O Buyer Where Art Thou

by Ed Adams, SRA Appraisals

2011 has greeted the Taos real estate market with more changes than we would like to see.  The ongoing saga of the land grants continues to put a damper on activity and enthusiasm.  With some luck and the blessing of the PRC our title insurers will feel comfortable in dealing with the La Serna grant after the declaratory judgment is reached.  As to the Hondo Grant, only the federal court system will tell.

Where are we to date?  The following data is for all of Taos County-not the system, just the county areas.  The statistics presented are for single family residential, condominiums, and vacant land (improved / unimproved) through Paragon 5.  The period is 1/1/2011 through 6/19/2011.

Single Family Residential:

2011 Absorption Rate (using 6.5 months): 10.77 units per month.

Total Listings Available:

Total Supply for Single Family: 52.81 months or 4.40 years.

Does anyone see a glaring disconnect here? The Median Listing Price is $129,000 above the Median Sales Price; the Average List to Sales Price differential is $213,420.  This, ladies and gentlemen is a double edge sword of foreclosure affect and tanking national economy limiting our buyer pool.  I fully realize the need to take listings and have inventory, but your sellers are going to have to look at reality.  59 of the 72 sales were under $400,000.  There have been no MLS reported sales over $700,000.  Given the preponderance of activity under the $300K ceiling, 51 sales of the 59 under $400,000, the conclusion by an outside observer can be drawn that the Taos market is in decline and that they are going to wait until they perceive the bottom or near bottom has been reached.

It should be noted that in the appraisal world, a decline is measured by sale – resale within a twelve month period.  Of course, one has to determine the motivations of the seller and was the lower second sales price market driven.  At this point, I have not changed from indicating a stable market, as there is not enough empirical data to suggest otherwise.

Condominiums:

2011 Absorption Rage (using 6.5 months): 2.31 units per month

Total Listings Available:

Total Condominium Supply: 52.81 months or 4.4 years

The condominium market has lost its’ panache with second home buyers.  There are extensive inventories around the country that are vying for this market share.  Florida and California being the most aggressive on foreclosure/oversupply inventory reduction.  Also, with the lending requirements change, financing is harder to achieve to consummate the transaction.  One only needs to look at the lower end of our local market for DOM to note the languishing of units.

Land (Improved / Unimproved):

2011 Absorption Rate (using 6.5 months): 3.08 units per month

Total Listings Available:

Total Vacant Land Supply: 165.58 months or 13.8 years

Land is in the eye of the beholder.  Financing, per our local active banks, is available up to 75% of purchase price, for an approved subdivision lot.  All others are looking at 65% financing.  I have noted more cash sales as vacant land is slowly gaining attractively against a volatile stock market.

Yes, our market is tail spinning here.  We are looking at a decline brought on by transactional values adversely influenced through foreclosures and short sales.  Welcome to the rest of the world.  It does appear however, that our foreclosure inventory has been reduced, but this is not going to foster a return to retail values.  Savvy buyers are fully cognizant of median foreclosure pricing across
the US via the internet and the projections associated with same for continued declines in values in that arena.

Part 2….

I am fully aware that many of you will refute this data or mutter that the ‘cynical pessimist’ is at it again.  Not so.  This is merely the reality we appraiser’s face in this market.  As market strata sales continue to go away the appraisal process becomes more and more difficult.  Use of dated sales data is a very large red flag.  Some of the newer requirements are “pending sales within
90 days” or “two current listings within 60 days-discounting the listings by the sales to list price ratio found on the 1004MC form”.  Market risk is being severely reduced by those lenders still in play.

On the national foreclosure front, it would appear that activity at this time has abated somewhat.  The reason is the 13 states attorney’s general lawsuit for the “robo” foreclosure actions.  Latest news on that front is that the Big 5 will agree to a $10 Billion dollar fine and they can get back at it.  Be prepared for increase in foreclosures and pre-foreclosure activity in the early fall.  One other note here, Bank of America is forecasting a 30% decline in new loan business over the remainder of this year.  They see a significant downward trend in purchase and refinance activity with the bulk being on the purchase side.

There are several home price indices that merit reading and becoming familiar with, other than our local MLS data.

• NAR Existing Home Sales (national data trends)
• CoreLogic Home Price Index (monthly matched pair repeat sales of existing homes across the US)
• Standard & Poor’s/Case-Shiller (quarterly matched pair repeat sales of existing homes in 20 selected metro areas)
• U.S. Census Bureau Data (month and quarterly average and median price of new homes by region)
• Federal Housing Finance Agency Data (quarterly matched pair repeat sales of existing homes in divisions, states and metro areas. Data source conventionally financed sales and appraisals)
• Federal Home Loan Mortgage Corp Data (monthly matched pair repeat sales of existing homes in divisions, states and metro areas. Data source conventionally financed sales and appraisals)
• Federal Reserve Board Data (by region)

You are probably wondering why I have included these sources.  In today’s world, all of these are available with a keyboard and an internet connection.  Your buyers are getting smarter and savvier every day.  It only takes a few minutes to peruse these and be able to counter potential buyer’s comments with regards to our local market.

A note on sellers

There are 5 lies that all sellers tell.  This is universal.

1. “My house is the best in the neighborhood”
2. “I’ve done more improvements than any of my neighbors” (similar to best in the neighborhood speech)
3. “I won’t take less than….”
4. “I’m not going to give my home away” (this is very similar to the “I won’t take less than” speech)
5. “I’ll do whatever it takes to sell”

You have all heard this at one time or another.  Do your homework with regards to market data and be prepared to effectively explain the current market and the affects of foreclosures in our specific market areas.  As our sales activity is unpredictable for price and days on market, have relevant data to present.  Remember, the longer the home is on the market the harder you will have to
chase the market to the bottom.  Recalcitrant sellers make your jobs much harder.  If they want to “test” the market, now is not the time to take the exam.  At least, not on your dime.

As my Uncle Fester once said – “Luck is preparedness and opportunity”.