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Our Team

• Mike Baker
• Penelope Vasquez

Section One:
The ’05 & ’06 Santa Fe Markets

Is one of Mr. Greenspan’s Conundrums Going to turn into a Troubled Local Real Estate Market?

1.1 A Real Estate Slump in Santa Fe?
The local paper has quoted MLS as saying there was a drop of 30% in sales for the third quarter of 06 vs. that of 05.  Many articles, nationally, talk of real estate price drops. How much of this is an accurate reflection of what we face here in Santa Fe?
   “All You Need is Love” or, The Attack of the Superlative.  My version is, “All You Need is Absorption.”  Somehow, I think, Lennon and McCartney need not worry about competition in song titling.
  For years, there has been a lot of local sturm und drang about sales numbers for one year vs. another.  It is meaningless until they also tell you against what backdrop of listings this numbers were arrayed.
  In the very misty past, I started with the marketing of beer and cars.  We were painfully pre-occupied with market penetration, marketing blah blah blah for “How are we doing?” How are we doing is a plea to know how much are we selling vs. our competition and vs. the overall market.
  My reduction of the market in the earlier studies, from 1990 on, showed that in most of our price brackets we sold the same percentage of homes every year.  Yes, sales went up, but so did inventory.
  What sellers (and their agents) want to know is, “What is my chance for selling my property?”
  That’s what all the attendant graphs show you.  And the answer is, “About the same chance you have had for the last 15 years.”

1.2 People Look at me like I’m Crazy!
  People think I am out of my mind when, in response to their question, I tell them the market has not changed for years.  Well, it hasn’t in terms of what percentage of people will buy in Santa Fe vs. the homes that are for sale.
  Sure, prices have gone up, but the town is about as desirable as ever, based on what percentage of the inventory sells.  Again, this statement, as do most in this report, refers to the upper end market(s).
  As does the country as a whole, Santa Fe has many, many internal markets; to paint the whole market here with one brush would be to make a great mistake in good times or bad.  There will be good, bad and indifferent reactions here in our various local markets.  A national article I read today shows fifteen markets with the greatest drops and fifteen with the greatest increases.  The drops run up to 6% and the gains all run from 10 to 16%.  Homebuilder’s stocks have been crushed, but that market really is not a part of Santa Fe due to how small our building really is.

Section Two:
Years 1990 - 2004

2.1 Is Our Market Hot or Cold?
   For years, people have looked at me oddly when I told them in response to their question about our high-end market being “hot” or “cold”, that my impression was that the overall high-end market had not really changed since I started Santa Fe real estate sales in 1978. They are sure it must not be the same market. How could it be the same all this time?
   The reality is that it hasn't changed in many ways for 27 years and therefore something MONUMENTAL needs to occur for it to change it significantly. And, yes, I can see some events taking place that could drastically alter the figures that follow.
  What people looking at our market have often been fooled by is a rise or fall in the home sales and prices within their own point of focus in the high-end market. As is typical with human nature, they assumed that what was happening in their area of concern within the totality of Santa Fe's high-end market was typical of the overall Santa Fe high-end market. However, despite various hot and cold spots in our city and county, the self-canceling nature of much greater factors has dampened these extremes enough to really provide the same market year after year in that only a relatively small percentage of homes sells every year at the high end.
   With little overall variation, the percentage of homes selling on an annual basis has not really changed much relative to the number of homes  for sale - the inventory.
  Year after year, sellers have had relatively the same percentage chance of selling their home on a year-to-year basis. This is because the percentage of inventory that sells in any one year fluctuates in a fairly tight range and that range has always been challenging for the general run of sellers.
   While the East Side has remained the most steady, there have been self-canceling mini-booms and busts in Vista Redonda, Tesuque, Tano Road, several parts of Las Campanas, Sierra del Norte, La Tierra, etc.
  The Percentage-of-Homes-selling-out-of-existing-inventory graphed over a series of years can fairly accurately describe a trend that is worth knowing about. Year-over-year recitations only of sales figures are a dangerously weak analytical model unless these very sales are portrayed against a background of overall inventory.
  Above all, I want to know what I call the Unit-Sales-Penetration of any given market. After all, how can you evaluate your position in a market if you don't know how many sales are being made relative to how many units are being offered?
  Units-sales-as-a-percentage-of-total-inventory-being-offered (in short, Unit Sales Penetration) tells me what the market really is.
  If we know Unit Sales Penetration then, among other things, we know:

1. How easy is it to sell a product?
2. How likely is it to sell in x days?
3. What is my pricing power?
4. How much competition do I have?
5. How long should I be on the market?
6. How long should I stay at this price?
7. What is the risk of over-pricing?

In short, this calculation tells me the Supply/Demand balance, or imbalance. Those who venture into a market without understanding the Supply/Demand situation are at great risk and yet are generally oblivious to that very risk.
  This, then, is the crux of what I am interested in calling A True Market: A True Market is the percentage of units being sold. If you understand this figure, then you can see if a market is actually increasing or decreasing, and you can see what your share is and what it might be.
   In Santa Fe there has really been very little change in the Unit Sales Penetration in any given year due to the fact that rarely do even one-third of the homes listed over $750,000 sell in that very year.
   Therefore, I submit to you that while there has been a rising trend line of more sales on a year-to-year basis, the inventory has kept pace and the market has remained the same in terms of how many homes sell out of the given inventory.

2.2 Why Do We Have So Much Inventory?
  In talking with the top Realtors about this situation, I find they are all in agreement: there are very few buyers relative to the number of homes for sale in any given year. Over the last few years we have all commented on the number of very well qualified buyers who look here, but end up purchasing in other parts of the country.
   Additionally, we are a resort, and resorts typically have high turnover. As Santa Fe has grown, more and more sellers' lives are changing as they move from their fifties to their eighties. We now face a backlog of sellers who have bought homes over the last twenty years and are now a good deal older than they were when they came to Santa Fe. They are getting impatient with sitting still as the remaining years of their lives tick by, and they are lowering their prices so they can get on to whatever it is they want to do next. Many of these people are putting their homes on the market at relatively the same time.
  Five major reasons I see homes coming on the market are: moving closer to children and grandchildren; moving because of health concerns; divorce; cutting back on second home ownership for those with multiple homes; finding out Santa Fe was just not what they thought it was.
   Many, many homes here are bought by adults with adult children and grandchildren. These buyers hope to have places for their families to gather, but then find out that other places work better and so they sell their Santa Fe homes.
   We also have to subtly acknowledge that we were brought up in an age when the West was special, when it was a dream that was fed to us daily with TV shows, movies, and advertising. The younger generations just don't have the same romantic notions of the West that many of us grew up with.
  As these younger generations age they will develop more appreciation for art, theater, restaurants, sunsets, etc. Right now, though, there is a lull. Most things go in cycles and Santa Fe will come back - granted no one knows when.
   I know sales have gone up so there are numerically more buyers. However, a few years ago there were more buyers per home than there are now. There has been a few years' gap where the economy has not freed up discretionary home funds like it once did. We have been adding homes to the inventory while there was not a concomitant rise in the number of buyers that matched the rise in the number of homes.
   Of major concern to buyers is the changing climate in the West. Studies show that the last 75 to 100 years have been the wettest in history. I do not think our water problems will compare to those in Arizona and Southern California, but I do think there is going to be a sea-change (sorry, bad pun) in how water is viewed. This is the fastest growing area of the country and water supplies are diminishing at the same time population is rising.
  I read where Colorado is trying to plan for a 40% drop in water, which drop will take place in a year or two, depending on when the Colorado River dams no longer have a backlog of water to supply the huge population centers in Arizona and California. By law, Colorado has to give those States water.
   That water will have to come from the annual rain and snow pack, not from saved water in reservoirs and dams. For years water has been pulled out of storage lakes, but it has not been replaced at the same rate. We will all have to see if climate shifts affect the Colorado snow pack to the extent that water usage will have to change dramatically. In New Mexico we run into the additional problems of legally binding water compacts for delivery to Texas and Mexico, plus environmental regulations for keeping certain endangered species of fish alive.
   Financially, things are changing, too, in that the Chinese and Japanese have stopped buying so much U.S. government paper. To make it attractive for foreigners (over 40% of U.S. paper is sold to them) we will have to raise interest rates.

2.3 So, Where Does All This Leave You?
   Buyers often know more about our inventory and sales than all but a handful of the top realtors. They come in armed with price-per-foot comparisons and many have already checked with banks about foreclosures (of  which we have some very prominent examples).
  My best advice is to price so that you are as attractive as possible when a buyer does come through. There are many nice homes on the market and price is usually what motivates a buyer to move on one home versus another. As many people discovered who locked in their profits as the stock market slid, the passage of time may allow you to look back and realize that moving when you did was difficult at the time, but in retrospect looks like an act of genius.
   Of course, someone will have to appreciate a home for what it is and where it is located before they will even consider making an offer, so it takes an attractive home before price evaluations become a serious issue. Even so, if buyers don't believe an asking price is reasonable, then they will often not even make an offer because buyers are genuinely confused about value here. They will wait until they see a home that is both great and well priced.
   What fascinates me with markets of all types is that, no matter how irregular the peaks or valleys, there is a vantage point from some time-frame that makes things clear.
   As my now fifteen-year study shows, the absorption has pretty much stayed the same. We have had a lot of building and when these custom and spec. homes go on the market they add to the re-sale inventory.
  At a point I think we have hit now, there is so much unsold inventory that it becomes too obvious for buyers to ignore.
   What I have experienced in my 28 years here in real estate is that there are certain kinds of people who like Santa Fe and always will; there are just not enough of these buyers to soak up inventory to the point where we can raise prices.
  Almost all price appreciation here (other than for land) has been because there is so much more cost going into the level of construction and amenities people now desire.
  To me, true, value-building, appreciation is the same home selling over and over for higher prices. It is not when the average cost for construction keeps expanding as larger and fancier homes are built. Yes, in the latter case prices go up, but there is more money being put into these homes to build them. Prices are not going up because sellers are making a profit.
  What we have had for more than two decades is an influx of owners and builders who put more homes on, or back on, the market than could be absorbed.
   Right now, there are many sellers who just want to move on with their lives, both personally and financially. Many have deep enough pockets to absorb a loss and after two or three years of marketing time they no longer want to do other than adjust their prices to the point where they are attractive.
  This action causes prices to drop. As buyers see these drops, they anticipate further drops and as sellers scramble to compete you have a downward spiral. Very few people move to Santa Fe without studying it and the current buyer knows an astounding amount about prices, past sales, building costs, etc., and generally has some history here as a tourist, or even past property owner.
   This is especially true in Las Campanas where there is so much inventory and a few very visible foreclosures. The addition of several new golf courses has also lessened buyers' needs for Las Campanas as a golf retreat. What is great for Las Campanas is that so many buyers who are not interested in golf have discovered it to be simply a wonderful place to live. Golf is the driving force for very few recent Las Campanas sales and this has been a fact for several years.
   Luckily, many other aspects of the community have been attractive enough to cover the slowdown in golfing.
  Many sellers don't want to take a loss and feel singled out. However, we Realtors go to many closings where the sellers are taking a loss. You are definitely not alone in not getting the price you want. This is true because most homes in Santa Fe sell for less than replacement cost. This is because of all the competition from sellers driving prices down to levels below those that a custom home buyer incurred when they hired an architect and builder.
   The person who will pay most for a home is the buyer who hires an architect and commissions a home; by definition they pay top price for land and construction, and often put in many personally pleasing and expensive features. Rarely will the custom home client even look at existing inventory. They have the desire to build exactly the home they want and are quite unaware of the resale market.
   The next highest paying individual is someone who wants a new home, but will buy a builder spec. Unfortunately for sellers, most buyers who will buy a spec., or buy an existing home, are looking for a good price (we have many homes that are like new, with full landscaping, drapes, and very little wear and tear since they are seldom used vacation homes). These flexible buyers will look at existing and spec. homes. Once the buyer starts shopping what he feels are comparable homes, price becomes the major decision-making factor.
   I understand that this is not pleasant news, but I don't see things changing, just getting tighter. We keep adding inventory at a rate greater than we have sales.
   I think that sellers need to evaluate how they want their property to appear to a buyer in terms of price. I am not trying to beat you up, just letting you know what the situation here is.
  I am often asked why I tell my sellers the parts of the truth that Realtors usually don't want to acknowledge. Sometimes I feel like one of the few honest stock market analysts in 1999/2000. The truth is the truth and ignoring it usually costs more in the long run. Markets talk through the actions of their participants and I am listening and repeating what I hear to you.
  Yes, I can still sell real estate and am not negative about living in Santa Fe, or about the lives of those who love it. I work for sellers in a fiduciary capacity and owe them honest reporting. When someone likes a property in Santa Fe, I am very, very good at getting that sale accomplished.
   My buyers and sellers are interested in very attractive property. It is the only kind I represent and eventually they all sell. I am explaining the odds and how to move them more in your favor. On average, I am seeing homes sell for $500,000 + less than the original asking prices for properties in the $2,000,000 and up range.
   I will stick by you in any way you wish me to do so. I do want to let you know what is happening. I remember well the people who got out early once the stock market started down around the end of 1999/2000. In hindsight, getting out sooner rather than later was the best move.
  Real estate recovers much slower than securities and I don't see a recovery of prices here until they have gone a good bit lower. It could take years to cycle back to higher prices and no one knows from what depths and when that recovery will take place. I know real estate is booming in other parts of the country, but the reality is that in the middle of this national boom we have simply not been participants.