Mackenzie Bishop, co-owner of Abrazo Homes, says this has been the best year for his business when it comes to building homes.
The local homebuilder, which has been around since 2010, is on track to build about 150 houses in the Albuquerque metro area. Bishop said the business 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 constructed around 200 homes and is on track to complete around the same number this year.
But although local homebuilders continue to build communities and homes in the metro area, there is some cause for concern, they say.
Prospective homebuyers are now more hesitant to purchase a home — especially a new home. Industry leaders say that hesitancy from homebuyers is largely due to general inflation, rising mortgage rates and increased home prices for buyers created by growing construction costs and tax payouts, and a lack of new inventory.
“It’s not a good time to be in the homebuilding business, which, historically in America was a great thing,” said Tim McNaney, co-owner of Twilight Homes.
In September, homebuilder confidence was at the lowest it has been since the onset of the COVID-19 pandemic, according to the National Association of Homebuilders. It also marked the ninth straight month that homebuilder confidence fell, according to the report.
That’s because sales across the country have fallen in recent times, with the 30-year fixed mortgage rate reaching new highs. According to the latest update from Freddie Mac, a government-backed mortgage company, that rate stood at 6.66% — the highest it’s been in more than a decade.
When the pandemic hit, and the Federal Reserve was purchasing mortgage bonds that effectively lowered rates to all-time lows, people were buying homes left and right.
It made the Albuquerque metro area’s market a breeding ground for an all-out buyers’ war — bids on homes, both new and old, were coming in much higher than asking price.
But increasing mortgage rates this year have begun scaring buyers away from purchasing new homes, industry leaders say.
“The reality is if I’m a buyer … looking at my first house and I’m seeing 6.5% interest rates, I’m seeing prices that have increased by 40 to 50% in the last three to four years — both new and used — all that’s going to do is create uncertainty and inaction,” Bishop said.
Homes across the country — and especially here in New Mexico — have increased sharply over the last few years.
According to the Greater Albuquerque Association of Realtors, the median sales price for a single-family detached home stood at $330,000 in September. For comparison, the median home price in September 2019 stood at $225,000 in the metro area — a nearly $100,000 increase.
While some experts say the metro area’s home prices are only catching up with other comparable cities’ trends, those prices have largely pushed new and old homebuyers alike out of the purchasing market.
But why such a large increase in costs?
For one, the metro area is experiencing a tight market with a low inventory.
In addition, new homes face increasing costs in building materials, some of which have been created by issues in the supply chain.
Bishop said Abrazo Homes has increased its home sale prices about $60,000 annually since 2020.
Those increases are largely due to supply chain issues, which have led to a scarcity in some building materials.
For instance, roofing tiles have been hard to come by, said Bishop, who added that homebuilders are seeing suppliers ration materials in some cases.
“We have houses right now that we’re literally putting sand bags on the roof to make sure there’s enough weight so we can finish those homes,” Bishop said. “Any time we have a scarcity in supply, it’s going to drive the price up. The scarcity through the supply chain, the scarcity in the labor market — scarcity drives those prices through the roof.”
Industry leaders also say local taxes and fees are burdensome.
Local gross receipts taxes and impact fees in Albuquerque, Rio Rancho and Los Lunas on new home builds, for instance, can comprise more than $30,000 of the final cost a homebuyer pays on a home, Bishop said.
Bishop said the challenge of getting building approval may even outweigh taxes from the homebuilders’ perspective. In Albuquerque, he said, the approval process can take up to 12 to 24 months — and sometimes longer. That has led homebuilders to focus on Rio Rancho and Los Lunas. Bishop said the permitting process moves faster in both those cities.
“In Rio Rancho from the time I pick a site to the time I’m ready to build a house can be 16 months, and sometimes even shorter than that,” Bishop said. “I have a fairly good idea of what the market will look like in 16 months. If I go three years, I have no idea what the market will look like. That’s why it pushes a ton of investment out of Albuquerque.”
Dylan Dinkel, a sales manager for the Albuquerque division of Hakes Brothers, said the company is still bullish on the continuation of new home and community builds in the metro area.
About 40% of the company’s business at the moment comes specifically from out-of-state buyers, and that is a similar percentage for Abrazo Homes and Twilight Homes as well.
But it isn’t just out-of-state buyers moving to New Mexico that have local homebuilders expecting to keep the industry afloat. New Mexicans, too, are also looking to get into new homes — especially first-time homebuyers.
To attract those types of buyers, Dinkel said Hakes Brothers, which has been in operation since 2006, has created an incentive program aimed at alleviating high mortgage rates by offering cash to bring it down. That incentive includes thousands of dollars that can mean the difference between buying a new home or not.
Hakes Brothers has seen success with that incentive, Dinkel said, and will likely continue on as rates remain high.
But industry leaders say a lack of supply will likely mean a breaking point will come in the future.
“I think that Albuquerque and the surrounding areas are going to continue to be a hotspot for development,” Dinkel said. “And honestly, I think that it’s just getting going. It’s going to continue to expand here.”
This story has been updated.