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Home Buyer Preferences by Generation

by Connie Yoshimura

Despite the generational differences, all home buyers prefer to live in a single family detached home. Boomers and millennials, Gen X and even seniors, prefer a single family detached home. But still the myth exists that boomers want to live in an apartment style condo and go home on an elevator. Not so, according to a new study by the National Association of Home Builders. When surveyed only 8% of boomers preferred to live in an apartment style condo. Boomers who currently live in a single family home simply want to downsize to a smaller, more energy efficient home. In that regard, they are just like all home buyers where 90% want energy star rated appliances and over 88% want green home features including a tankless water heater and higher rated insulation than required by local code. And over 75% of boomers and seniors prefer that new home to be one-story.

The good news for home builders is that over half of all home buyers now prefer a new home.  Boomers and seniors prefer to downsize but that magic square footage number is still almost 1,800 square feet. It is the Millennial and Generation X buyers who want 2,315 plus square footage, including four bedrooms and three full baths. Their goal is to move-up from a 1,600+ square foot home, which may even be attached, to a larger home and lot. Here in Anchorage, which is an active move-up market, as newly formed families add children and the small single family home or 1500 square foot attached duplex condo becomes too small for their expanding families. All buyers, except seniors, want to increase the size of their lot when they make a move. With Anchorage’s residential land shortage, that’s a preference that gets quickly squashed.

A traditional forward mortgage is how most buyers would pay for a home, according to the NAHB study. However, 28% of those surveyed would pay up front in cash, a trend we are also seeing in Anchorage. Only 3% would use a reverse mortgage despite numerous commercials touting its benefits. Anchorage’s housing market has long stood by itself when it comes to the wants and needs of its buyers. In most instances, our new home prices are $50,000 plus higher than the resale home just a half a mile away with approximately the same square footage. In just a handful of years, we’ve gone from a four star energy rating to five star which has resulted in major increases in cost but with energy benefits to the consumer. Anchorage’s shifting demographics makes it one of the most diverse populations in the nation and with it comes the need for  more innovative housing  and land use plans. Multi-generational families require two master suites which result in a larger footprint on a smaller lot. Seniors and boomers prefer ranches which results in a need for higher lot coverage ratios. More amendments are still needed to the new Title 21 if Anchorage is going to meet its housing needs of the future.

Why You Should Consider Buying Now

by Connie Yoshimura

The Anchorage housing market continues its flat line stability into fall. Single family homes values have averaged $366,000, plus or minus the cost of an airline ticket to Hawaii, since 2014. September closed sales were 271 compared to 277 in 2016. Condos remain at their 2015 value of $213,000. And for the past four months, condo sales have actually beat 2016 figures by 29 units. This is all good news for our housing market but it begs the question of ‘why’ when reports of Alaska’s economic recession continue to dominate the news. Let’s blame it on lack of inventory which is the biggest contributor to Anchorage’s housing stability. Homes priced below $500,000 have, on average, only a three month supply. It’s a competitive range and homes priced between $350,000--$400,000 sell within 29 days if priced correctly and in good condition.  

However, homes listed above $500,000 constitute 26% of our active inventory. There is a one year supply of homes over $750,000 with just 5.6 homes selling per month. If there is a developing soft spot in the market, it is over $500,000 where builders are forced to build and compete with pre-owned homes which are often larger and include landscaping, fencing and appliances. Even sophisticated buyers in this price range, who are most likely move-up buyers purchasing their second or third home, fail to recognize the benefits of the five star energy efficiency requirements compared to the 1980’s four star home. One group that does recognize those benefits, however, is the boomer buyer who doesn’t want the hassle or the unexpected expense of repairs and maintenance of an older home.         

Behind all these numbers is a growing concern of Anchorage’s housing affordability over factors that we have no control over. About this time every year, I have predicted a rate increase in December which has never occurred. However, this year may be the year it actually happens. And, as we all know, it is not the price you pay for the home but the mortgage interest rate that contributes the most to the cost of home ownership. Builders were already nervous about increases in lumber and lack of labor after the hurricanes hit Florida and Texas but now with the devastating wild fires in northern California there is bound to be increases in materials and labor shortages as the rebuilding begins. Already, local builders are reporting having to pay almost $10 a foot in labor costs for framing, an increase of 25% almost overnight. The tariff on British Columbia lumber has also driven up the cost of lumber. Framing is the backbone of any home and is just one example of what we can expect for increased costs in 2017 which will make any new home built in 2016 look like a bargain.

So here’s my advice for the last quarter of 2017. Buy now before mortgage rates increase and new home prices escalate due to material and labor shortages, pulling resale home values with it.

Providing Access to Affordable Housing in Alaska

by Connie Yoshimura

Congratulations to the Alaska Housing Finance Corporation for being one of the best managed public housing agencies in the nation. Established forty-five years ago to provide ‘Alaskans access to safe, quality, affordable housing’, it’s mission is perhaps more important today than ever before. During the recession of the 1980’s, the state legislature grabbed a portion of its profits to help balance its budget and since that time AHFC has made a cumulative contribution close to $2 billion, according to its 2016 annual report. Their mortgage portfolio contains 14,939 loans with a delinquency rate of only 3.7% and a foreclosure rate of 0.29—well below the national average.  
 
As of June 30, 2016, AHFC had 1,612 public housing units available with locations as diverse as Nome, Seward, Juneau, Cordova, Anchorage and Mat-Su. However, the combined wait list from all locations was 3,445, demonstrating what public officials across the state have all finally recognized as Alaska’s housing crisis. The voucher assistance program, where low-income Alaskans lease privately owned rental units from participating landlords, has a wait list of 3,969. As a former landlord who participated in the program, I can attest to its value of social integration as opposed to the ‘projects’ whether new or old, where the low income people live. This is one program where I hope AHFC can do more in the future.
 
There are 73,000 veterans living in Alaska. AHFC supports homeless veterans with 271 Veterans Affairs Supportive Housing (VASH) vouchers, an increase of 24 in FY16. However, the need is much greater with 168 unsheltered veterans according to a Point-in Time count of the homeless population. This is another area where AHFC can and should do more to support its Alaskan veterans.
 
In 2014, AHFC was granted expanded authority by the State legislature to fund mixed use facilities. The funding of commercial space for a coffee shop, restaurant, yoga studio, book store, et cetera appears to be in direct opposition to its mission of ‘Alaskans access to safe, quality, affordable housing.’ Yes, a mixed use building provides subsidized rental housing and, yes, low income families will live there because there is a housing crisis in our state and these units will be available. Over the past five years, planners and developers, at least in Anchorage, have developed a love affair with mixed use. Perhaps, because the projects are larger and more profitable? But, there are other programs and opportunities for housing that is more in keeping with AHFC’s mission and all Alaskans desire for a better quality of life. I’m not sure that’s living above a coffee shop. 

The Future of Housing in Anchorage

by Connie Yoshimura

We all know that Anchorage is a multi-cultural town with over 140 languages spoken in our schools. But, did you know Anchorage is also becoming a multi-family community with over 300 to 500 multi-family and mixed use housing units planned over the next few years? If all the units proposed and under consideration by the MOA planning department are built, Anchorage will soon have hundreds of four to seven story apartment style units over first floor retail. The proposed R3A spot zoning in various designated locations around Anchorage is a pending ordinance before Planning and Zoning designed to facilitate more rental housing, both federally subsidized for low income residents as well as a splattering of market rate rental units. As part of the mix, some units may be designated as for sale condos.

I applaud any effort by the MOA to create more urgently needed housing in all sizes, shapes and price points but what I am most concerned about is the wide economic and social disparity between subsidized rental housing and luxury hillside homes and its long term implications for Anchorage as a community because there is not much in between when it comes to Anchorage housing. There are few new single family subdivisions coming online in 2018. Home builders are still struggling at the bottom of the permit barrel with only 141 permits thru August. Duplex permits, whether as a condo or single owner, also are low for a community our size. So why is this widening gap occurring?  One reason is because there are federal funds available for subsidized housing. Another is multi-family developers, again whether for profit or non-profit entities, have more financial resources to hire consultants to advocate for these projects, which show larger rates of return and provide as much as a 15 to 18% administrative fee back to the developer when federally subsidized. But, on the other side of the housing market, single family builders’ average profit is 6%, according to national statistics. 

I estimate that less than 10% of homebuyers want to live above a coffee shop. Millennials want to live in suburbia in a home like where they were raised. They want a single family home with a garage, fenced yard and three bedrooms. Today, the square footage of the home may be smaller and the lot like a postage stamp but it has a front door and a garage and you don’t have to walk up three flights of stairs or take an elevator to get to your front door. Boomers want the same thing but without the stairs. This is a basic misconception perpetuated by a select number of planners and developers who are proponents of mixed use. Unfortunately, if all goes as planned, it will create a wide social divide between those who can afford a luxury hillside home and those can’t with hardly any housing in between.

My advice to all buyers is if you are looking to buy a single family home, do so now. Because Anchorage isn’t going to have many more in the future unless building and zoning codes are changed to accommodate single family homes as well as high density mixed use properties.

Understanding Your Home Warranty

by Connie Yoshimura

New home buyers frequently have a lot of questions relating to home warranties and what they cover. Some local builders offer a ten year structural warranty but the number of years required is not defined in the state statutes. Almost all builders offer a one year interior warranty but one builder also offers a two year warranty. Most Alaskan home builders and remodelers follow the warranty standards established by the National Association of Home Builders (NAHB) which are identified in the ‘Residential Construction Performance Guidelines’ booklet. The booklet costs $75 and you do not need to be a member of NAHB in order to purchase a copy. But, like most everything, the devil is in the details so here are some warranty concerns and fixes as established by the NAHB.
 
The observation is the wood subfloor squeaks or seems loose. The performance guideline states that although a totally ‘squeak-proof floor cannot be guaranteed, frequent loud squeaks are considered a deficiency’. The corrective measure is that the contractor will refasten or take other corrective action of any improperly installed or loose subfloor. However, this corrective action does not include removing the floor or ceiling finishes which may come as a surprise to a new homeowner. Another concern buyers may have is that a wood subfloor is not level. The performance guideline is that the floor should not slope more than one half inch in 20 feet. Deflections due to overloading by the consumer are not the contractor’s responsibility. Also, measurements for slope should be made across the room, not in a small area.
 
We have all heard about septic system failures. Most occur over time but occasionally there is one that may be improperly installed. The performance guideline is that the septic system should function as designed and approved by the applicable local governing authority which is the Municipality of Anchorage. It is the contractor’s responsibility to correct any problem caused by improper installation. However, the consumer is responsible for the proper maintenance of the system. If consumer action is the cause, the consumer is responsible for correcting the problem. For example, placement of non-biodegradable or nominally biodegradable items should not be flushed and even excessive use of a food waste disposal can create a problem. Also, adding a fourth bedroom to a septic system designed for a three bedroom home can also create serious problems caused by the consumer. This problem frequently occurs where a homeowner takes it upon himself to finish a basement by adding a fourth bedroom, not realizing his original septic system was installed for a three bedroom home. Few homeowners go to the trouble of upgrading their septic system when remodeling particularly when they are doing it themselves. 
 
There are thousands of parts to our Alaskan homes and virtually 99% of those parts are imported. Alaska does not manufacture home building products so that is always an added risk not only for the consumer but the home builder. What is most important, however, is understanding what is a warranty issue, what is the appropriate fix and whether or not the problem has been created by the consumer.

New home buyers frequently have a lot of questions relating to home warranties and what they cover. Some local builders offer a ten year structural warranty but the number of years required is not defined in the state statutes. Almost all builders offer a one year interior warranty but one builder also offers a two year warranty. Most Alaskan home builders and remodelers follow the warranty standards established by the National Association of Home Builders (NAHB) which are identified in the ‘Residential Construction Performance Guidelines’ booklet. The booklet costs $75 and you do not need to be a member of NAHB in order to purchase a copy. But, like most everything, the devil is in the details so here are some warranty concerns and fixes as established by the NAHB. 

The observation is the wood subfloor squeaks or seems loose. The performance guideline states that although a totally ‘squeak-proof floor cannot be guaranteed, frequent loud squeaks are considered a deficiency’. The corrective measure is that the contractor will refasten or take other corrective action of any improperly installed or loose subfloor. However, this corrective action does not include removing the floor or ceiling finishes which may come as a surprise to a new homeowner. Another concern buyers may have is that a wood subfloor is not level. The performance guideline is that the floor should not slope more than one half inch in 20 feet. Deflections due to overloading by the consumer are not the contractor’s responsibility. Also, measurements for slope should be made across the room, not in a small area. 

We have all heard about septic system failures. Most occur over time but occasionally there is one that may be improperly installed. The performance guideline is that the septic system should function as designed and approved by the applicable local governing authority which is the Municipality of Anchorage. It is the contractor’s responsibility to correct any problem caused by improper installation. However, the consumer is responsible for the proper maintenance of the system. If consumer action is the cause, the consumer is responsible for correcting the problem. For example, placement of non-biodegradable or nominally biodegradable items should not be flushed and even excessive use of a food waste disposal can create a problem. Also, adding a fourth bedroom to a septic system designed for a three bedroom home can also create serious problems caused by the consumer. This problem frequently occurs where a homeowner takes it upon himself to finish a basement by adding a fourth bedroom, not realizing his original septic system was installed for a three bedroom home. Few homeowners go to the trouble of upgrading their septic system when remodeling particularly when they are doing it themselves.  

There are thousands of parts to our Alaskan homes and virtually 99% of those parts are imported. Alaska does not manufacture home building products so that is always an added risk not only for the consumer but the home builder. What is most important, however, is understanding what is a warranty issue, what is the appropriate fix and whether or not the problem has been created by the consumer.

National and Local Housing Trends

by Connie Yoshimura

In a recent presentation in Anchorage, Robert Deitz, chief economist for the National Association of Home Builders, reaffirmed several trends in housing, construction and land development that Anchorage has been experiencing the past few years. The most startling of which is that regulatory costs continue to rise—up 29% over the last five years. The increase of costs on a single family include the total effect of building codes, land use, environmental and other rules. During development, i.e. horizontal construction of roads, water and sewer, as well as pre-development expenses for entitlements, constitutes 18.8% of the cost of a home. Regulatory costs during construction amounts to 30.3%. Although no actual survey has been done for the MOA, builders and land developers agree that the cost of delays, permitting, re-inspection and changes to the title 21 land use ordinance, as well as continued updates to the Design Criteria Manual, put Anchorage in the same category of regulatory costs as the rest of the nation.

Although the availability of 1-4 unit residential construction loans has slowly increased over the past three years, the year-over-year growth rates has outstripped availability. Housing starts are also outstripping the supply of lots. There is almost twice the demand for lots than there is availability. Anecdotally, local developers and planners agree that it now takes eighteen months at a minimum to rezone, plat and get approvals for new residential developments, as opposed to the previous nine months in past years. Years ago, the planning and zoning commission gave up much of its authority to a platting board and urban design commission, requiring more stops along the way for the approval of any new development. Time is money, particularly when it is borrowed for acquisition at commercial rates.

Single family building permits continues its slow slide downward. The highpoint of mid-year building permits occurred through July 2013 with 204 permits. For the first seven months of 2017, only 113 permits have been issued, a 44.6% percent decrease. This low permit number is not reflective of the mild recession Alaska is currently experiencing but rather the bottle neck due to over regulation. Single family residential sales have declined only ten percent from 2,026 year to date through July in 2013 compared to 1,819 in 2017, according to MLS statistics. In July 2014, 65 units for duplexes were issued. In 2017, for the same time period, only 32 units were permitted, less than half. Without a doubt, Anchorage needs more and less expensive housing of all types. The way forward requires less regulation without sacrificing health and safety requirements. 

Not All Mortgages Are Created Equally

by Connie Yoshimura

I recently had the experience of researching a mortgage for a buyer considering a purchase of an $810,000 home. At this price point, all loans are conventional so I was surprised by the differences even within the conventional model. Down payment opportunities fluctuated from 10 to 20%.  Wells Fargo was the only lender offering a 10% down payment. The interest rate was 4.25%.  A Wells 15% down payment resulted in a slightly lower rate of 4% and a 20% down payment was 3.75% which was the lowest rate quoted by any of the four mortgage lenders surveyed. AHFC/Conventional has a down payment program of 14% but depending on the lender that rate varied from 3.75 to 3.87%. But here is another ‘but’. With the same loan program and the same down payment, the principal, interest, taxes and insurance that make up the monthly payment varied by $65.72 or $787.64 per year. I don’t know whether or not the difference was with a property tax calculation, the homeowner’s insurance quote, mortgage insurance or if the lender may have rolled in some of their fees but any consumer should ask those questions. I also found almost a $300 difference in monthly payments with 15% down payment, even when the rate was the same so it pays for a buyer to do some comparison shopping.    
 
According to a monthly report provided by Fidelity Title, the top three mortgage lenders are Alaska USA Mortgage, Residential Mortgage and Wells Fargo. Alaska USA is a credit union owned by its members. Residential Mortgage is owned by Northrim Bank and Wells Fargo is one of the largest publicly traded banks in the U.S. Many mortgage lenders end up selling the servicing of the mortgage to Wells Fargo which is how they make part of their profit. Profit also comes from the difference in rate from their pool of available funds versus the rate they charge the borrower. The mortgage originator, the person you submit your application to online or meet with personally, is usually on a commission and receives a portion of the loan origination fee as their compensation. In that regard, they are like Realtors and are paid only if the transaction closes and records.  Here in Alaska a popular business model is for mortgage companies to be imbedded within a real estate brokerage under an office lease and market service arrangement. Any financial arrangements between the real estate brokerage and mortgage lender needs to be fully disclosed to a buyer.  
There is also growing online competition for mortgages. Anecdotally, one escrow closing officer recently reported that 25% of their closings are now coming from online lenders like Quicken Loans, Inc. Realtors used to bemoan working with online lenders but over the past eighteen months, online lenders have learned how to better communicate with local Realtors and their transaction coordinators. What they don’t understand, however, are some of the local escrow closing holdbacks for new homes.  
 
Doing a little comparison shopping never hurts. Think of it this way. You are not only buying a home but also a mortgage.

I recently had the experience of researching a mortgage for a buyer considering a purchase of an $810,000 home. At this price point, all loans are conventional so I was surprised by the differences even within the conventional model. Down payment opportunities fluctuated from 10 to 20%.  Wells Fargo was the only lender offering a 10% down payment. The interest rate was 4.25%.  A Wells 15% down payment resulted in a slightly lower rate of 4% and a 20% down payment was 3.75% which was the lowest rate quoted by any of the four mortgage lenders surveyed. AHFC/Conventional has a down payment program of 14% but depending on the lender that rate varied from 3.75 to 3.87%. But here is another ‘but’. With the same loan program and the same down payment, the principal, interest, taxes and insurance that make up the monthly payment varied by $65.72 or $787.64 per year. I don’t know whether or not the difference was with a property tax calculation, the homeowner’s insurance quote, mortgage insurance or if the lender may have rolled in some of their fees but any consumer should ask those questions. I also found almost a $300 difference in monthly payments with 15% down payment, even when the rate was the same so it pays for a buyer to do some comparison shopping.

According to a monthly report provided by Fidelity Title, the top three mortgage lenders are Alaska USA Mortgage, Residential Mortgage and Wells Fargo. Alaska USA is a credit union owned by its members. Residential Mortgage is owned by Northrim Bank and Wells Fargo is one of the largest publicly traded banks in the U.S. Many mortgage lenders end up selling the servicing of the mortgage to Wells Fargo which is how they make part of their profit. Profit also comes from the difference in rate from their pool of available funds versus the rate they charge the borrower. The mortgage originator, the person you submit your application to online or meet with personally, is usually on a commission and receives a portion of the loan origination fee as their compensation. In that regard, they are like Realtors and are paid only if the transaction closes and records.  Here in Alaska a popular business model is for mortgage companies to be imbedded within a real estate brokerage under an office lease and market service arrangement. Any financial arrangements between the real estate brokerage and mortgage lender needs to be fully disclosed to a buyer.

There is also growing online competition for mortgages. Anecdotally, one escrow closing officer recently reported that 25% of their closings are now coming from online lenders like Quicken Loans, Inc. Realtors used to bemoan working with online lenders but over the past eighteen months, online lenders have learned how to better communicate with local Realtors and their transaction coordinators. What they don’t understand, however, are some of the local escrow closing holdbacks for new homes.   Doing a little comparison shopping never hurts. Think of it this way. You are not only buying a home but also a mortgage.

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