Is the Albuquerque, NM Housing Bubble About to Burst?

Over the past year, housing values in Albuquerque, NM have shot up, increasing $44K compared to August 2021. However, with interest rates on the rise, we’re seeing a cooling in the prices and home buyers are becoming increasingly hesitant to make the purchase. 

The housing market feels unstable and many buyers are stepping back, hoping that the interest rates will decrease within the next year.  Some wonder if the housing bubble will burst and want to wait for dramatic decreases in home prices. While I understand the reluctance, interest rates will continue to rise and shortages in inventory will continue. The market may be experiencing more balance between buyers and sellers, but it is far from bursting.   

In my real estate market in Albuquerque, NM housing, I’m seeing a lot of the same trends as the country as a whole. Let’s dive into what we’re seeing nationwide before we discuss how interest rates are impacting northern New Mexico.

Interest Rates on the Rise

Buyers feel like they are on a rollercoaster at the moment when it comes to financing.  They’re wondering, what happened to the amazing interest rates that were offered just a short time ago? 

In recent months, buyers have had access to historically low interest rates and security in financing.  With inflation and interest rates quickly climbing, buyers are apprehensive and wonder if we’ve reached the peak of the rollercoaster, or if we will continue to climb. 

For perspective, a 30 year mortgage in Q4 2020, sustained an interest rate around 2.75%, Q4 2021 a rate of 3.07%, and in August of 2022 rates hover around 5.55% nationwide.  Where did those amazing interest rates go?  Let’s take a look at what happened behind the scenes to see what drove those rates to rise.     

Low Interest Rates Supported By the Fed

Prior to Covid-19, interest rates averaged around 4.54% for 2018 and 3.94% for 2019. During those years, Mortgage Backed Securities (MBS) were a great investment vehicle for many. Not only did domestic investors purchase MBS (pension funds, corporate investors, etc.), but also international investors such as China, Japan, and Taiwan. 

When Covid hit in 2020, investors became leery of MBS and fled the market.

Jerome Powell and the Federal Reserve stepped in to keep the market steady.  Through the LSAP (large scale asset purchase) Program, trillions of dollars in MBS were purchased to stabilize the industry. From March 2020 to June 2021, the Fed purchased $2.3T of the $7.6T available in MBS. In essence, the mortgage industry had a buyer for their product with unlimited spending capacity; therefore, interest rates went down.

The Fed started reducing the amount of MBS it owned starting in June 2021, selling $35B a month.  While rates remained low in Q3 and Q4 of 2021, we saw a return to higher rates with the Fed no longer owning approximately 30% of the MBS market.

Will Interest Rates Continue to Rise?

Likely, yes. Based on the trends we see, the days of seeing 3.0% mortgages are in the rearview mirror.

The Fed Chairman said on August 26, 2022, interest rates would continue to rise to combat inflation and mortgage rates will undoubtedly climb from where they are today. If that pans out as expected, we should see average rates in the 6.00-7.50% range for 2023. 

High Demand Drives the Housing Market

If you think the housing bubble of 2008 is here again, I’m sorry to disappoint you. The main driver of our rapidly appreciating market today is demand – we are short a lot of homes.

While builders constructed a bunch of spec homes in the early 2000s, a lot of those builders didn’t survive the financial crisis and crash of the housing market. As a result, the nation has a housing shortage of approximately 3.8 million homes that weren’t built between 2012 and 2022.

We need builders to grow inventory and alleviate the shortage; however, given the labor shortage in the construction industry, that isn’t likely to happen anytime soon. 

Home Values Albuquerque, New Mexico

Albuquerque, New Mexico Market Levels Off

As a realtor in Albuquerque, NM, I look at our housing market, as well as other regional centers in the West, to give my clients the best information regarding their home purchase. What I see in our current listings, is a leveling off from the craziness of the past two years.

Multiple offers still happen on premier affordable houses (anything under $300,000 in our area), but not to the same fervor as one year ago. No longer are we seeing 10-15 offers on a $250,000 house, instead maybe 1-3 competing offers. Of our active listings, 40% had a price reduction in the last week, another signal that values are leveling off and the market in New Mexico is becoming more reasonable for the average consumer. Inventory is climbing and so are days on market.

Other cities in the area are seeing the same conditions as here in Albuquerque, NM housing.

Denver saw their inventory increase 81% compared to inventory in 2021. Slightly over 30% of their active listings have had a price reduction and housing values have decreased 3.43% in August 2022.

Phoenix shows the same trend with inventory up, 92% year over year. While they haven’t reported a decrease in housing values yet, the Phoenix Realtors Association does forecast a drop in median sale price in their market.

If You’re Ready, Buy Today

What it comes down to is this – buy the house today.  Timing the market and the conditions that influence it is extremely difficult. Overall, housing values go up over time and it’s unlikely that you’ll get a deal if you wait.

Therefore, buy a house today, rather than wait for the slim chance that interest rates will drop.  As the saying goes, “date the rate and marry the house”. You can always refinance in the future if those rates do drop.