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Copyright © 2018 Albuquerque Journal

Santa Fe’s housing market is a typical example of supply and demand at work.

Local demand is growing and the supply is limited. That’s why the median price of homes saw a major spike in the first quarter of 2018, according to Santa Fe Association of Realtors President Kurt Hill.

Figures published last week by the Realtors association show the median sale price for a single-family home within the city limits from January through March was $360,000.

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That’s the highest price since the Great Recession began in 2008, except for an unusual spike in the first quarter of 2010, when the median hit $464,000. The latest quarter’s number are up from a $322,500 median price in the first three months of 2017.

The association’s reports show that last year, single-family homes were already reaching some of the highest median sales prices in a decade, consistently around $330,000 each quarter.

In Santa Fe County territory considered part of the Santa Fe market – where several upscale developments are located – the median sale price for single-family homes was $441,686 in the first quarter of 2018. That was a nearly 8 percent increase over $409,500 this time last year.

Hill expressed concerns about the rising numbers, which he described as “skewed.”

He said the primary reason for higher sale prices is the falling number of homes for sale. This past quarter, there were 953 homes, including single-family houses, condos and townhouses, for sale in the city and county.

That inventory figure is a 31.5 percent drop compared to this time last year, when there were just under 1,400. According to the Realtors association data, inventory levels hovered around 3,500 in 2008 and 2009 and have mostly declined since.

He said the current inventory is similar to levels in the early 1990s..

“The writing is on the wall,” Hill said. “Our inventory continues to shrink, our prices continue to rise. No doubt about it. We need more housing.”

According to Hill, homebuilding has declined since 2008. As demand declined around that time, he says, so did the number of contractors.

According to Kim Shanahan, executive director of the Santa Fe Homebuilders Association, another major reason home construction hasn’t picked back up is because banks today are less willing to make infrastructure or “speculative loans” – loans to homebuilders without clients to buy the houses – for residential developments than they were more than a decade ago.

During boom years from the mid-1990s to the mid-2000s, the local construction industry was building about 600 to 800 new multi- and single-family dwellings a year when the annual population growth rate was around 2 percent, Shanahan said.

Since 2008, he says, the number of new dwellings being built has stayed under 200 a year as Santa Fe’s growth rate fell to about 0.5 percent a year. He now sees population growth heading back up to around 1 percent annually.

There is pent-up demand for the available homes, said Shanahan, adding that the only way to reverse the rising prices is to build more homes.

“That’s the way it is, when houses are scarce, people pay what is being offered and sometimes offer more,” Shanahan said.

The rising prices and shortage of places to buy or rent is pushing the Santa Fe area further from its political leaders’ expressed goal of offering more affordable housing, something Hill and Shanahan both expressed concerns about.

Hill said his organization is participating in groups and coalitions to address the lack of housing and wants the city and county processes for development approval to become more user-friendly. Specifically, Hill supports changes in the city government’s Santa Fe Homes Program, which requires 20 percent of a housing development to be allocated to affordable housing for tiered income levels. He called the affordable housing requirement a “double-edged sword.” While affordable housing is needed for everyday Santa Feans, it’s easier for developers to get loans from banks when that requirement is closer to 10 percent, Hill said.

“We just need to find a happy medium,” he said.

But Alexandra Ladd, director of the city’s Affordable Housing Office, maintained that with waivers and fee deductions that the city gives developers for expenses like water and wastewater management permits and for putting in infrastructure for affordable housing lots, a development with lower-priced homes can actually be more attractive for financing.

Shanahan said he is optimistic about Santa Fe’s future homebuilding efforts, mentioning upcoming projects including a new phase of the Tierra Contenta development on the south edge of town.

Tierra Contenta CEO James Hicks said the development plans to add about 1,900 new single- and multi-family units south of Capital High School. About 30 to 35 percent of the units will be considered affordable housing.

Hicks said he wants to start putting in the infrastructure for the additions within the next year, but the project is to be funded by the city’s capital improvement project funds that come from the state. The timeline for when Santa Fe will receive the next round of CIP funding is unknown, he said.

According to city residential permit data, about 140 permits for new single-family homes, including those for affordable housing projects, were distributed between October and March.

Despite the higher prices, Hill said it’s still a good time to buy a home.

He said there are other, less important, factors driving home prices higher. Incomes are getting back to pre-recession levels and mortgage rates, which declined nationwide around 2008, are still historically low at around 5 percent – though he says they are ticking upward as the economy gradually improves.

“All the conditions are right for buying, we just need more,” he said.