in the housing market with the First-Time Home Buyer Tax Credit. The credit, in various forms, was available for qualified home purchases until expiring April 30, 2010.

Artificial bump

“We artificially pushed people into the market at that time,” McCrary said.

With the supply-demand ratio moving toward equilibrium, 2012′s 1.7 percent increase is just short of the pre-bubble 1998-2002 average of 1.8 percent.

Based on previous cycles in the metro housing market, Parnegg said the average sales price will likely be in the 2-3 percent range in the next two to three years, with potential for a 9 percent increase in 2016.

Albuquerque’s apparent housing recovery still could be derailed by any number of economic and government variables.

The White House Office of Management and Budget warned federal agencies last week that sequestration could lead to furloughs, hiring freezes, early retirements and release of temporary employees if lawmakers fail to reach a comprehensive debt-reduction deal by March 1.

“If sequestration hits, we will really be hurt,” McCrary said. “It will be detrimental to housing.”

Threats remain

Just the threat of sequestration has kept some potential homebuyers on the fence, added Greenwood.

A debt-reduction deal could reduce or even eliminate the mortgage interest deduction, a uniquely American tax break to encourage homeownership. McCrary said any curtailment of the mortgage interest deduction would hurt home sales and home prices.

Albuquerque’s employed labor force has shrunk to the level of 2004, which many observers believe discourages household formation — young people moving out on their own, out-of-state workers moving here for jobs — and, in turn, homebuying. A vibrant housing market requires job growth.