All Posts from Walker
When Sellers Fail to Disclose in New Mexico Real Estate
Of every 100 real estate contracts that don’t make it to the closing table in the Land of Enchantment, about 80 suffer at least some of their fatal wounds during the inspection process and the conditions that precede it. The law works a little differently in every state, but in New Mexico, legislation and case law surrounding the issue of sellers disclosing possible defects in the home (“adverse material facts”) is not as well developed as we might like. And given that I write this article for the benefit of buyers, there are approaches a very good broker can take to reduce the risk to the client and frankly, to him or herself. The word that comes to mind is thoroughness.
It’s not that well known among the public but the various forms that real estate brokers use in the conduct of their business play a crucial role in the course of a transaction. And some are more effective, and better-designed, than others. Unfortunately, in New Mexico, the form we use is poorly designed and encourages sellers to not to disclose items that, with a better-designed form, they might happily cough up.
Take a look at the screenshot from the form below.
You don’t need a master’s in psychology to realize that if there’s a handy “ain’t nothin’ wrong with this particular thing,” many people are going to take the easy path and just check the little box. And that’s exactly what happens. In New Mexico residential real estate, this is a significant issue.
What’s the Consequence?
If a seller’s disclosure form comes back from the seller’s broker with nothing on it, it ordinarily creates at least a degree of distrust and suspicion. It should. Because there are flaws in every property, including new construction. And if the ensuing contracting process isn’t handled well, this can create unwanted headaches for the buyer and expose many involved to liability. But rather than focus on what can go wrong (believe me, it’s a lot), let’s focus on how to prevent it.
Do The Digging
If you’ve fallen in love with a property and for whatever reason, the seller writes, in effect “Ain’t nothin’ wrong with this place,” you don’t have to take their word for it. Quite honestly, one should never do that. An old Russian saying comes to mind every time I go through this; in 1985, as Reagan and Gorbachev were negotiating what (if I remember correctly) was the START II treaty, Reagan quipped (in English) “Trust, but verify.” In real estate, I’d remove the bit about trust. Just verify. This is what the inspection process is for, after all. And the general inspection is only a place to start uncovering potential issues. An inspector may write something like “The roof appears to be quite old and has significant wear; I recommend contacting a licensed professional roofer for further diagnosis.” Your broker should almost always do this!
Why? A portion of the benefit of having a contractor take a look at your property and provide an estimate for a new roof or significant stucco work is that no matter how outrageous the quote may be, contractors almost always provide valuable diagnostic information in their estimates. This often includes information about expected remaining life and the likelihood of failure, which can give a buyer a great feel not only for whether they want to move forward or not but if they do, it can give them a pretty clear path forward on how to take care of their home. It’s protective.
Overkill is Best
An anecdote: In a recent transaction in which I was the buyer’s broker, the general inspector was not, let’s say, crazy about the condition of the roof. So over the course of the next two weeks I obtained no fewer than five estimates from contractors, two for repairs and three for replacement. Below is a screenshot from my transaction file. Added to this were estimates to replace the garage door, to repair the stucco, and (as is standard around here) a chimney and fireplace inspection with estimates to bring that up to par. No stone left unturned.
Under New Mexico law, if a buyer learns of a certain fact or condition of a property through one of several means, it has the same legal effect as if the seller had disclosed it. So if I were to climb on the roof with a roofer and learn that there are six different trouble spots and it’s documented in a report, that’s legally pretty much the same thing as if the seller had told you in the disclosure. If the seller mentioned nothing about the stucco showing signs of water damage but the stucco contractor said “Those waffle marks are bad news” and noted this in his estimate for repair, the legal effect is almost identical. Case law surrounding the disclosure issue may not be that ample in New Mexico, but it does not mean that there’s no avenue for a prudent buyer. There is. It’s common sense.
Investigate, Investigate, Investigate
Simply put, the key is to do a hell of a lot more work than the other guy.
Whether a seller fails to disclose adverse material facts out of mere oversight, by deliberate choice, or in an effort to deceive, a prudent and professional broker can put his client in a position in which none of that has much effect upon his course of action, because he or she will have been fully informed – even over-informed — no matter what a seller’s actions.
That’s the position you want to be in.
Seven Tips for Spring Buyers in Santa Fe
If you’re lucky enough to be in the market for a place in Santa Fe this summer, there are a few things you can do to help make your experience a smooth one. No, this won’t be focused on the “be prepared to act fast” stuff. Rather, we’ll take a look at what you can do to protect yourself from risk. My eight tips for sellers, incidentally, written last March, is here.
- Think Like an Insurer
With climate change as the backdrop, towns and cities all across the American West are dealing with fire risk and its repercussions. P&C insurers, with their penchant for paranoid thinking, have begun intensively rating areas within communities for fire risk, reducing the number of new policies they’ll write in given areas, and raising premiums. Santa Fe is divided into five (I believe) risk zones, with the in-city risk the lowest and the highest up on the mountain. If you’ve found a place, the first thing you ought to do is ask your broker to connect you with insurers who will check out the property, write a good policy, and provide a quote.
- Make Sure Your Broker Uses the Best Title Company
On Santa Fe’s east side, some of the land division dates back to the 16th century and many of the structures to the 18th and 19th. What does this mean as a practical matter? Certain lots, with perfectly lovely modern structures on them, may have been informally divided by families 150 years ago. Making sure your property sits on a legal lot of record is almost always a good idea on the east side. And there are really only two title companies in town that, in my experience, exhibit an extremely high level of professionalism consistently and are worth using. It’s important.
- Inspect The Property Until You’re Blue in The Face
A good general inspection, in Santa Fe, is only a starting place. The importance of knowing as much as possible about a property can’t be overstated. Just on an average property built, let’s say, in the 1930s and remodeled recently: you’ll want a general inspection, you’ll want a couple of roofers to look at the roof unless it’s brand new, you’ll want to scope the sewer line to the house, and you’ll very likely want to have a stucco and/or adobe expert look as the stucco. And this is for a house on city water. Because of how our disclosure system works here, you simply cannot be too careful. You can get huffy with him, but if your broker asks you to spend $1,750 or $2,000 on inspections, he’s looking out for you.
- Understand that Santa Fe is a Relationship Town
If you’re a homeowner here, you’re going to need good relationships with various contractors, your broker, a mortgage banker, etc. Cultivate those relationships, and where possible, go with someone local. Out-of-state banks and mortgage brokers simply do not understand the many quirks of the Santa Fe market. There are perhaps three (all local) lending professionals I’d recommend in Santa Fe, and if a loan is involved, their help is most often vital to reaching a successful closing. An out-of-state banker doesn’t have to look you in the eye when they run into you over in the Railyard, and screwing up your transaction often does not concern them in the least. Yes, I said it. Sometimes they don’t care.
- Pay Close Attention to The Roof
This ought to be in bold print in our sales contracts. The wonderful thing about Pueblo-revival architecture is that our houses are kept low and the landscape isn’t marred by hundreds of pitched roofs. The not-wonderful thing is that flat roofs are finicky and tricky; they have to be maintained regularly, the parapets have to be properly covered and sealed, and any gaps through which water can penetrate must be sealed. Have your general inspector look at the roof and then have a at least two recommended local roofers look at it too; general inspectors aren’t really trained to give a real diagnosis on a roof. Get the photos. Examine them. Make an assessment with your broker. Find out what the problem areas are. Fix them. Don’t mess around with roof-related things.
- Don’t Skip The Stucco
Exterior stucco finishes of various types function beautifully in our dry climate, but they do weather and (in the case of natural adobe) even erode. On a 3,000 square foot house, for example, a full-re-stucco job can be prohibitively expensive and can make a contract fall apart. Pay very close attention to stucco finishes and understand what your investment may have to be to either maintain it properly or bring it into good shape. Work with the stucco people your broker recommends, and not just anyone.
- Slog Through Your Documents
The various documents and paperwork we use in the course of our business in New Mexico are notoriously lengthy and often not well designed. Your broker will most likely understand it well, but in any case, read your purchase agreement carefully and have your broker review it with you in detail so that you know exactly what its provisions are and what your obligations are. It’s best to do this while you are looking at properties and not when you’re under the gun to get an offer in and have it accepted. That way you’ll know what you’re signing and can use your intellectual and emotional energy productively, rather than fret about what you just signed.
Why Santa Fe Home Prices Will Likely Continue to Climb
There are very few times when one can state with a good degree of certainty what lies ahead. The present is one of them. Absent some outside event which would disrupt markets in global fashion, real estate prices will continue to climb at a faster-than-usual and steady pace.
Why? It’s quite simple, actually. Rates are likely staying high. People with cheap mortgages don’t want to move. That means a shortage of home inventory. And that means higher prices.
When I wrote on this in August 2023, the mortgage-rate lock in effect had recently hit analyst’s brains. Now there’s data quantifying the impact.
A New FHFA Study Quantifies The Effect
The Federal Housing Finance Authority (FHFA) recently published a 59-page study documenting the lock-in effect. The paper’s abstract contains the goodies:
1. “Findings reveal that each percentage point that market rates [that is, currently available mortgage rates] exceed existing fixed rates [outstanding mortgages homeowners hold] reduces sale probability by 18.1%.”
2. “This lock-in [effect] prevented 1.72 million transactions from second quarter 2022 to second quarter 2024 and increased home prices by 7.0%.”
On the first point, lets look at current mortgage rates. With the 10-Year U.S. Treasury (off of which mortgage rates are priced) at 4.55% as of the December 19 close, that puts average mortgage rates around 7.20%. And with so many outstanding mortgages between 3.00% and 4.00%, the reduced probability of sale is not 18.1% but more than double that – closer to 40%+ (remember, reduced sale probability of 18.1% for every percentage point difference). Why? Nobody wants to move when they have 3.00% locked in now, and face 7.20% in a new home.
This effect dramatically reduces supply and will continue as long as cheap mortgages are outstanding and current rates high. The FHFA study also finds (in point 2 above) that this reduced supply increased prices over a two-year period between Q2 2022 and Q2 2024 by 7.0%.
But Aren’t Rates Supposed to Be Falling?
What about rates? Aren’t they supposed to be falling? As I wrote here over a year ago, don’t count on it. Not only did the Fed’s 50 basis point cut have no downward impact on mortgage rates, they’ve trended higher.
Why?
The market expects a couple of things: the new administration’s tax cuts and tariffs will prove overstimulative and inflationary (tax cuts are fiscal stimulus; tariffs increase consumer prices), and right now, the last thing the economy needs is stimulus. Inflation, the market also recognizes, is tamed, but not conquered. With overstimulative policies on the way and inflation not obliterated, bond markets see high rates ahead.
And markets are usually right.
The Bloomberg screenshot below (taken a few weeks ago; I’m lazy) shows the trendline of the yield on the 10-year U.S. treasury rising since the first Federal Reserve rate cuts, and it’s even higher today, at 4.55%.
Trendline of U.S. 10-Year Treasury Yields since the September 2024 Fed Rate Cut
What derails this scenario? Much lower rates. That is quite literally the only thing that will. So if there is some giant global shock on the scale of September 11, the Great Financial Crisis, or COVID that threatens to tank entire economies, central banks might resume the old game of cutting rates to zero by buying up every bond in sight. In my view the central banks have hit the bottle like this too many times, and those mechanisms may not be available like they once were, so even with a huge shock, rates are very likely not going where they were again.
With a relatively high degree of certainty (80%), then, national real estate prices will continue to climb because of ever-tighter supply. Yes, there’s roughly a 1 in 5 chance that something breaks in the other direction and things get funky. It could happen! But don’t count on it.
So if you want to know what residential prices will do in Santa Fe and nationally, look at the 10-year treasury yield. If it stays between 3.80% and 4.80% or so, supply will stay tight overall, and prices will climb. Period. And buyers who pay cash benefit from these realities without having to endure the jump in rates.
Little Lessons in Perspective from The Wine Train
I’ve been in and around Santa Fe for 22 years. Over that time I’ve learned that my beloved northern New Mexico hideaway is a town, a city, and a place that really wants to be known. It’s not closed off, with dark, hidden pockets. It’s open, welcoming, and accessible. I’ve prided myself on how intimate I’ve become with the place, how connected with it I feel. So how did a simple excursion train upend all that? Can everyday events like a train ride cause you to shift your perspective?
The recently restored depot at The Railyard
I know Santa Fe like few do. I know every inch of the road bike climb up Hyde Park Road to the ski area. I know the incline of just about every hill in town. I know the views from Sun mountain, from Picacho Peak, and from Atalaya. I know how annoyingly difficult it is to get out of that stupid parking lot across from El Farol on Canyon Road. I know exactly where the crucifix is at the top of Tesuque Peak, what a non-event it is to realize you’ve summited Penitente peak (total buzzkill), and where the big blob of snowboarders will be as you slide off the triple chair at Ski Santa Fe.
On any given day when I drive into downtown, I know how crowded it will be and what the vibe on the Plaza will feel like. I know the city on foot, from a car, from a pair of skis, a set of snowshoes, and from a bike. But there was one way I didn’t know the place.
The passenger cars waiting in the depot
A few days ago, Heather and I experienced Sky Railway’s New Mexico Wine Train. It was loads of fun. A project of George RR Martin, Sky Railway has been running since 2020, but we hadn’t yet hopped the train. And as the cars pulled out of The Santa Fe Railyard rolling south, elevated only by the tracks’ sitting seven or six or seven above grade, the city looked a little strange. Familiar intersections looked odd and the rail trail entirely different. The landscape unfolded from funky angles I’d never seen on foot, from a bike, or from a car. A little weird.
We rumbled south with the Santa Fe foothills on the left (looking unfamiliar and unknown) drinking New Mexico wine. As you roll toward the destination of the Galisteo basin, you first follow the modern tracks that Sky shares with the New Mexico RailRunner (the commuter train that runs between Santa Fe and Albuquerque). Then the ride becomes bumpier as you roll onto the old Santa Fe Southern tracks, laid down in 1883 or so.
One of many unfamiliar views of the Santa Fe foothills
We stepped out on to the flat car to take in the views and the cool air. I looked over toward the Jemez mountains, all of which are remnant of a giant dormant volcano. There too, toward the west, were unfamiliar angles and views. After all the traipsing around Santa Fe I’d done over two decades, I realized I actually don’t know the place like I thought I did. And this was all by virtue of the fact that my eyeballs were just six or seven feet higher and perhaps 30 feet away from their usual points of perspective.
Is it so with everyday life? Are the things you thought you knew that way, but also a bit different?
In every situation and place, with people you’ve known for decades on end, with relationships that feel well trodden, there will always be another perspective, a raised vantage point, one which you have always missed because your view was blocked.
Is your view blocked? What are you missing?
Kenneth Koch hits on a similar idea in my favorite poem, One Train May Hide Another.
A 360-degree-ish video view from the flatcar
Heather taking a picture of…some really cool dirt?
On the 1880-vintage Santa Fe Southern tracks
For more astoundingly valuable life lessons, visit More Life Lessons from The Company Dog.
Santa Fe Real Estate Market 3Q Recap
From A Fever in Summer to Balance in Fall
It’s difficult to overstate how much the Santa Fe residential market is driven by seasonal tourism flows. It’s pronounced. It happens every year, predictably. A few months ago, I wrote on the topic here. Yet even when we anticipate a fall easing and know it’s coming, it manages to present itself as something of a surprise.
A More Balanced Market
If you were to talk with 50 Santa Fe real estate brokers (fortunately, I’ve done this for you), all would mention something like “things have slowed down” and “there’s softness in pricing that I didn’t feel in June.” We’ve all also observed that properties sit on the market a little longer now versus in the summer. It’s part of the normal seasonal shift from summer’s frenzy to fall’s more laid-back pace. A listing that was perfectly priced in June might now appear overpriced, for example. Along with the accompanying ebb of showings (which is, incidentally, a leading indicator of closings) all this is to say that a normal winter pattern has taken hold in Santa Fe.
Back to Pre-Pandemic Listing Counts?
Right now, we all feel a bit of a buildup of active listings, at least anecdotally. Our office can certainly see it. And it turns out, there’s countywide data back it up. Over the span of a few months, the listing count has returned roughly to pre-pandemic levels (these data run from January 2019 to October 2024).
Normalizing Inventory Levels?
The time it takes to work through inventory appears also to have normalized. And while it’s too early to declare this indicative of a sort of long-term post-pandemic normalization, that may be what’s happening. The next six or nine months will tell us.
Listing Price v. Sold Price
Some softness in pricing is evident currently, but it’s not super pronounced. As brokers, in our first-hand experience, the softness may feel a tiny bit more pronounced than the numbers demonstrate. We’ll see what the next months hold.
Why The Shift?
If you were to talk to 50 brokers (again, you poor soul) you’d hear the same story on what’s happening. But if you were to ask them why, you’d hear 50 different tales. My instinct tells me that recent industry changes (which have a goal of encouraging transparency and price competition) have befuddled a fair portion of the public, who observe that real estate has been conducted in fundamentally the same manner in the U.S. for 50 years — and suddenly they see major change. My hunch is that some have chosen to pause as they relearn the ropes, and that the market feels this as an easing in demand.
What else could be at work? As I forecasted in this post, mortgage rates are actually a bit higher, despite the Fed easing. The 10-year treasury, off of which fixed-rate mortgage loans are priced, sits at 4.41% as of yesterday’s close, putting average home loan rates back around 7.00% (the bond market doesn’t like political uncertainty at all). There are indeed mixed economic signals now, but most data point to continued strength (at least for now). So it’s somewhat reasonable to pin a shift in demand on the industry changes prompted by the DoJ settlements. Yes, the changes intend to encourage competition and transparency, but at the moment, they’ve encouraged confusion.
Back in The City Different, we await the inevitable seasonal pickup in activity.
The Latest News on Buyer-Broker Agreements in New Mexico
The U.S. Department of Justice seeks to raise the level of transparency and price competition in the U.S. residential real estate markets. This is a worthy and long-sought goal. But because of how U.S. markets have been structured for more than 50 years, the mechanism to push markets into a more competitive era has proved a bit clunky. Rather than having the “sell side” pay the commission for both the seller’s broker and the buyer’s broker – and sometimes having relatively little say about it – the DoJ now seeks to decouple the buy side from the sell side to allow for more negotiating authority.
This is the goal. But it’s tricky to get there. The mechanism settled upon is that buyers now have to have a written agreement with their brokers. This is the centerpiece.
Enter the Mandatory Buyer-Broker Agreement
U.S. buyers are accustomed to just picking up the phone and asking a broker to see a property, no strings attached. That was a luxury afforded by the fact that the sell side typically paid commission for both brokers. Of course, commissions were (in reality) built in to the price of a home. So the buyer paid it too, in a sense. Now we’re going to get clear about those relationships, DoJ says.
Back in June, when I last wrote on this, it looked as if we’d have only one option. But now the New Mexico Association of Realtors (NMAR) and Sotheby’s (we develop certain of our own forms) have sought to make the transition to the new world smoother, by allowing for some flexibility.
Single-Property Agreements
If a buyer sees a single home that he or she wants to see and doesn’t anticipate more, he or she can sign a single-property buyer-broker agreement (the Sotheby’s-branded versions of these forms are below):
Multi-Property Agreements
If a buyer wants to tour homes with a broker over a weekend (let’s say) in a given area, we can provide for that eventuality too. A buyer and his or her broker can identify a group of homes, set a time period during which they’ll look, and still be covered. The intent here is to provide for the reality that a buyer may not know his or her broker well and that the establishment of their relationship is in its early stages:
Broad, Long-Duration Agreements
For those cases wherein the broker and buyer have a close working relationship and have established a track record of trust, the parties can agree that they’ll wok together for a period of (usually) six months or a year and that all properties they might look at would be covered by the agreement. Here, we seek to provide for the reality that many buyer-broker relationships are longstanding and built on years of trust. Nevertheless, it’s still got to be in writing!
So What’s The Point?
In each of these cases, the buyer and his or her broker establish the percentage of the sales price that would go to the broker as compensation. If the seller doesn’t offer sufficient compensation covering that amount as incentive to market the property, the buyer might make up the difference. Now and in the future, the buyer has stronger legal authority to engage in a negotiation over how much he or she might seek to pay his or her broker.
That’s a big deal.
So while it might seem an annoyance to sign a form beforehand, it’s critical to keep in mind that this is the first step in introducing more price competition. All this being said, the best brokers (especially at Sotheby’s) are well worth their salt and many transactions are an absolutely enormous amount of work. Don’t be surprised if the fee compression is quite gradual indeed.
Visit the New Mexico Association of Realtors.
I Remodeled My Blog!
One of my first jobs after I got out of college was with a regional advertising agency in Houston called Black, Rogers, Sullivan & Goodnight (BRSG). Rather comically, the partners never quite settled on how to order their last names in the moniker and at one point (until they wised up) the abbreviation was BGRS, which prompted snickers far and wide. For a while, I even headed toward making a career in advertising. But the shiny object that was investment management & finance lured me away.
Even as I toiled in finance listening to portfolio managers trying to explain the difference between a “bull steepening” of the yield curve versus a “bear flattening” of same, I kept my mind for marketing. In fact, I was arguably one of the few writers capable of making mundane portfolio manager ramblings sound interesting to the average Ferrari driver.
I’ve therefore always found it 1) perplexing, and 2) a bit silly, and 3) not terribly smart that many of the best real estate agents, who work under a brand as strong as Sotheby’s is, abandon that brand strength in favor of “developing” their own.
This is dumb.
When I launched this site over a year ago, the purpose was simply to get the content up and to get my message across. It served that purpose well. Believe it or not, this little thing gets a lot of traffic, even when I’m just sitting on my hands.
Leveraging the Brand
It simply makes the most sense for me to associate myself closely with the Sotheby’s brand, since it’s one of the strongest around, and I work there and stuff. So while this site is not a company property, so to speak, I’ve redesigned it to operate perfectly with my Sotheby’s site, and indeed, to be so closely in line that there is no real difference to the viewer. You’ll note that among a host of smaller improvements:
• The navigation at the top looks essentially identical to the Sotheby’s site
• I’ve added a property-search feature
• The branding is the same
• Switching back and forth between the two is pretty much seamless.
So why bother to write a post on this? Well, if you entrust me to sell your property, you should be interested to know that I understand marketing and do it fairly competently; this is just one small part of that.
Wisdom in A Can: Sometimes It’s Delivered to You Free of Charge
This post isn’t going to have many pictures. No charts. No illustrations. No graphs.
I’ve wanted to write something on this for some time but put it off because I couldn’t arrive, mentally, at the right approach. I knew it was out there, but couldn’t land on it. Now I think I have. And for this subject, I realized it’s best to focus on the understanding one gains, as the title suggests, rather than the thing itself.
So, Walker, You Think You’re a Contemplative Person?
I’ve always been a fairly thoughtful person — not thoughtful here in the sense of “thinking of others” but in the sense of having a contemplative nature. I had an opportunity to test this hypothesis about myself beginning in March 2022, when an unexpected lab test result was displayed on my phone after a visit to my general practitioner. But lest you think this a depressing and self-involved or self-pitying article about a medical condition, rest assured it is not.
My subject is the wisdom one can gain if one looks things squarely in the face, no matter how something is brought to your attention. The result in question was a way-too-high PSA reading. My first thought was “thank God I have good insurance!” But after that, “get moving and take care of it” was my jam.
When one has cancer of some sort, a pathology report is usually produced. It should be, in some sense, the center of your treatment over the ensuing months. Within a few days, I had mine in hand. Heather and I suffered through a report review appointment with my surgeon, during which he made a bit of a funny face. But for the time being, I had a few practical things to do, such as getting through the surgery. That, in comparison with all that followed in the next year, was the easy part. I returned to the report later, but perhaps not quite how I’d envisioned doing so.
Damn You, Estes Park!
All seemed routine in my recovery from the surgery. Heather was an absolute Godsend in helping me through it — not without a few comic moments. Fast forward two months: I noticed I’d had a fever (if you’re sleeping in your -10-degree goose down sleeping bag indoors, that’s a clue), so I knew something was wrong. But I thought it was pretty minor. It wasn’t.
Allie and I had taken a little day trip up to Estes Park, Colorado (about an hour north of Boulder) one May weekend. When I returned from Estes, I took a look at my leg and drove myself to the ER the next morning. After three or four days in the hospital and some fairly skilled diagnosis from the doctors at Boulder Community Health, they figured out roughly what had gone wrong after the surgery and what was happening. In the meantime, I went back to the pathology report and read it pretty carefully to educate myself. In plain English, it translates as “your cancer has not spread but it very well may.” So that had the effect of a few cups of coffee in waking me up and putting the whole experience in context.
“What the heck does this have to do with real estate?” you may be asking. The answer is “a lot” but bear with me.
An Attention-Getting Device
Getting tossed back into the hospital after a complication from surgery is not that unusual, but in my case the gods seemed to want to emphasize their point over the next few months, when I underwent six surgeries, most of them pretty minor, to sorta straighten things out. “What exactly am I dealing with?” grew into a question that was not terribly easy for me or my doctors to answer because things got a little trickier as time went on. Going through all that was enough to get my attention, and more importantly, enough to change my outlook.
Wisdom in a Can
The practice of real estate pivots upon very heavy interaction with people and sometimes the process of buying and selling becomes sufficiently stressful that people depart from their usual behavior patterns. I’ve witnessed it several times and I’ve learned to look at the mountains in the distance, figuratively speaking.
The whole experience having rearranged my thought patterns, I realized at a deep level that there are things worth paying attention to, and there are things worth looking past, not unlike like how we all tend to gaze at the peaks in Rocky Mountain National Park on the way into Estes. I am thankful that my experience (admittedly vaguely outlined here because the it’s not the point) gave me a quick, automatic, and pretty damn accurate sense of what matters.
I now have an ability to separate the wheat from the chaff (to use a cliche) in a way that’s very helpful in our business and keeps the boat from rocking too much. Lest you worry I endured something terrible, don’t! I didn’t. I’m ok. But coming face to face with one’s mortality provided sufficient impetus for me to accept the gift of wisdom in a can and put it to use in daily life. And for that, I am grateful.
What’s Next for Mortgage Rates? The Treasury Markets Hold Strong Hints
Almost exactly a year ago, on August 12, 2023, I wrote a post titled “Waiting for Mortgage Rates to Come Down? Examine Your Assumptions First.” At the time, the U.S. Treasury’s 10-year note, off of which mortgage rates are priced, yielded 4.22%. My contention was that given the state of things, it seemed unlikely to me that over the ensuing year, mortgage rates would drop meaningfully. Yesterday (the date I revised this article), the 10-year closed at 3.88%, a drop of a whopping 0.34% over the course of a year.
This past April, I gave a little talk here in Santa Fe about the bond markets, interest rates, mortgage rates, and how it all works. The thrust of it was that 1) with the yield curve having been inverted (with short rates higher than long rates) for as long as it had been, something was about to give, and 2) not to hold your breath for sustained and markedly lower mortgage rates, again. It’s something of a mantra, I guess.
Back when I worked in investment management, I formed pretty close working relationships with “the bond guys” because fixed income, to me, is inherently more interesting than equity analysis. One of the things you pick up on after you talk to portfolio managers over several decades is that inverted yield curves only happen about 10% of the time, on average. This most recent inversion seemed like it went on and on forever. But what’s meant by the yield curve in the first place? A chart from my talk, below, helps you visualize it.
At that time, in late April, short rates were higher than long rates and the curve had been inverted for some time, with 10- and 30-year rates lower than the overnight Fed funds rate. It was pretty clear that the market just didn’t know what to expect. The 10-year yield was then at 4.67% versus 3.88% as of yesterday, August 19, 2024.
Normally, an inverted curve is seen as a harbinger of a coming recession. Why? Because interest rates are a measure of risk. It’s always inherently riskier to borrow for longer periods of time. But if you think something ugly and terrible is going to happen in the short term, you might insist on an abnormally high short-term rate to lend someone your money. And if that’s the case, long rates might appear perfectly reasonable, but short rates high. So inverted yield curves are not an indicator of short-term economic confidence. That’s where we’ve been. The yield curve has been predicting ugly things for a while now.
If you go back a few decades (below, back to 1975) and look at a graph of all the time periods the yield curve has been inverted, you see a consistent pattern. Recessions always follow long periods of inverted curves. Look closely look at the chart, in which recessions are depicted via the grey bars. It is a near-perfect indicator.
Importantly, it happens afterwards, when the curve is beginning to flatten and normalize. And when the curve finally does normalize, recessions follow.
So that’s where we are now, with the curve flattening.
Right on cue, we got some bad numbers a couple of weeks ago. Job creation slowed and the unemployment rate (a somewhat problematic calculation admittedly) crept up, among other things. But at the moment it’s a fairly balanced picture with some strong data coming in also. With inflation under control and mixed data beginning to trickle in, the market is now asking “Why are short rates at 5.25% to 5.50% now?” And indeed the Fed seems poised to cut the funds rate by 25 or 50 basis points in its September meeting. So, the flattening and the end of the inversion seems to be upon us.
What might happen with mortgage rates over the next six months or one year, as more data comes in? What are the odds, I asked, of 10-year levels declining below 4.00% and staying there, taking mortgage rates down to 6.65% and lower? (A typical spread between the 10-year yield and a national average mortgage rate is 265 basis points or 2.65%. If, for the sake of argument, you assume the 10-year yield is around 4.00%, give or take 15 basis points, that puts a national average for mortgage rates at 6.65% or so.) My thought back in late April (when these charts were done) was that it seemed unlikely that the 10-year would stay below 4.00% for long. I still believe that’s the case, but short spells with mortgages at 6.45% or so seem likely.
So to reiterate: if we assume the Fed’s going to cut by 25 or 50 bp in September at its next meeting and recession may be on the way, what does that mean for mortgage rates over the next six months to one year?
“Not a hell of a lot” would be my answer for now.
Why?
The bond market has already priced in the Fed cut by pushing long-term yields lower, so that when a rate cut actually happens, 10-year rates might actually rise a bit. And if the 10-year Treasury stays in a trading range between 3.80% and 4.50%, that puts mortgage rates at 6.45% to 7.15% between now and the end of the year. Again, not much.
The rate scenario seems pretty clear to me.
The more interesting question to which there is no evident answer now is how much of an overall economic slowdown we’ll see, and what THAT may mean for housing markets nationally and in Santa Fe. Another big question is how much of a softening of housing demand we might we see as a result of the recent regulatory changes in real estate. My informed guess on the latter question (based on my recent experience working with buyers) is that that softening may be significant as buyers hesitate and grapple with the changes, and that we may see much more of a buyer’s market — with much more supply. We don’t yet know a firm answer to either of these questions, but by year end, we will.
In the meantime, again, I might not expect magic things to happen to mortgage rates over the medium term and would caution that if the 10-year yield climbs (a fairly likely eventuality) a slight uptick in rates would be expected. For now, though, I imagine we have seen something of a short-term bottom.
More Life Lessons from The Company Dog
I’m one of several brokers at Sotheby’s in Santa Fe who doesn’t maintain an office space in one of our three addresses here. If I’ve got officey things to do, I most likely bring Allie into the Washington Avenue office near downtown, where she’s developed a little bit of a fan base. Several brokers, in fact, know Allie well but couldn’t pick me out of a lineup. When I walk in, I hear “Hi Allie!” and “It’s Allie and Walker,” which I love.
The company dog outside the Sotheby’s Washington Avenue office
The Advantages of Vagrancy
I tend to believe it’s professionally wise not to get into too much of a routine, coming to the same place every day and seeing the same people. Indeed, one of the things I like most about real estate is that it frees you from that constraint. So over the course of a couple of days, Allie and I will go to the Washington office for a while, hang out and work, then go over to the office on Palace Avenue to say hello to the marketing folk, then perhaps over to the office on Grant Avenue for a meeting, and sometimes walk down to Hotel Chimayo to sit on the portál to work.
Ristras hanging on the portál at Hotel Chimayo
Allie generally doesn’t have ugly things to say (except at the coffee shop on Marcy, where she believes the chocolate lab who frequents the place should meet a quick and certain death). That disposition tends to rub off on me, and I find it hard to have a terrible day when she’s around (it’s possible, mind you; I’ve tested it). Having a big giant white fluffy dog around also tends to raise the spirits of other dog-loving people at Sotheby’s. And it carries a couple of other benefits.
Focus and Prioritization
When you know you’ve only got about two hours’ of work time in one sitting, it focuses the mind and makes one more productive. When I sit down to work with the monster there, I gotta work. It also relieves me of the tendency (which I get from my corporate days) of feeling that if I’m not head-down, buried in a computer monitor, doing some horribly unpleasant analytical chore, then I am somehow “not working.”
The reality in real estate is that the more relaxed one can be in the face of uncertainty, the more able one is to do things that relieve the uncertainty. Yes, I love the days when I’m not Allie-bound and can put in a solid 10 or 12 hours without having to worry about whether the dang dog’s had enough water and approves of today’s cookie selection. But having your attention forcibly redirected at regular intervals tends to have a leveling effect that feels healthy.
The company dog on her way to a showing
I have learned that the success I’ve had so far is not in spite of my having to work around Allie’s needs but, in part, it’s because of it. So the moral of the story is, I guess, that if it takes a big white fluffy dog to help you keep a healthy focus and keep various priorities in balance, you still win.
Being a vagrant and dragging your dog around town is a wiser career choice than you might think.
Editor’s note: Allie is a Maremmano Abrusezze, the livestock guardian dog breed which was the genetic predecessor to Great Pyrenees. See my article elsewhere on the blog about her adoption.
Being Decent Pays! I Was Just Named One of Sotheby’s International Realty’s Rising Stars for 2024.
Don’t get me wrong. I can be a jerk with the best of them. And the reason I’m posting this is not because it’s an acknowledgement that I can sell houses. I can sell houses. That is arguably not a special set of skills.
But being effective while also being kind and decent to your peers and clients and exhibiting some form of leadership is a different deal. That is, I believe, why Sotheby’s awarded this. So yes, recognition that one’s demeanor (on average 🤣) reflects the things the company values — is meaningful to me — and I’m glad I’m with a company that emphasizes this kind of thing.
Santa Fe High-End Residential Real Estate: Deep Seasonality Driven by Tourism and Second-Home Buyers
If you had to choose two things to characterize the high end of the residential real estate market in Santa Fe, it’s an easy call. The first is seasonality. Santa Fe (at 7,000 feet) gets just cold enough so that new home construction slows significantly during winter and other activities grow just a little more difficult, depending upon the severity of the winter. But that’s not really the driver.
It’s governed by the tourism flow. During the so-called shoulder months (October and November and April and May, roughly), tourism is lighter in Santa Fe and this carries through to residential listing activity. The market slows measurably during the winter (some might say it comes to a halt) and speeds up during the spring and summer. It tracks the tourism flow directly. By the end of August, when the maximum number of tourists are in town, activity peaks. November, on the other hand, can be dead: it’s too early for skiing (most years) and the markets are flat, with inventory low.
This isn’t just a contention of Walker’s; every real-estate type will second this, and it’s reflected in the data. The line graph below shows the average number of listings over $1.2 million over the past five years (starting in January 2019). The seasonality is evident (observe the troughs in the winter months). In cities such as Houston or Los Angeles, this is not the case; it is somewhat unusual.
Deep Annual Seasonality: Santa Fe’s Monthly Residential Listings over $1.2 Million, January 2019 to Present
A glance at the actual data (as opposed to a line graph of it) shows the same; listings contract in the winter and grow during summer.
Second-Home Purchases Are A Primary Driver
As the high end of Santa Fe real estate is defined by seasonality, so is it also defined by retirees and second-home buyers from within and without the state. At Sotheby’s, we track where our buyers come from, and aside from those who are moving from within New Mexico (52 for the year to date), we see very high numbers of buyers from Texas (40 for the year to date); Colorado has moved up quite a bit recently as the crowding on the Front Range drives people to seek relief (nine so far); California is the source of a high number of buyers (six); and Arizona tends to pitch in a few (two so far). New York residents purchase in Santa Fe at much lower rates versus 25 years ago and in fact, for the year we’ve seen none.
As these buyers filter into town during the summer for what is admittedly something of a parade of festivals, markets, and events, activity accelerates. This came a bit early this year, at least for Sotheby’s, and we saw a strong increase beginning in late May.
Much Quicker Sales During Summer Months
As more people come to town, markets heat up and homes sell more quickly. The chart below shows cumulative days on market for listings over $1.2 million. One can see that during the summer months, those numbers tend to be about half of their winter totals. When your faithful broker tells you the market is opening up, he or she also may intend you to understand that in the summer months, time is of the essence. Yes, high end markets move more slowly, but one can’t always take that for granted in the purchasing process. Often, things happen within a day.
Cumulative Days on Market, Santa Fe Listings over $1.2 Million,
12 Months Ended June 2024
It’s All Driven by Santa Fe’s Magic
In sum, Santa Fe markets are more complex than some, with seasonal and tourism-related factors governing the ebb and flow. Ultimately, our markets are driven by what a magical place Santa Fe is to be in, and that’s entirely predictable.
All data are sourced from the Santa Fe Association of Realtors’ Multiple Listing Service.