Mackenzie Bishop, co-owner of Abrazo Homes, says this has been the best year for his business when it comes to home building.
The local homebuilder, which has been around since 2010, is on its way to building about 150 homes in the Albuquerque metro area. Bishop said work is also on track to finish about 30 to 40 homes in Santa Fe.
Twilight Homes has built more than 2,000 homes since its inception in 2004. Last year, the homebuilder built about 200 homes and is on track to complete about the same number this year.
But even though local homebuilders continue to build communities and homes in the metro area, there are some reasons for concern, they say.
Potential home buyers are now more reluctant to buy a home – especially a new one. Industry leaders say homebuyers’ reluctance is largely due to general inflation, rising mortgage rates, increased home prices for buyers as a result of rising construction costs and tax payments, and a lack of new inventory.
“It’s not the time to be in the home building business, which has historically been a great thing in America,” said Tim McEnany, co-owner of Twilight Homes.
Home Builders Confidence
In September, homebuilders’ confidence was at its lowest level since the onset of the COVID-19 pandemic, according to the National Association of Home Builders. It also marks the ninth consecutive month that homebuilders’ confidence has declined, according to the report.
That’s because sales across the country have been plummeting lately, with the 30-year fixed-rate mortgage hitting new highs. According to the latest update from Freddie Mac, a government-backed mortgage lender, that rate is 6.66% – its highest rate in more than a decade.
When the pandemic hit, and the Federal Reserve was buying mortgage bonds that effectively lowered interest rates to all-time lows, people were buying homes left and right.
The Albuquerque metro area market has made fertile ground for an all out buyers’ war — bids for homes, new and old, have been well above asking price.
Industry leaders say an increase in mortgage rates this year is starting to scare buyers from buying new homes.
“The truth is that if I was a buyer… looking at my first home and I see interest rates of 6.5%, I see rates that have gone up 40-50% in the last three to four years – whether new or used – all it will do is create a situation of Uncertainty and inaction,” Bishop said.
Homes across the country — especially here in New Mexico — have increased sharply over the past few years.
According to the Greater Albuquerque Association of Realtors, the median sale price for a single-family detached home was $330,000 in September. For comparison, the median home price in September 2019 was $225,000 in the metro area — an increase of nearly $100,000.
While some experts say housing prices in the metro area are only catching up with similar trends in other cities, those prices have largely driven both new and old homebuyers out of the buying market.
But why such a large increase in costs?
First, the metro area is experiencing a tight market with low inventory.
In addition, new homes face increased costs in building materials, some of which were created due to supply chain problems.
Bishop said Abrazo Homes has increased the selling prices of its homes by about $60,000 a year since 2020.
These increases are largely attributed to supply chain problems, which have led to a scarcity of some building materials.
Roof tiles, for example, have been hard to come by, said Bishop, who added that homebuilders are watching suppliers’ rations in some cases.
“We have homes at the moment where we put sandbags on the roof to make sure there is enough weight so we can finish those homes,” Bishop said. “Anytime we have scarcity in supply, it will drive up the price. Scarcity through the supply chain, and labor market scarcity – scarcity drives those prices higher.”
Industry leaders also say local taxes and fees are onerous.
Bishop said that local gross receipts taxes and impact fees in Albuquerque, Rio Rancho and Los Lunas on new home construction, for example, can include more than $30,000 of the final cost a homebuyer pays on a home.
Bishop said the challenge of getting approval to build may outweigh taxes from a homebuilder’s perspective. In Albuquerque, he said, the approval process can take up to 12 to 24 months — and sometimes longer. This has led home builders to focus on Rio Rancho and Los Lunas. Bishop said the permitting process is moving faster in both cities.
“In Rio Rancho, from the time I pick a site to the time I’m ready to build a house, it can be 16 months, sometimes even shorter,” Bishop said. “I have a fairly good idea of what the market will look like in 16 months. If you go for three years, I have no idea what the market will look like. That’s why so much investment is being pushed out of Albuquerque.”
Dylan Dinkle, director of sales for the Albuquerque division of Hakes Brothers, said the company remains optimistic about continued construction of new homes and communities in the metro area.
About 40% of the company’s business at the moment comes specifically from overseas buyers, a similar percentage for Abrazo Homes and Twilight Homes as well.
But it’s not just out-of-state buyers relocating to New Mexico who expect local homebuilders to sustain the industry. New Mexicans are also looking to reach new homes – especially first-time home buyers.
To attract these types of buyers, Dinkle said Hakes Brothers, which has been in business since 2006, has created an incentive program aimed at mitigating high mortgage rates by offering cash to lower them. This incentive includes thousands of dollars that can mean the difference between buying a new home or not.
Dinkle said Hakes Brothers has seen success with this incentive, and will likely continue as prices continue to rise.
But industry leaders say a lack of supply will likely mean a breaking point will come in the future.
“I think Albuquerque and the surrounding areas will continue to be a development hotspot,” Dinkle said. “And frankly, I think it’s only just getting started. It will continue to expand here.”
This story has been updated.