It’s hard to overstate how inflammatory the issue of the “mansion tax” has been in Santa Fe. The city of Santa Fe has attempted, in an effort to raise revenue to dedicate to affordable housing, to impose a transfer tax of 3% of any sale amount over $1,000,000, with the tax nominally to be paid by the buyer. So for example a purchaser of a $1,300,000 home would owe $9,000 ($300,000 x .03) tax at closing.

There has indeed been great consternation and gnashing of teeth.

My first impression of learning of this effort was that it was a stupid way to raise revenue. It is. Wouldn’t it be more effective to impose a broad gross receipts or sales tax on all residents? Of course it would be. But voters would never approve that. So backers took aim at what they believed to be a narrow and vulnerable demographic group. It was a clever strategy. It worked. And voters approved it.

But there’s a problem.

Transfer taxes on real property in New Mexico are illegal. State statute on that issue is clear. A lower court ruled earlier this year in a summary judgement that the tax was unlawful (a summary judgement is a judge’s ruling before an issue goes to a jury that there is no question regarding the law as it applies to a particular matter).

And indeed, in this matter, there is not.

But there was an issue in making the ruling stick. The litigant in the case was the Santa Fe Association of Realtors (SFAR), and no harm was done to SFAR in this instance. As the chief litigant, SFAR lacked standing, and therefore the lower court’s ruling was recently reversed by an appeals panel.

The appeals court did not, however, take issue with the lower court’s finding that the transfer tax is unlawful. It is. The court, in effect, communicated that if the litigants desire is for the lower-court ruling to stick, plaintiffs with standing must be a party to the suit. For those opposed to the tax, this is actually a positive development. Why? It won’t be hard to find plaintiffs with standing. Anyone who pays the tax in this interim period (buyer or seller) will have been harmed by the unlawful tax and will therefore have standing.

And a few of them will choose to litigate, I imagine.

Whether a temporary injunction is put in place or not, it seems likely that plaintiffs with standing will appeal the recent ruling and therefore make the lower-court’s finding stick. How long that will take is unknown, but at that point, it’ll be back to the drawing board and in my estimation, the city will revise its strategy to raise revenue for and dedicate revenue to a worthy cause.

(There are multiple perspectives on this issue and mine may not prove correct, so if you’d like to discuss, reply.)

There’s something of a misperception out there as to what’s happening in the Santa Fe market now; I have heard people use the word “weak” and say things like “in this market, you don’t wanna [insert verb]…” as if to imply that the market is flat. That’s not the case. The reality is that the market should be seen as reverting to pre-pandemic inventory levels. More of an equilibrium.

Admittedly, it can seem to brokers like things have slowed dramatically. On some listings, they’ll list a property and not get any showings. And in general the talk around the office is that things have really slowed down. Well, compared to 2022 and 2021, that may be the case in some respects. But a look at the numbers shows there’s a bit more to it.

The chart below shows nine months worth of showings and closings from October 2023 through June 2024. We see the usual overall trend of slowness in the winter and fever in the summer. There are healthy numbers of showings on Sotheby’s listings (the numbers in the bars), and healthy numbers of closings on Sotheby’s properties too (the green line). In Santa Fe overall (the pink line) the numbers are likewise strong. In short — nothing unusual.

So let’s take a look below at the same data from a year later. One would think that with such a dramatic slowdown supposedly at hand, this chart would look a whole lot different; indeed you’d think it would look pretty dismal. The fact that it doesn’t tells you that the market is actually regaining a normal complexion.

Above, we see exactly the same story, only with stronger numbers. Sotheby’s showings (again, the numbers in the bars) are very strong, much stronger than in the same period last year. Likewise for Sotheby’s closings (the green line); the numbers are markedly higher than last year. And for Santa Fe overall, the market appears more robust.

So What Gives? Inventory is Dramatically Higher

Anecdotally, we hear about how much things have slowed. But if you look at the above data, you can see that’s not true. So what’s the deal?

There’s more stuff for sale.

Let’s look at inventory trends for Santa Fe as a whole recently. What’s the story? A gradual and persistent increase in inventory. These increases are not subtle and have accelerated recently with so many economic and geopolitical uncertainties. So while the market may seem to have slowed down markedly, the reality is the market’s just building inventory, and when there are more houses to look at, each one gets fewer looks.

In a market such as this, using data to price properties is ever more important. There is now zero tolerance for overpriced properties. I recently took a listing and (for these reasons) did very thorough pricing research; the data showed that previous asking prices on the property weren’t justified by the comparable sales and were too high by a wide margin. Fortunately, our clients listed to me and the data, and we priced the property well. In the first five days we had three offers with another on the way, and wound up accepting a cash offer that was $225,000 over asking price. I think some brokers are simply having trouble adjusting to the reality that the era of “throw a dart” pricing is coming to a close. You can read into this that there is a marginally more softness in prices and that buyers won’t be elbowing each other to the closing table in the near future. That is true. And overall, inventory returning to former levels is a pretty good thing for buyers.

During times when markets are undergoing a shift, there’s often a period when what one observes and feels isn’t reflected in the numbers. That’s happened over the past couple of months. Yes, Santa Fe is something of an insulated market but in the end, we too are answerable to national trends. And the national policy uncertainty is now starting to materialize in Santa Fe numbers.

The Root: Stupid National Economic Policy

I normally shy away from political statements in these articles, but I don’t have much choice at this point. Tariffs, as everyone now seems to now understand, are inflationary. The broad and punitive ones that have been attempted (100+%) would have been profoundly inflationary. Here’s the twist: the Federal Reserve’s primary mandate is to control inflation, with the target roughly at 2%. The problem is that with deliberately inflated prices, the Fed’s usual tools don’t work. So the Fed is in now stuck a bind with regard to inflation and they know it.

Tariffs are also GDP-contractionary. They slow consumption. Indeed, they damn near stop it altogether in some cases. And the threat to economic growth is not only material but somewhere between significant and grave. We have already seen this in certain national GDP numbers. So the poor Federal Reserve’s faced with economic policy that is both inflationary and contractionary. That’s no-win situation. They don’t have the tools to deal with that. Indeed no central bank does.

The Policy May Be Stupid, But People Aren’t

Not everyone has the economic training to articulate the above but people sense it. People aren’t dumb. People know better than to think that such policies will work, and their sense of unease has caused a slight pause while people wait for evidence of how the economy will respond. So in in Santa Fe, April and May 2025 both saw declines in sales volume versus April and May 2024. People know idiotic policy when they see it. Whether this pause will continue is unclear. We often have isolated sales declines in Santa Fe. My sense is that the American economy’s amazing resilience will rescue it from such incompetence at the helm and confidence will return.

Expect No Decline in Mortgage Rates 

With a threat to growth, we often expect a decline in interest rates. But this time, that’s different. No decline in long-term treasury rates should be expected even if the Fed were to lower overnight rates, and they have no imminent plans to anyway. The bond markets don’t know what to make of all this foolishness and for the time being, have remained planted where they have been for two years. Expect that to continue, with the 10-year Treasury between 4.00% and 4.50% or so, putting mortgage rates in the 6.50% to 7.00% range. High rates are actually a positive factor in supporting prices, because they restrict supply, as I wrote here (this is one reason I’m not too worried about intermittent sales hiccups).

Result One: A Shift Toward Greater Buyer Choice

One result is that housing inventory in Santa Fe has started to build a bit, back toward levels that were normal before the pandemic. Especially at the high end (let’s call it $1.5 million and above), there’s more supply. So if you’re a buyer in Santa Fe right now, this is a more favorable market than it was in summer 2023, 2022, and 2021, when things were still pretty tight. A glance at the 10-year inventory chart below illustrates the fact that we’re still not back at long-term average levels.

Result Two: No Tolerance for Pricing Mistakes

In this climate, brokers and clients who are hasty enough to misprice properties are not being treated with understanding. The market is simply not tolerant of big pricing errors right now. Properties that are overpriced stand out more and simply don’t get showings, so they sit. This is part of the cause of the inventory buildup. This can be a punishing process to owners who have inflated notions about the value of their properties. One condo property in particular comes to mind: it was overpriced initially by more than $100,000 and therefore sat on the market for almost a year; by the time the owner relented and asked something approaching its market value, the market had punished both the broker and the owner. But those who respect the data, do the work, and price property properly are quickly rewarded. 

Conclusion

The only conclusion one can draw at this point is that it’s more important than ever to have a broker who understands what’s at work in the market, who does the homework to analyze the numbers, who is not afraid to tell his client the truth, and who has the tools at his disposal to make market conditions work in his client’s favor. With the market less tolerant of mistakes, not everyone fits that bill.