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.
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