'Perfect storm' threatens ABQ housing affordability - Albuquerque Journal

‘Perfect storm’ threatens ABQ housing affordability

Mary Steinnerd loads a box into her new home in the Northeast Heights. She increased her budget to buy. (Roberto E. Rosales/Albuquerque Journal)

Copyright © 2021 Albuquerque Journal

EDITOR’S NOTE: This is the first in a series of stories on Albuquerque’s growing housing affordability crisis.

In August, Mary Steinnerd sold her house outside Boca Raton, Florida, and moved to New Mexico to be closer to family.

When she began looking for a new home in Albuquerque this spring, she quickly realized she was shopping in a market that was night-and-day different from the one in which she had just sold.

In less than a year, home prices had increased significantly in Albuquerque and other nearby markets, forcing Steinnerd to radically reconsider her budget of around $170,000. She said she started selling assets to adjust to the new reality.

“It was a real shock,” Steinnerd said.

The first home she made an offer on received between 20 and 30 offers, and eventually sold to another buyer for well above the listed price. She quickly learned that her cautious nature when it comes to big purchases would work against her in such a hot market.

“That was Step One in the learning curve: You can’t wait around,” Steinnerd said.

A housing subdivision is being built on the West Side near 98th Street. Albuquerque has long been considered a haven for affordable housing, but in recent months and years, that reputation has been diminished by a number of factors – including low housing inventory. (Roberto E. Rosales/Albuquerque Journal)

After months of searching, Steinnerd finally landed a home – a two-bedroom, two-bath condominium in the Northeast Heights – that closed just a few days before her current lease ended. In the end, she spent about three months searching, and paid more than $45,000 more than her original budget. Despite the travails, she said she feels lucky that things worked as well as they did and encouraged other home-seekers to stick with it.

“Don’t get discouraged, because it’s easy to get discouraged,” Steinnerd said.

For Albuquerque residents who have tried to buy a house recently, Steinnerd’s story probably feels familiar. Limited inventory and strong demand for new homes have caused prices to skyrocket in what was once one of the West’s more leisurely housing markets.

In May, the median price for a single-family detached home in metro Albuquerque reached $290,000 – a market record and a staggering 26.1% increase from a year prior, according to the Greater Albuquerque Association of Realtors.

Realtors have stories of buyers who offered to pay back the college loans of sellers to get an offer accepted. Buyers have stories of touring homes with walls that are close to toppling and appliances that have been torn out. And no one sees an end in sight.

“We’re forcing people into this frenzy, and who it really hurts is the people just trying to get their foothold,” said Mackenzie Bishop, co-owner of Albuquerque-based home builder Abrazo Homes. “They’re trying to get their first house, they’re trying to have a place for their kids to go.”

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Home sales in a pandemic

Home prices had already started to rise in the Duke City before COVID-19 reached New Mexico, but downstream effects of the pandemic helped shift the price growth into high gear.

GAAR president Belinda Franco attributed the growth to three main factors: very low mortgage interest rates, renewed demand from both in-state and out-of-state buyers, and a shortage of homes available on the market.

The interest rate on a 30-year fixed-rate mortgage has averaged 3.13% over the past 52 weeks, according to finance website Bankrate.com. Reilly White, associate professor of finance at the University of New Mexico’s Anderson School of Management, said in an email that the Federal Reserve accelerated the purchase of mortgage-backed securities to help keep cash moving during a tough economic period. Those purchases caused rates to drop to levels not seen before, White said.

“We don’t have another precedent for mortgage rates as low as they were,” White said.

Franco said the low interest rates have encouraged local buyers who might have otherwise stayed on the sidelines to jump into the market. Additionally, Franco said Albuquerque began to see an uptick in interest from out-of-state buyers last year, some of whom were attracted to the city’s good weather, abundant space and relatively low property taxes. While hard data on the influx remains scarce, Franco reported working with buyers from all over the country, from California to North Carolina.

Local Realtor Tego Venturi reported that a lot of the out-of-state demand has clustered on the high end of the market, where houses sell for $500,000 and up.

Venturi said the pandemic, and associated increase in remote work, prompted locals to reassess what they wanted from a home. This, along with the above factors, helped drive first-time homebuyers into a challenging market.

“The pandemic shifted people’s mindset about home and what it means for them,” Venturi said.

Building blues

In February 2020, a month before New Mexico reported its first cases of COVID-19, the median Albuquerque home spent about 47 days on the market. Fifteen months later, that average had dropped to 13 days, according to GAAR data.

While some of that is due to high demand, Bishop, who also serves as the president of the Homebuilders Association of Central New Mexico, said the market has long built fewer homes than it needed to keep up with demand.

Bishop said metro Albuquerque is on pace to file between 2,700 and 3,000 home building permits in 2021, the highest total in 13 years. However, Bishop cited a study from New Mexico Apartment Advisors that estimated that the city needs 17,000 units to keep up with demand.

“We’re falling further behind, not even getting close to catching up,” Bishop said.

Bishop said New Mexico has faced a shortage of skilled construction workers since the Great Recession, when a lack of demand prompted builders to find other lines of work. Bishop said that’s slowly changing in the present market, but it will take time for these new workers to get skilled up and enter the workforce.

“Everything takes longer,” Bishop said. “We used to have six-man framing crews, and now we have three-man framing crews.”

More recently, he said supply-chain disruptions tied to the pandemic on commodities like lumber and copper have made it more expensive to build new homes, even if everything else is in place. Before the pandemic, Bishop said the lumber needed to build a 2,000-square-foot home would have cost about $8,000. Today, it would cost nearly $25,000.

“I think it’s really a perfect storm,” Bishop said.

‘You can look at California’

Venturi and others agreed that the increase in prices has been a boon for people who already own homes.

“The amount of wealth that they’ve gained in the last several years is pretty staggering,” Venturi said.

For those on the outside looking in when this uptick began, however, navigating the market has proved to be a tremendous struggle.

Jennifer Fodge, 35, is a lifelong Albuquerque resident who started looking at homes with her husband, Nick, about a year ago. What started as a cursory search, however, got more serious after their landlord, a longtime friend, got sick and prompted the couple to start looking for a more stable option.

So far, however, their search has been in vain. Fodge said they have mostly looked for homes in the Northeast Heights that cost between $225,000 and $250,000. They’ve found very few homes in their price range, and what does appear typically vanishes before the end of the day.

“Within a couple hours, it’s already sale-pending,” she said.

Like a lot of buyers, Fodge has horror stories about some of the homes she’s toured: One house with a bare yard and walls that she described as ready to fall, another where the cabinets and appliances had each been ripped out, either by vandals or by the former owners. A year into the search, Fodge said she has yet to make a formal offer on a house.

“We’re just kind of waiting and seeing what happens,” Fodge said.

Stories like Fodge’s help paint a picture of a market that could ultimately deter Albuquerque residents from staying and investing in the city. Bishop pointed to other western states, including California, where economic development efforts are hamstrung by an incredibly expensive housing market.

“If you wanted to see what the future of Albuquerque looks like, I think you can look at California,” Bishop said.

Depoliticizing development

Most of the experts agreed that building more market-rate housing in and around Albuquerque is the best way to ease supply concerns. But that’s easier said that done.

Dan Majewski, an urban design consultant based in Albuquerque, said adding dense development, particularly along transit corridors like Central Avenue, will be key as the city grows. He said he’s optimistic that the city is beginning to understand that denser development will be a priority. The more units that can be built in the existing footprint of the city, the more the city can meet its housing demand without relying on sprawl.

“Ideally, you’re creating a market environment where affordable market-rate housing can be built,” Majewski said.

A Pulte Homes development near 98th Street on Albuquerque’s West Side. (Roberto E. Rosales/Albuquerque Journal)

However, Bishop said dense development tends to attract opposition from neighbors who are concerned about traffic and noise. Bishop said he thinks the city makes it too easy for residents to object to new developments, which creates costly and time-consuming lawsuits that hamper new housing. He said he’d like to see the city move away from treating development as a political process, which he said encourages low-density, high-cost development.

“The city is trying to acquiesce and satisfy this vocal minority and vocal opposition, and they’ve become the most powerful land planners in Albuquerque,” Bishop said.

Majewski acknowledged that large apartment complexes will never be everyone’s cup of tea, and said he’d like to see the city encourage more “missing middle” housing, including duplexes and other small, multi-family options.

“That’s the density that I think people would be more supportive of,” Majewski said.

Nonprofits pitching in

In the meantime, local organizations are attempting to do their part to make Albuquerque more affordable for vulnerable residents. Homewise, a nonprofit that focuses on helping low- and middle-income residents buy and own homes, opened a headquarters in Barelas in 2019.

Johanna Gilligan, Homewise’s senior director of community development, said the organization works toward making homeownership accessible to people who already live in the neighborhood as renters. That encourages investment in neighborhoods around the city without contributing to gentrification.

The organization offers down payment assistance for low-income residents, along with free financial literacy programs. Gilligan added that the organization has added a real estate development component, which builds 60 homes a year in Albuquerque and Santa Fe, and is working to develop 16 townhomes near Downtown Albuquerque.

“It’s not just building housing, it’s thinking about how to build housing in a way that is rebuilding the downtown core of the city,” Gilligan said.

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