It’s fair to say that the residential real estate market has slowed from a gallop to a trot in Santa Fe. If you haven’t read the previous post on the mortgage-rate lock-in effect, it’s got some great information, courtesy of federal housing agency Freddie Mac, on what’s accounting for some of the slowdown.
Why then, are bare residential lot sales seemingly booming in Santa Fe? I insert “seemingly” here because though three months of increased-sales data (which is what we’ve got), may indicate a trend, it does not necessarily point to a long-term pattern. Time will tell that.
For May, June, and July of 2023, Santa Fe land sales actually increased by 11.36%, 10.71%, and 36.59% over the like year-ago period. Why? Let’s look. Lots aren’t financed with mortgages, but they are often acquired with loans of one stripe or another (construction loans, etc.), all of which are higher. The Fed Funds rate’s now at 5.50% and the 10-year U.S. Treasury benchmark around 4.15%. With loan costs higher across the board, what’s driving the increase?
Residential Lot Sales in Santa Fe by Month, 2019 through July 2023
Well, we’ve seen dramatic contraction in supply due primarily (or exclusively, depending upon how you look at things) due to higher mortgage rates, which as of this writing stood at an average of 7.09% for a conforming loan.
Demand in the housing market hasn’t really taken orders from the supply side too well, in some respects. Demand in housing remains high and tends to be inelastic, resistant to short-term change and pricing shocks. If existing-home supply continues to abate, new home construction may continue to fill the gap.
And increased new-home construction means increased land sales.
It is important to note that three months do not make a trend. It’s a good idea, though, to keep an eye on what happens with lot sales in Santa Fe and nationwide. It seems plausible that higher lending rates will have (somewhat ironically) fueled a new-home construction boom, simply to meet the persistent and ever-present demand for housing in the U.S.
Sources: Santa Fe Association of Realtors, Fannie Mae
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