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How Job and Population Loss Affected Our Local Housing Market

by Connie Yoshimura

According to Neal Fried, economist, with the Department of Labor, Anchorage lost an estimated 2,200 jobs in 2017 and he forecasts another 1,000 jobs lost in 2018. The only sector to increase jobs was in health care with a gain of 800 in 2017 and a projected gain of 600 in 2018. Anchorage also had a population loss. According to Fried, there were 4,273 births minus 1,768 deaths, plus a net migration of -3,959 for a population loss of 1,454, making our total population at 297,483, down from a high of 300,880 in 2013. Yet, population and job loss has had little effect on our local housing market. 

Last week, Anchorage had 36 newly listed single family homes for sale compared to 45 the year before. Ask any buyer who is looking for a $366,000 averaged priced single family home to buy and you can hear their frustration in finding one in good condition. The same holds true for the move-up buyer wanting a larger than 6,000 square foot lot and preferably on the hillside. That lot is hard to find at a price below $200,000, making new hillside construction a minimum of $750,00 or more if you add a basement. Lack of new construction inventory, which remains at historic lows, has kept our housing market stable, despite buyers’ frustrations over hard to find properties, for example, with garages 24 feet or longer for that F-150 pick-up truck. Many of the move-up homes built in the l990’s, or earlier, have a traditional floor plan with formal living and dining rooms. Contemporary housing designs have changed since 2000 with the great room and open kitchen now the preference for our more casual lifestyles. MLS sales for 2017 was down less than 200 and sales prices remained remarkably stable with only $6,000 off the average sales price. Foreclosures are frequently a bell weather of a deteriorating housing market but according to MLS only 15 foreclosures were listed for sale on January 3rd, 2018. During the real estate recession of l986-88 there were almost four thousand foreclosures available. Any comparison to our mild recession to the debacle of the late l980’s is based on fear and not fact. Even our average apartment vacancy rate at 5.1% is a healthy average. 

I’ve been helping buyers and sellers in this market for over thirty years and this January has been unusually active for buyers, many of them move-up and downsizing boomers. It’s as if they have finally said, it’s move now or never and time to remodel. Perhaps, spurred on by mortgage interest rate increases, the incremental increases in the price of oil or the potential of new exploration and discoveries in the oil patch, buyers are motivated to make a move this spring. As Neal Fried said in his presentations to various groups in Anchorage, recessions are typically short with 93% lasting no more than three years so perhaps Anchorage’s turnaround time has come.

Commercial Real Estate Outlook Not So Rosy in Anchorage

by Connie Yoshimura

Lawrence Yun, chief economist for the National Association of Realtors, has forecasted a national 2.5% increase in office rent, a 4% increase for industrial properties and a 2% increase in retail for 2018. Here in Alaska, our commercial real estate forecast doesn’t look quite so rosy, according to the recent presentation at the BOMA lunch by Mark Filipenko of Bond Filipenko, commercial properties LLC. Retail lease rates fell in 2017 to an average of $2.04, down from $2.10 in 2016. Class A lease rates still hover over $3.00 per square foot while older Class A rates hover above $2.50. However, both old and new offer concessions such as free rent and larger allowances for tenant improvements. After attending the BOMA lunch in 2017, I decided to move my brokerage from Class B space to a mid-level Class A space. It was, and still is, a good time to move your offices in 2018.

Anchorage lacks industrial land for development and the disconnect between the cost of new construction and existing industrial properties continues to widen. The overall industrial vacancy rate has remained stable over the past three years between 2.22% and 2.4% in 2017. But, in 2008, metal construction costs were between $120-$140,000 per square foot. In 2017, those costs hover between $175-200, according to Filipenko, making speculative development problematic. Industrial land, zoned I1 and I2, has remained constant at $12-20 per square foot, depending on the quality of the dirt. Owner users or owners who have held industrial land for a long time are the most likely candidates for new industrial construction.

Locally, overall retail vacancy rates were 4.59% in 2017 with mall vacancy rates at 7.16%, which was before the Sam’s Club and Sears pull out announcements. What worries me most about retail are the typical mom and pop small businesses that populate the first floor of mixed-use buildings. Whether it’s a coffee shop, a small bookstore or a unique gift store, it’s hard to compete with the big boxes and Amazon prime. Price vs. customer service vs. convenience is the retail dilemma for 2018. Whether it’s a drone or a drive-up at Freddy’s to pick up your groceries, it’s hard for the small mom and pops to compete.

Henry Chamberlain, President and Chief Operating Officer of BOMA International recently identified the top 18 commercial markets. Needless to say, Anchorage was not one of them. And, yes, our neighbor to the south, Seattle, topped the chart. While Houston, with 10,000 homes uninhabitable and 50,000 homes with major damage due to the hurricane impact, was off the chart.

2017 Market Surprises

by Connie Yoshimura

Due to lack of inventory, the 2017 residential market remained almost identical to 2016 with only a slight dip in single family sales and an average sales price of $366,000+ virtually identical to 2016. Even the condo market held study with an average sales price of $211,000 and a single digit dip in sales. However, there were some definite surprises hidden in some of the statistics. Eight new construction four-plexes sold for $775,000 while older, much older, four-plexes sold for $300,000 less. Buyers who were worried about the high cost of maintenance and repair bought new. They also wanted a garage. A total of 85 four-plexes sold in 2016—a surprising number given the reported softening of the rental market. 

Another market surprise was twenty-five homes over $1 million sold during 2017 compared to only 12 in 2016. There was definitely some concession in terms of final purchase price—sometimes as much as 7% but that doubling of million dollar home sales was a surprise to all of us. And I predict that market will remain strong in 2018, despite the new tax code which will cap interest deduction at $750,000 purchase price. Few buyers in this price point care about interest deductions or interest rate.

As I’ve mentioned before, nearly 500 ranch homes sold in 2017. This was also a market surprise. Most of us didn’t even know there were that many ranch homes built in Anchorage over the past 30 plus years. Expect more ranch homes, both as single family and attached condos, to be built in 2018, ranging in square footage from 1,250 to 2,400.  

Finally, the Eagle River market broke the $1 million dollar barrier with approximately three new home sales. Eagle River, with its’ scenic mountain and inlet views, is where many newcomers think Alaska is all about. 

With 75% of all homes built between 1970 and 1990, the Alaska Housing Finance Corporation has an innovative loan program for renovation of our aging housing stock. You must be an Alaskan resident in order to be eligible. The loan program is for owner-occupied single family residences, duplexes, triplexes, four-plexes, condos and some manufactured homes. Improvements to a home you already own are up to $200,000 with an alternative evaluation and up to $318,075 with an appraisal. The program had a modest beginning with only $12 million in loans but most recently has jumped to $20 million. I predict that loan program will quickly jump to $30 million as owners and buyers become more aware of it.

 

Unique Factors Still Impacting Alaska Housing Market

by Connie Yoshimura

Before we can predict the future of Alaska’s housing market, we need to remind ourselves about some of the unique factors affecting our market. One dominant factor is that seventy-five percent of Alaska’s housing was built between 1970 and 1990. A home built in the l970’s is now 48 years old—way past its functional and cosmetic life. Even one built in l990 is now 18 years old with ineffective energy standards. This aging inventory is why there has been and will continue to be a spike in AHFC’s renovation loan programs which include purchase renovation, refinance renovation and second mortgage renovation. When first introduced in 2015, AFC financed $12.8 million.  Loan volume grew to $20.6 million in 2016 and should exceed $30 million in 2018.

A recent article from Zillow declared there are 12 percent fewer homes to choose from nationwide than there was a year ago and 51 percent of for sale properties are in the top one third of home values which are out of reach for first-time home buyers. The national average price for a single family home is $234,000. In Anchorage, last year the average price of a home was $366,000, the same as in 2016.    So not only does Alaska have a much higher sales price it is also following the national trend with 46% of our current active inventory priced over $400,000.   

Inventory shortages will continue to plague our local housing market in the affordable price range as well as the middle up range well into the year 2020. Last year there were only 196 single family permitted in the MOA—only six more than in 2016, a dismal showing for a community of almost 300,000 even taking into consideration Alaska’s mild recession. Permitted duplex units almost doubled from 2016 to 104. Builders sold each side as a condo. Buyers can expect that trend to continue as it helps fulfill the affordability needs of millennials as well as down-sizers. Developable land shortages will create higher density housing styles. 

Alaska continues to have one of the lowest delinquency and foreclosure rates in the nation despite our mild recession. On a statewide basis Alaska’s delinquency rate was 0.60 in 2016 with little change in 2017. The national foreclosure rate is double Alaska’s. Due to the shortage of housing, the fed rate hikes expected in 2018 should have little impact on our local housing market. Prices will remain stable and properties in excellent condition and amenity packed locations will begin to sell at a premium.

 

Start Now if You Want a New Home in 2018

by Connie Yoshimura

If you’re considering building a new home in 2018, now is the time to start.  After spending hours driving around and looking online, you have a good idea for location and builder so it’s time for a meet and greet with a builder at that meeting, you can explore his available lots and house plans. You will also meet who you will work with, what his business philosophy is for fixed price vs. cost plus and the personality of the organization. Most importantly, you need to feel that you are going to have an open channel of communication. At the meeting, the builder will also discuss the financial aspects of the transaction. All builders when building to suit require non-refundable notice to proceed funds so don’t be hesitate to discuss what sort of financial commitment is to be expected from you.  

Assuming you have had a successful meeting, the builder will begin work on your requested modifications and pricing. You may have another meeting in person to approve the plan or it may be done via email or skype. In my experience, we’ve actually assisted buyers who made all their selections online and never saw the home until they arrived in Alaska to close. I always hold my breath during that type of transaction but I’m happy to report they have all turned out well.

Once you receive a fixed price, along with all your allowances for your interior selections, you enter into a purchase and sale agreement. This meeting usually includes the builder and his representatives at which time you are also given a public offering statement if the property is part of a home owner’s association. If that is the case, you will have fifteen days to review the offering statement and once accepted your notice to proceed funds (usually in the 2 to 10% range) will be dispersed directly to the builder. It is non-refundable and returned only if the builder fails to perform. 

The builder then applies to the MOA for his permit and once received the actual construction process begins. The wait time from the meet and greet to the actual excavation can be anywhere from one to two months. Frequently, this is when buyer’s remorse sets in but once the home is framed up and the buyer can actually see their home, there develops a sense of urgency. One word of caution is that the home always looks smaller when it is just framed. You’d think just the opposite when you can see through the studs but for some optical reason, the rooms always look smaller. Most builders provide an in person framing walk through with the buyer who gets to check his window placement and sizes. Next comes the electrical walk through with the electrician to place your wall sconces, recessed cans, et cetera.  

Now the process moves quickly with insulation, drywall, paint and the interior finishes.  When the home is complete, you have a blue tape walk through. That’s your opportunity to check out the appliances, any nicks or cracks that are always going to appear. We call it a blue tape walk through because you actually get to use the tape to mark the items that need a touch-up or repair. While this process is going on, the appraisal and home inspection, if applicable, occurs behind the scenes. About 50% of all new home buyers decide to have an independent inspection. I particularly recommend this for homes that don’t require a full building permit as is the case in Eagle River, the Valley, Girdwood and some higher up elevations in the Anchorage hillside. A home inspection is a buyer’s cost but it can give you additional piece of mind. I do not recommend closing until you have a second blue tape walk through and all the items have been completed, including any that may have been identified by the independent home inspector. It is a rush to closing both for the buyer and the builder once a CO or CCO has been issued but as a new homeowner, you don’t want to be plagued with call back items and subcontractors while trying to settle into your new home.

If you start the new home building process this week with a meet and greet, your new home will not be completed for six to nine months. So better to get going if you want to be in before the 2018 first snow fall!

A Look Back at the 2017 Residential Market

by Connie Yoshimura

Unlike Alaska’s majestic scenery with its tall peaks and glacier crevices, Anchorage’s 2017 real estate market was more like a Midwestern plain—pretty uneventful and, if I dare say it because I grew up in Iowa, a little bit boring. Mortgage Interest rates remained steady, hovering up and down between 3.35 and 4.08%, depending on the loan program and a buyer’s qualifications. Lack of inventory allowed the average value for a single family home to remain at $366,000 except for certain spot markets.  

New single family housing starts continued their historic low pace at just under 200 permits--pretty appalling for a community of almost 300,000. Anchorage’s two top builders, Hultquist Homes and Spinell Homes, continued their duel with little competition from other builders. People bought and sold homes at the same rate as in 2016, based upon their family and lifestyle needs. We had downsizers who bought a surprising number of single level homes—both resale, brand new, single family and single story condos. Millennials started their trek to the suburbs as they married, adopted a dog and started a family. In that regard, they proved many of the planners wrong who believed Millennials would be urbanites forever.  Instead, they sought out and bought homes where they were raised—in the suburbs on a single family lot. We also sold a surprising number of million dollar homes—but at a 7% discount from the original listed price. Generations X and Y began entering the move-up market and some were deterred by the higher cost of new construction and smaller lot sizes. Mortgage companies suffered a sizeable decline in dollar volume due to the lack of refinances. In 2017, anyone who had wanted to refinance had already done so.

I’m not sure what 2018 will be like in residential real estate but I will make one prediction: it will not be like 2017. Buyers should definitely shop and compare mortgage rates and fees. With refinances gone, it’s a competitive market out there. But still shop local, particularly if you’re buying a brand new home. Outside lenders don’t understand Alaska’s weather and escrow holdbacks for exterior work and landscaping. It’s safe to say 2018 will bring three or four interest rate hikes and by the end of 2018 a conventional mortgage will hover around 5%. I do not expect any more single family homes to be built than the 200 we’ve had the past few years. It is unfortunate for a community our size to not be able to provide buyers with more new home choices due to over-regulation and the lack of privately held residential land for development at a reasonable price. Heather Wood in southwest Anchorage will come on line with public streets, water and sewer in late summer. Luxury homesites in Resolution Bluffs will also be available late spring 2017.    

As land becomes tighter, more townhouse style condos will be built in 2018. It’s an efficient land use and boomers, in particular, will begin that painful process of downsizing. The dreaded home inspection will continue to be an obstacle sellers will have to overcome. With the vast majority of our homes built prior to the 1990’s, sellers can expect a long list of requested repairs from sometimes unrealistic buyers who want the home to be in essentially new condition. Health and safety repairs should be the only standard for repairs in 2018.  

In my world of real estate brokerages, the big news is that as of January 2018, all 2,910 individuals who are licensed by the state of Alaska to list, sell, lease and manage real estate, whether part of a mega brokerage or as a single proprietor, will be required to have errors and omissions insurance. That’s a long overdue positive step forward for the real estate industry.

Displaying blog entries 1-6 of 6

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503
907-646-3600