Why are Home Prices in Albuquerque NM Rising?
Home Prices In Albuquerque Are Rising
Home prices in Albuquerque are rising. As of December 2020, they’re up about 15% over 2019 and still trending higher. If you’re already a homeowner, this is great news for your net worth! If you’re thinking about moving to the ABQ Metro area or buying a different home in an Albuquerque suburb, it’ll mean paying more to live here. Why are home prices rising in Albuquerque? Let’s take a look at market conditions and trends to understand.
- The pandemic affects home prices in Albuquerque
- Low interest rates drive sales of ABQ homes
- More sales drive competitive home prices
- Higher home values, fewer home sales
- Low inventory feeds the scarcity principle
- Home values increase over time
There’s no single factor that’s increasing home prices in Albuquerque. Instead, it’s important to look at the relationship different trends have with each other, and how those relationships correlate to the prices of homes in ABQ. Here’s why home prices are rising in Albuquerque.
The pandemic affects home prices in Albuquerque
It’s easy to point the finger at the COVID-19 pandemic as the catalyst for every change in 2020. That said, there’s legitimate reason to link it to rising home values. Most of the factors we’ll discuss in this article link back to the pandemic in some way.
For example, the Fed lowered interest rates to help prevent an economic crash and intends to keep them there until the pandemic is behind us. Likewise, most people chose not to sell their homes during the pandemic for fear of instability, thus driving inventory down and home values up.
These are individual trends, triggered or made more prevalent by the pandemic. It’s important to recognize the pandemic’s role when asking, “why are home prices in Albuquerque rising?”
Low interest rates drive Home Prices in Albuquerque
Low interest rates are one of the chief reasons behind increased home prices, for two reasons. The purpose of low interest rates is to make borrowing easier and more appealing, which leads to more home sales. It also opens the door for investors to borrow at competitive prices. Needless to say, low interest rates spur lots of market activity, driving up home prices.
The other factor in low interest rates is the ability of existing homeowners to refinance. Without getting too much into macroeconomics, interest rates affect the cost of financing and mortgage rates, which sprawl over to the value of the property itself as determined by the bank. Lower interest rates pave the way for higher property values and thus, rising home prices.
More sales drive competitive home prices in Albuquerque
The availability of capital to borrowers and low interest rates—combined with real estate as a “safe” investment—means more people went shopping for a home in 2020. Competition among buyers pushed the selling prices of homes higher.
For example, if a three-bedroom, two-bath home for sale in Rio Rancho sold for $325,000 in February of 2020, heavy market activity and competition might’ve driven the price of a similar home up to $349,000 by December of the same year. More people bidding on available homes pushes the price of homes higher and sets the baseline higher thanks to comps.
Higher home values, fewer home sales
As home prices in Albuquerque rise, a few different things happen to the market that causes inventory levels to drop.
First, many buyers get pushed out due to their borrowing cap. If you’re pre-approved for $250,000 and the home prices in Albuquerque start to average higher than that, you’ll either need to settle for something you don’t want or wait for your financial situation to change—or, go back to your lender for more borrowing power.
Second, as home prices in Albuquerque rise, some sellers take their homes off the market. Their equity in that home becomes more valuable because the value of the home rises. Say, for example, you have $30,000 in equity on a $260,000 home. Now, say your home value shoots up to $300,000. You’ve gained another $40,000 in equity, giving you a significant wealth foothold.
Finally, selling a home usually means buying another one. While rising Albuquerque home prices may net you a great gain as a seller, buying a different high-priced home will nix those gains. Many would-be sellers choose to hold off once they go home shopping for themselves.
Low inventory Increases Home Prices in Albuquerque
With home values already high and inventory low, there’s another factor that helps maintain rising home prices in Albuquerque: scarcity. Some buyers who are ready to become homeowners buy regardless of market conditions. As they compete with other ardent buyers, selling prices climb even higher.
Low inventory and higher selling prices tip the scales in favor of a “seller’s market,” which tends to favor luxury homes sellers. Buyers are already paying a premium for homes, which often pushes them to consider homes above their price range that might offer better location or amenities. The thinking is, “if I’m already paying a high price for a mid-level home, why not pay a little extra for a luxury home?”
Home values increase over time
The simplest reason home prices in Albuquerque are rising is due to time. Unlike a car that depreciates as soon as you drive it off the lot, homes appreciate over time. Home prices don’t always go up every year, but they generally trend up on a long enough timeline. Now, more than a decade after the Great Recession in 2008, home prices in Albuquerque are climbing to new heights.
The reason home values increase in price is because a home (real estate) is an investment. Property is an asset designed to increase in value. Rising home prices aren’t an anomaly—that’s what you expect to happen! And while price hikes may not be what you want to see as a new home buyer, they’re bound to make you feel good a decade or more from now, when you’re selling on the crest of rising home prices in Albuquerque.
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