Housing Development & Occupancy
Land sales in Santa Fe City and County increased by 21 percent in 2021 – a robust increase likely due to easing pandemic controls and demand. Land sales continued to climb in Santa Fe County during 2021 along with Santa Fe City where land sales rose by 9 percent. In Santa Fe City, multi-family developments have outpaced single family construction in the last three years largely in part to Santa Fe City efforts to modify inclusionary zoning requirements for developers allowing a “feein-lieu” of building affordable rental units and other flexible options. Total units increased from 1,717 in 2006-2008 to 2,656 units in 2019- 2021 or by about a remarkable 55 percent. Looking at building permits during the same timeframes in Santa Fe County, building permit growth slowed about 12 percent from 834 permits in the last housing boon of 2006-2009 to 739 in the last three years. In Santa Fe County, approximately 74.4 percent of housing units are occupied by their owners. Within Santa Fe City, 68.6 percent of homes are owner occupied while 31.5 percent are renter occupied.
Population & Income
In 2021, the U.S. population grew by 1 percent, the slowest growth rate since the founding of the country. During this same period, New Mexico’s population declined by 1 percent while Santa Fe County’s population grew by 2 percent. Between 2015 to 2019, Santa Fe attracted more people from both domestic and international areas resulting in a positive net migration total of 2,850 people while New Mexico lost residents to other domestic areas. Santa Fe remains attractive to retirees and remote workers who come to the region to enjoy its climate, outdoor amenities, cultural attractions, art and history. In 2021, according to the U.S. Census American Community Survey 1-Year Estimate, Santa Fe City median household income was $60,517 or about 90 percent of the median household income in Santa Fe County at $67,341. In New Mexico, it was $53,992 or only about three-quarters of the U.S. median household income at $69,717. Santa Fe City’s living wage law indexed to consumer price increases likely contributes to the overall higher wages in the area. In the last three years with an influx of federal funding at Los Alamos National Laboratory (LANB), the lack of housing options in Los Alamos County has led to a growing number of LANB workers buying and renting properties in Santa Fe.
In the January 2022 Coldwell Banker Richard Ellis (CBRE) Market Survey report, average rents were forecast in the Santa Fe area to begin at $1,528 in 2022 rising to $1,582 by years’ end. Moving forward, CBRE predicts rents to rise by only 2.9 percent in 2023 as prices stabilize in the rental market. Looking ahead, the September 2022 New Mexico Mortgage Finance Authority’s Housing New Mexico: A Call to Action report, forecast that Santa Fe County will need to bring online 678 rental units to meet projected demand by 2025 and a total of 2206 units by 2035. In 2022, Santa Fe County adopted regulations for short term rentals requiring a registration fee for owner-occupied units and business license for non-owner occupied units whom must come into compliance by March 15, 2023. Additionally, the county placed a one-year short term rental moratorium on properties purchased after November 25, 2022 restricting the ability of these new owners to rent on a short term basis.
Housing Sales & Prices
The Santa Fe real estate market demonstrated exceptional price growth during 2021 like many communities across the country. In Santa Fe City, the median price of a single family home increased by 14 percent to $488,500 in response to growing demand. In Santa Fe County, the median price of a single family home increased by a remarkable 20 percent to $691,803 in 2021 with sales up 5 percent compared to 2020. Both Santa Fe City and County tracked above the national median single family home price in 2021. Sales of housing priced under $250,000 has been shrinking from a peak in 2014 with a meager 22 single family homes sold in this price range during 2021. Meanwhile, homes priced between $350,001 to $450,000 experienced an increase in sales. Sales of high-end homes priced more than $750,000 made up the largest share of homes sold in 2021. Sales of condominiums and townhomes had a significant turnaround in 2021 rising by 24 percent. Market share of units was equally split between units priced under $350,000 at 332 with units priced over $350,000 at a total of 331.
During the past year, inflation has been at a 40-year high in the United States imposing costs on all households but especially low-income households. The multiple waves of the pandemic, combined with Russia's war against Ukraine, unleashed a series of supply shocks hitting goods, labor, and commodities that, in combination with strong demand, have contributed to ongoing high inflation. In response to inflation, the Federal Reserve raised the federal funds rate by a total of 1.5 basis points since the beginning of 2022. It is anticipated that further increases will be needed to address inflation through the years end. In 2022, Fannie Mae and Freddie Mac conforming loan limits increased from $548,250 to $647,200 for a single family residence. With the increase homebuyers can better leverage their borrowing power, enjoying the benefits from inexpensive borrowing costs with higher loan limits. At the same time, construction rose by 11.5 percent exceeding the 2-4 percent increase predicted by industry analysts. Foreclosures in mid-year 2021 totaled 164,581 up 219 percent from the same time a year ago. According to RealtyTrac, foreclosure activity across the United States continued a slow, steady climb back to pre-pandemic levels in the first half of 2022.
The Housing Affordability Index (HAI) measures the ability of a family earning a median income to purchase a median-priced home. The HAI for Santa Fe City and County for a single family home has tracked under 80 for the last three years. Historic low inventory is negatively impacting HAI for all housing options in the Santa Fe region. To help address housing affordability, Santa Fe City and County have programs to require the construction of housing units for low-income residents through inclusionary zoning policies. Over the last ten years, 487 affordable housing units have been built to address housing affordability. In 2021, Santa Fe County’s unemployment rate dropped below New Mexico’s overall unemployment rate for the first time looking back at the last five years. Santa Fe’s unemployment rate decreased to 6.2 percent along with the rest of New Mexico during 2021 as the need for workers, similar to the rest of the nation, grew in the aftermath of the COVID-19 pandemic. Homelessness remains a persistent concern in Santa Fe, exacerbated during the COVID-19 pandemic as federal funding was accessed to provide mortgage and rent relief, services for the homeless, and the acquisition of Santa Fe Suites for housing. The annual point-in-time count of homeless people in January 2022 found 589 people living without housing with more permanent beds coming on line. With growing inflationary impacts on housing and the lack of low to middle housing inventory, there remains work to be done to ensure everyone in Santa Fe has a safe and stable home.
Value Of Housing
Housing is a key economic driver in the Santa Fe community and across New Mexico. The real estate industry accounted for $17.1 billion or 15.7 percent of the gross state product in 2021, down by $1 billion from 2020. Each home sold in New Mexico generates $93,500 in additional economic value to the community.
A Look At Commercial Real Estate
Over the last year, commercial real estate in Santa Fe has experienced robust sales and relatively stable leases. Commercial property owners are generally experiencing solid investment returns. Due to high construction costs, commercial properties selling at current market values are simply cheaper than building. There remains strong and growing demand for industrial space in the Santa Fe area. While large retailers are contracting in this category, there is a shortage of industrial and commercial zoned land available to meet the current demand Commercial retail is back with most of the open space available during the COVID-19 pandemic absorbed with lease prices holding and increasing. Commercial real estate professionals envision $21/ sq ft leases readily moving up to $27/sq ft to adjust for inflation and replacement value. In contrast to national trends, Santa Fe office space remains strong with a vacancy rate between 5 to 7 percent. Multi-family developments are experiencing growth in the Santa Fe market and offering returns to owners and investors. This growth may continue for a few more years but with the lack of reasonably-priced commercial land and long lead times for approvals, the pace may slow. Building on a trend of converting hotels and motels into housing, in 2022 Santa Fe City leveraged $400,000 of CARES Act funds and Santa Fe County contributed $800,000 to help subsidize the purchase of The Lamplighter Inn on Cerrillos Road to provide 58 units of affordable housing with 12 units set aside for transitional housing for the homeless. In the summer of 2022, Mountain Classic, a Salt Lake City real estate firm, purchased Quality Inn and Motel 6 along Cerrillos Road with the intention of converting the hotels into attainable housing with rents starting around $950 per month.
Conclusion & Economic Outlook
As the cost of housing increases, Santa Fe continues to attract residents seeking a more predictable and sustainable climate, diverse housing, world-class cultural amenities, multi-faceted outdoor recreation and unique art attractions found in a well-established sense of place. Domestic and international in-migration can further impact the housing shortage as remote workers purchase housing in resort markets like Santa Fe as well as a growing number of early retirees attracted to the region. In response to the increased need for more affordable housing and strong community advocacy, Santa Fe City set aside $3M for affordable housing in its most recent budgets while adding more multi-family and single family housing to its stock. Santa Fe County is finalizing its Housing Strategy Plan as a call to action to produce more housing while preserving existing affordable units. To further address the housing crisis, Santa Fe Housing Action Coalition is working collaboratively with a wide range of business, community, housing and government interests to identify and advocate for a permanent stream of annual funding. Santa Fe, like the rest of the nation, will enter 2023 with continuing economic uncertainty due to inflationary factors, ongoing geopolitical tensions, and intermittent COVID shutdowns affecting supply chains. Persistent high levels of inflation have led the Federal Reserve to continue to raise interest rates, with the resultant slowing of housing sales and rise in the cost of financing. Falling home sales have helped inventory to modestly improve, while the rise in interest rates is putting downward pressure on home prices in the near term.