Albuquerque Home Prices: Bad News for Home Equity, Good News for Buyers

By Richard Barrington
Local Lender Columnist
Aug 6, 2008
To some, they are signs of warning, but to others they represent opportunity. The beauty of empty houses in the Albuquerque area is truly in the eye of the beholder, and ultimately depends on whether that beholder is a current homeowner or a new buyer. For current home owners, empty houses are both a symptom and a cause of a weak real estate market that has driven home prices downward, eroding homeowners' wealth as home equity values decline. On the other hand, those same empty houses represent a precious opportunity to new buyers now entering the market.

General Market Conditions

The reasons that symptoms and causes of the housing slump overlap one another is that this kind of slump often takes on the characteristics of a vicious cycle, with each outcome in turn creating new problems. Some examples:

• The housing boom encouraged a wave of over-building, which has now outstripped the demand for housing. Far from capitalizing on the housing boom, builders now find themselves victimized by the housing slump as they hold excess inventories in the face of falling prices.
• Aggressive lending by mortgage companies has resulted in national records for foreclosures on home loans. In response, mortgage companies have tightened their lending standards, further constricting demand for housing as fewer potential buyers can qualify for home loans now.
• People who gambled on housing prices continuing to rise are now facing financial problems as home values drop. As some of these home owners face foreclosure, more houses are forced onto the market, driving home prices down further and exacerbating the problem.

Effect on Albuquerque

The above are national problems, but their impact is felt locally in Albuquerque. Not only have foreclosures forced some existing homes to be abandoned, but by one estimate there are 100 unfinished homes in the area, as builders have given up on unprofitable projects or have simply gone out of business and left half-finished houses behind.

High-end housing--a real magnet for housing boom speculation--has been hit hard. In North Albuquerque Acres, there are 40 vacant homes with prices in the $500,000 to $1,500,000 range.

Again, these vacancies are both symptoms and causes of the housing slump. Having that oversupply on the market will continue to depress area home prices.

The Bad News and Good News

The bad news is that all of this affects more than just the developers who are stuck with excess inventory on their hands. Vacant houses and unfinished developments also depress neighborhood home prices, meaning that existing homeowners have seen their home equity take a hit.

The good news is that today's buyers are in a privileged position. Mortgage companies are anxious to make home loans to qualified buyers, and housing conditions mean a wider selection and stronger bargaining power for buyers. To those buyers, the empty houses in the Albuquerque market are a sign of a beautiful opportunity.

Source:
KOB.com, New Mexico

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.