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Who are Anchorage’s Most Prolific Builders and Where do they Build?

by Connie Yoshimura

Despite the continued historic low number of building permits, a handful of builders are keeping the residential construction industry alive. Leading the pack are Spinell Homes and Hultquist Homes who collectively account for 33% of all duplex and single family permits. John Hagmeier Homes and Merit Homes have eight and seven permits, respectively through the end of the third quarter. Next comes Crown Pointe and newcomer Trevi Builders with six permits each. However, forty-eight units comes from the owner builder category. That do it yourself group has been the number one permit puller for the past few years. Home building requires not only a general contractor license but also a residential endorsement. An owner-builder needs no license or insurance and theoretically is building a home for themselves. Usually, they have a background in the construction trades and are hoping to save any builder profit.

So where is everyone building? Resolution Pointe continues to have the biggest draw for builders. Seventeen of the one hundred and sixty permits so far this year are in Resolution where the home sites are seventy feet with a curvilinear streetscape and larger than MOA required side yard setbacks at eight feet. If space is a luxury than Resolution Pointe is the most luxurious of all new home communities. The Terraces in popular southeast Anchorage has had 11 single family permits. Potter Highlands, with upscale estate size lots, has pulled five permits this year. A handful of single family lots remain in WestPark with Spinell as the builder. NorthPointe and WestPark both have had five permits. Hultquist Homes has sold out of single family lots in WestPark and has now moved to WestGate with craftsman style duplex condos, including ranches and two-stories, along with owner-occupied duplexes.

The average price of a single family permit is $401,577. That price is the MOA estimated cost of the vertical construction only and does not include the lot cost which generally ranges from $120,000 to $150,000 for fully improved water, sewer and a public road. Hillside lots can range anywhere from $160,000 upwards to $400,000. Thus, the challenge buyers are facing to find a brand new home under $500,000.

The average permit value of a duplex unit (1) is $248,074 so if you’re a buyer looking for a brand new home, even an attached one, you’re likely to spend upwards of $325,000. Anything less than that is truly a very good buy.

New Home Permits at an Historic Low

by Connie Yoshimura

Last week the MOA published the Building Home Permit Activity Report for the first three quarters of this year. The report which tracks residential and commercial construction and alterations shows an historic low of 160 single family permits. With the frost and first snow last week, this downward trend is sure to continue through the end of the year. Single family permits are down 24.17%. Duplex permits are down 30.77% and multi-family units are down 61.22%. All total the dollar value of residential permits is down 7.95%. This number doesn’t come close to the decline in the number of permits which, simply put, means new housing has gotten more expensive at the permit counter and to the consumer.

On the flip side, more homeowners and commercial tenants are staying put and investing in remodeling. Residential alteration permits are up 25.65% and commercial alterations are up 12.94%. Part of the residential remodeling activity can be attributed to Anchorage’s aging housing stock and the need for maintenance and repairs. Some boomers are electing to remodel and age in place, knowing that their remodeling costs don’t add value but only convenience and comfort.

So why can’t we have more construction activity? There’s plenty of blame to go around. You can start with the new Title 21 implemented the first of the year forcing commercial and residential builders/developers to redefine not only their plans but also to take a long term look at the high cost of over-regulation. On the residential side, home builders and developers have always been under-funded. Anchorage has no publicly traded builders or sources of deep equities. Acquisition, development and construction loans are the highest risk in any lender’s portfolio and it’s less work and more profitable to lend to non-profits and for strip malls that you see popping up in southeast Anchorage.

Population and jobs haven’t taken the deep dive in 2016 that so many publicly predicted so Anchorage’s need for more housing continues to fall behind the economic curve.

Inventory On Rise, But Hesitancy Emerging Among Buyers

by Connie Yoshimura

The 2016 Anchorage residential market could best be described as having had a minor fender bender, not the fatal crash so many naysayers predicted for the housing market. Thousands of owners have not turned in their keys to the bank like they did in the 1980’s. In fact, Alaska continues to rank in the bottom three states for foreclosures. Values have remained constant with minor pockets of decline due to aging housing stock and in some geographical areas. Transportation and the medical field continue to bring new residents to Anchorage. The military and oil industry continue with their in and out migration.

There are, however, some minor dents in the market. Homes that are thirty years old and in need of maintenance and remodeling are not appreciating and in some instances, depreciating in value from their original purchase price from five or ten years ago. Two of Anchorage’s most expensive areas, downtown Anchorage and DeArmoun/Potter Marsh, have seen a modest decline in average sales price while the rest of the market has remained flat with virtually no appreciation in the average sales price of $362,000 from a year ago. Area wide average days on the market has increased by only a modest six percent. 

But, what has increased is inventory. Buyers have a much wider selection than they did at the beginning of the year. September had 999 active listings compared to 569 in January. While some of this increased inventory is seasonal, this September had the highest inventory of for sale properties since 2011 while at the same time sales dipped to 275 from the previous month’s 325. More inventory doesn’t mean more buyers. Quite the contrary. There is definitely emerging a hesitancy in the market place. Buyers appear to be distracted whether by the somewhat electrifying presidential election or the state and local concerns over the economy. For whatever the reasons, buyers are taking their time in making a decision. But, as inventory begins to fall which it does every winter and the long anticipated Fed increase rate occurs in December, buyers will begin to feel the pinch.  Current thirty year fixed rate mortgages are at 3.5%. We’ve heard the threat of a rate increase for the past two years but this time, whoever wins the White House, it is almost a certainty. Motivated buyers would be wise to take advantage of the wider selection and current mortgage rate before more change occurs. 

Buyers looking for a new home are going to continue to be frustrated by a lack of finished inventory. New home starts remain at historic low levels while at the same time prices continue to increase. Winter construction costs for heating and tenting will exacerbate the price disconnect between new and resale even more. Now is not the time for buyer hesitancy if you’re in need of a home.

Why 'New' Costs So Much

by Connie Yoshimura

Robert Dietz, the National Association of Home Builder’s Chief Economist, in a speech to Anchorage’s real estate industry this month, predicted a mortgage rate hike to 4.1% in 2017 and 4.9% by 2018 compared to our current rate of 3.5% for conventional financing.

Dietz’s presentation also addressed the constraints on building growth as witnessed in Anchorage which continues to face historic lows for single family permits. He called them the ‘three L’s’. The first is a labor shortage for tradesmen which has had a long decline and currently has a labor force participation rate of only 63 percent due in part to the aging labor force for construction. Alaska’s median age in construction jobs is thirty-nine to forty and any homeowner looking for repairs can attest to a lack of trade people. 

The second ‘L’ is a very low inventory of lots which continues to plague the housing industry on a national basis as well as locally. Lot size is declining while lot value is increasing. Nationally, the average single family lot size is 8,589. In comparison, the MOA zoned R1 single family lot size is 6,000 and there is continued discussion about a small lot ordinance which would lower that size due to our lack of available land for residential development.

Dietz’s third ‘L’ is lending—the lack of ‘AD&C’ access which stand for acquisition, development (of roads, water, sewer) and construction (vertical home building). Despite low interest rates and pent-up demand for housing, many lenders remember the trauma of the 2008 real estate recession and are hesitant to participate in AD&C lending which is considered the highest risk for timely performance. 

Regulatory burdens are rising for home builders and have increased 29.8% over the last five years, as our local builders can testify with the enactment of the new title 21 and annual changes to the Design Criteria Manual. That increase includes building codes, environmental issues (SWPPP), wetland permitting, labor and zoning. NAHB research finds that 24% of the final cost of a new home is due to direct and indirect regulatory costs. Three fifths of that total is associated with land use. If a new home has an average cost of $400,000 that means almost $100,000 of that purchase price is due to over regulation. Of that $100,000, almost $60,000 is from the land development burden, including the cost of interest due to approval delays.   

So, it is no wonder that our lots are getting smaller and more expensive as the disconnect between ‘new’ and ‘pre-owned’ continues to widen. Nationally, the gap between the new and existing homes since 2012 is now $72,100 compared to just $20,000 between 1990 and 2008. No wonder new home buyers are faced with sticker shock.

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