NEWS: The Next Wave

I thought I would share some insight into one of the major factors that drives the large price increases in a market like Albuquerque and in New Mexico in general. I call it ‘The Wave’. The wave starts in the California area and joins with Las Vegas, Phoenix, and a few other highly-appreciated markets. “The Wave”, as I call it, refers to those homeowners who jump out of their more expensive market when their market gets good and come to a less expensive market.

Wave Origination
The wave is primarily driven by a strong market in California and supplemented by strong housing markets in Las Vegas, Phoenix, and a few other markets. As values rise in these markets, many homeowners decide they would like to cash-out and buy in a cheaper market reducing their mortgage overhead and making a fortune.

Because job pay is only slightly different in those other markets when compared to here, and yet home prices are sometimes vastly different, the person making the move often comes out way ahead. Many that come surfing in on the wave are able to get much more house for a much smaller price giving them their dream home and at the same time, a smaller mortgage payment.

Investors Surf Too
People relocating here aren’t the only ones riding the waves when they come in. Real estate investors follow the trends as well. As homeowners in the more expensive markets have increases in values in their homes, many pull out some of the equity to invest in other less expensive markets that have good track records in appreciation. This is mostly where the investors that came in starting in March of 2005 came from. They weren’t professional investors or even institutional investors. They were just average, everyday Americans with some home equity and some advice on how to make good returns on their money.

Higher Priced Homes Become Liquid
The difficulty with higher priced homes is that they are hard to sell. There just isn’t a big buyer pool for homes over a certain price. In Albuquerque’s market that price is $300,000 and higher. Those who have tried to sell their homes that are above that price point know that it is just difficult to do, especially if it is a slow market. I remember a homeowner trying to sell her home through my associate for $300,000 about five years ago. It was a beautiful home on an acre in a great area. She couldn’t sell it. She had it on the market for months before she decided she was going to pull it off and just keep it for longer. In 2005, in came a major tide from the locations we discussed above. The homeowner decided to try again, and wouldn’t you know that homes value had gone through the roof and the home sold in no time flat at nearly triple the price she had been asking just two years prior.

Entry Level Homes Stay Liquid
During a “Wave”, every home does well. What is nice about the entry level home prices is that they stay much more liquid even when the wave ends and the “water is receding”.

Timing It Right
As we know, real estate almost always does great over time. For those not happy to patiently sit by as their real estate values grow over time, many try to time the market to maximize their returns. Now that the real estate market is slower and the “water has receded”, many of these investors are using this time to pick up additional investments before the next wave, underscoring the principle that a buyer’s market is always the best time to buy, and a seller’s market is the best time to sell.

Jared Murphy

Jared Murphy
Associate Broker - Allstar Realty