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Why Now is a Smart Time to Buy in Las Cruces
Courtesy of Steinborn GMAC Real Estate Current as of February 2008
There is no question that we are coming off a peculiar market and entering a new housing cycle. The question we hear time and time again is:
- Is this the right time to buy a home?
- What if the home prices drop after I buy?
- Should I worry about securing a mortgage with all the talk about sub prime loans & foreclosures?
The report, provided courtesy of Steinborn GMAC Real Estate, is an objective assessment of the housing market as it stands at the end of 2007.
For more than 45 years, Steinborn GMAC Professionals have helped their clients find the right home at the right price and at the right time. They are happy to help you make the right choice in today's market.
If you have any further questions about buying or selling a home, your Steinborn GMAC Real Estate Professional will be more than happy to answer your questions.
Thank You for choosing to work with Steinborn GMAC Real Estate.
Sincerely,
John L Hummer, CEO
Considering all of the negative press the housing marked received in late 2007, it's more important than ever for buyers to separate fact from fiction when deciding on a time to buy a home. This document is intended to help home buyers assess the facts of the real estate market objectively.
 FACT: The housing market is undergoing a natural cyclical correction.
It's impossible to ignore the ongoing new surrounding the downturn of the housing cycle. The recent "housing boom," which lasted from 2001 to 2005, was caused by low interest rates and a rapid increase in property valuations, resulting in high numbers or renters opting to buy. Three factors caused this decade's housing boom to spiral upwards: 1) a run-up in home price valuations that spurred a high sense of urgency in home buying and selling; 2) poor lending practices, which cause many home buyers to secure loans that they ultimately couldn't afford over the long term; and 3) speculative purchases of homes also increased, with buyers investing in real estate with the home of a quick return-on-investment.
Like the dot come bust, the housing market had begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn't equate to a crash. Unfortunately, the ongoing negative news about the troubles areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision. This has caused an overall slowdown in the marketplace. The National Association of REALTOR®’s Chief Economist, Lawerence Yun projects that nationally, the "median existing-home price will drop about 1.7 percent this year." Yun goes on to explain that "This is a small, minor adjustment after strong run-up in housing prices."
True, the number of homes sold in 2007 will have dropped from the year before, but 2007 is still among the highest years on record, with numbers of sales for both 2007 and 2008 projected to be even higher than the level seen in 2002. (Figure 1)
 However, with home taking longer to sell, the number of homes on the market has grown. In markets like
California and Arizona where homes are talking much longer to sell than the eleven month national average, this has caused a glut in the marketplace. (Figure 2d, 2e) In Las Cruces, New Mexico, where the inventory of homes on the market rearranges from 9.71 months (existing homes) to 12 months (new homes) as of year end 2007. This equates to good news for buyers who have more homes at more price ranges from which to choose.
(Figure 2)
FACT: Low mortgage rates give buyers more house for their dollar.
With the 30 year fixed rate hovering between six and seven percent - a 45-year low - qualified buyers continue to have access to incredibility low interest rates. (Figure 3) This means that although housing prices have risen, monthly mortgage payments remain reasonable for those who look at real estate as a long-term investment. For example, today if a buyer secured a 6.5 percent interest rate on a 30 year fixed loan for a $300,000 home (with no money down), the monthly mortgage payment would be $1,896.20. In 1991, the
same monthly mortgage payment would have bought a house worth $230,492 when mortgage rates were 9.25 percent. In 1982, when the 30-year fixed rate at 14.6 percent, the same payment would have bought a house worth only $151,657. (Figure 4)
 FACT: Heavy speculation and overbuilding result in an increase in foreclosures when
prices go down.
The media has been focusing on the hardest hit areas of the country that have seen a dramatic downturn in the market; among them, California, Nevada, Florida and Arizona. Over the past five years, these markets have experienced an abundance of new housing, a rise in investment properties (Figure 5) and a rise in prices that was high above the national average.
Now that home prices are starting to drop and stabilize, the areas that went through a building frenzy and experienced the largest price increases are suffering a heavy devaluation in home prices, which in turn has caused homeowners to default on loans. (Figure 6) Those suffering the most in California, Nevada and Florida are far above the national average of foreclosure with one out of every 325, 152 and 282 homes in foreclosure, respectively. (Figure 7) New Mexico is well below the national average of one in every 617 homes in foreclosures because few home buyers in New Mexico opted for sub prime mortgages and because home values have continued to steadily appreciate. New Mexico has seen only one in 1,747 homes in foreclosure.
FACT: Subprime borrowers get a reality check.
Then there are the problems that are affecting sub prime borrowers: those who are considered at a higher mortgage risk due to a past history of bankruptcy, delinquent loan payments and low credit scores. During the last number of years, some home buyers in the U.S., qualified only for these riskier sub prime loans to fund the American dream. But, again, unlike the media's portrayal, the reality is that sub prime loans comprise only nine percent of total loans nationwide and of those nine percent, less than 11 percent of those sub prime ARM and fixed borrowers have defaulted on there loans.
Where does all this leave New Mexico?
FACT: Real Estate is localized and the Southwest, especially New Mexico is one of the
strongest housing markets in the United States.
 Real estate valuation, appreciation and market activity have been and always will be very localized. Because each region of the U.S. is a microsm with its own employment, geography and housing market dynamics--in contrast to California, Nevada, Florida and Arizona--New Mexico homeowners are faring well. These days, the ups and downs of the real estate market is in the national news every day. But many parts of the country, like New Mexico, do not have the same negative news as California, Nevada, Arizona and Detroit, Michigan, because homes have appreciated at a steady clip in Las Cruces, New Mexico. (Figure 10)
The Office of Federal Housing Enterprise Oversight (OFHEO) noted that from October 2006 to October 2007, New Mexico's overall appreciation had increased 8.81% percent. Furthermore, this report ranks New Mexico as the 5th best state in home price appreciation with a one year increase of 8.81% five year appreciation of 57.04% and a 239.62 increase in home appreciation since 1980.
FACT: Over the long-term, Real Estate has always appreciated in value.
The continuing appreciation of homes in New Mexico is not an anomaly. Real estate has always been one of the most solid investments in the U.S.,  because, after all, people always need a place to live. Real estate has less volatility than the stock market over the historical long-term it remains a guaranteed return-on-investment. Take this example from NAR's Lawrence Yun: if a buyer were to put down $10,000 for a down payment on a "typically priced home in the United States at typical appreciation rate of five percent...(he/she) would see a return of $110,300 after 10 years. The same $10,000 invested in the stock market appreciating 10 percent annually will result in $23,600."(Figure 11)
As history has shown, for those who choose to keep their home for six to ten years (and not flip for a quick profit) real estate investments do pay off, and pay off well. In fact, what we're seeing now is a repeat of a housing cycle we've seen before. In the early 1980s and 1990s some areas of the country experienced the worst downturn they had seen in the last 25 years which were caused by localized economic weaknesses and loss of jobs while a nationwide average, others, including New Mexico and especially Las Cruces, NM were barely affected at all. But even those areas that were hit the hardest in the past experienced a historic up tick in prices, and then a continuing long-term appreciation. (Figure 14).
THE FACTS ADD UP: If you're in the market to buy, now is the time to "Buy in Las Cruces."
A number of factors have converged to make this the best buyers' market Las Cruces has seen in years.
- Rates are back where they were before the market turned, making monthly mortgage payments affordable.
- There is a wide selection of housing inventory, which is good news for buyers who now have even more properties to choose from to find the right home.
- Homeowners in it for the long-term nearly always come out ahead in building wealth.
- It's a good time to take advantage of a strong local economy.
- Home sales have slowed, giving buyers an advantage.
NOW is a great time to Buy Smart!
If you've been considering buying Now is the time to "Buy in Las Cruces"
- Average price fo sale & sold and Months inventory reports.
Trendgraphix. November, 2007.
- California Housing Market at a Glance. California Association of REALTORS.
October, 2007.
- DataQuick Information Systems.
- Economic and Housing Market Outlook. Frddie Mac. September, 2007.
- Existing Home Sales of Q2 2006 vs. Q2, 2007. NAR Housing and Economic
Indicators. October, 2007.
- Federal Housing Finance Board Monthly Survey. October, 2007.
- First American LoanPerFormance House Price Index. October 2007.
- Florida Association of REALTORS.
- Housing Foreclosure Information. RealtyTrac.com. November, 2007.
- John L. Scott Real Estate - Report format, edited content & national charts
- Lawrence Yun, Chief Economist, NAR Presentation. From the Roulette Table
to the Closing Table.
- Lawrence Yun, Chief Economist, NAR Presentation. The Long View.
- Lawrence Yun, Chief Economist, NAR. Annual Conference Presentation.
November 1 3, 2007.
- Monthly Home Sales Reports. Arizona Association of REALTORS. November
2007.
- Moody's/Economy.com
- Office of Federal Housing Enterprise Oversight Percent Change in House
Price. September 2007.
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