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And the Happiest State in America is...

by Connie Yoshimura

Alaska tops the list as the state where residents feel most content.

According to the latest survey conducted by the Gallup-Healthways Well-Being Index, locals in "the last frontier" share the strongest sense of purpose in the nation, ranking among the top three states for their collective feelings of financial security, community pride and good health.

“Although we have our share of problems common to other states in the nation,” Albert Wall, director of the Alaska Division of Behavioral Health, pointed out, ”almost all Alaskans live here by choice — for our beautiful surroundings, our sense of freedom and individuality, and our close ties with the land.”

     Marriage, birth, death, divorce and job change are the five major reasons people buy and sell homes.  Yes, there are the investors or ‘flippers’ in the residential real estate market, but they make up a very small percentage in our local market.

     Of the five major reasons, job change is obviously number one.  Without a job or income, buyers can’t qualify for a mortgage, and very few buyers purchase homes for cash. The Anchorage Economic Development Corporation’s economic forecast, which is available online, predicts a flat economy for 2015 with loss of jobs in the oil and construction industries, but growth in health care services to support our aging population. 

     We can see these five drivers for real estate sales in our local economy.  The last few years, our population growth has consisted of newborn infants and thus, the demand for four-bedroom homes.  Chances are if there is one child coming, a second one will not be too far away, and the four-bedroom-up scenario with a laundry room on the second floor is the most popular new family home in Anchorage. 

     Our local senior population is also growing, prompting the frequent request for a master bedroom on the first floor. The starter 1,000- to 1,200-square-foot three-bedroom ranch of the l970s has become the 2,000-square-foot luxury downsizer home. However, this style home has a sticker shock price tag at around $250 per square foot, due to the demand for a larger than standard double car garage (20 by 22 feet), increased foundation and roof costs and upscale amenities like quartz countertops (the new granite) demanded by the retirees.

     Interestingly enough, the demand for these homes is strongest in southeast Anchorage, where the adult children of retirees most frequently live. If retirees decide to stay in Alaska, they seem to want to be close to the grandkids, their primary reason for remaining in the state. 

     Job loss is never good for any economy, but the projected loss of 300 oil company jobs, if it occurs, is not going to hurt our local housing market. Last week, after pending and closed sales, only 366 residential units were for sale in Anchorage. A normal market would usually see double that amount of inventory this time of year. Real estate sales have been flat for the past two years. In 2013, MLS reported 3,078 closed sales; in 2014, 2,850, a modest decrease. Using the AEDC prediction of a flat economy, we can expect similar sales as in 2014 for 2015. However, more sales would occur if we had more inventory. The projected job losses in the oil patch and construction industry should create more balance in the market if these sellers put their homes on the market. Our local rate of appreciation was 3.12 percent, a modest increase from 2.95 percent, but less than in 2012, which was 4.77 percent. There remains continued pressure for price increases due to lack of inventory.  Any decrease in the cost of new housing, as a result of a decline in oil prices and subsequent transportation costs, is only a frustrated buyer’s pipe dream. Already we have seen increases in material and labor, which usually don’t occur until the start of the primary construction season in May.

 Increased costs in housing come not just from increases in materials and labor but from delays in approvals and overregulation, and that, unfortunately, has not changed in our local market. 

 Bottom line is appreciation will continue to occur at the rate of 3 to 4 percent as a result of lack of inventory, despite the modest job loss predicted by AEDC. Just be thankful, however, that we are not living in Houston, Texas, where the rate of appreciation was 13.8 percent, or Denver at 11 percent.  Anchorage’s tight housing inventory and underbuilt new home starts bodes well for stability with a tolerable appreciation rate in 2015, offset by historic low interest rates.

Alaska Journal of Commerce Column

by Connie Yoshimura

   January is typically a slow month in residential real estate.  Buyers are in Hawaii if they haven’t overspent during the holidays and homeowners are hunkered down, thinking about putting their home on the market come summer.  So it was a pleasant surprise to hear about three financial announcements that should help stimulate late winter activity.

   On January 1, the Federal Housing Authority (FHA) increased its maximum loan amount in Alaska from $355,350 to $388,700 which puts a maximum purchase up to $402,797 with the minimum 3.5% down.  This loan amount is now well above the average MLS sales price for Anchorage of $362,500.  At the same time, the FHA reduced the cost of its annual mortgage insurance rate from 1.35% to   0.85 % of the loan amount.  The program still requires that mortgage insurance remain on the loan for 30 years or the lifetime of the loan, regardless of any principal reduction on the mortgage.

   Prior to the last real estate recession, the monthly mortgage insurance payment could be eliminated once the loan amount was reduced to 80% of the home’s value.  However, this reduction in the monthly rate is a step in the right direction and saves a borrower $161.96 per month on the maximum loan amount which allows a buyer to make approximately $640 less per month and still qualify for the maximum loan amount.  The new premium applies to all one-unit residential dwellings, including condominiums and is sure to spur on activity as it puts more work force buyers eligible for a home.  This maximum loan amount varies by geographical location.  In Fairbanks, the maximum loan amount is $274,850.  However, Juneau has a higher maximum loan amount of $397,900.  Interestingly enough, the Sitka loan amount is $451,950, the highest in the state.

   The second financial move came when the 30-year fixed conventional rate mortgage fell to 3.625%, the lowest it has been in 18 months.  No one in the market anticipated this move and the 15- year mortgage, always the best program, is now only 3%. Not exactly free money but still an incredibly low rate meant to spur home ownership for some of those millennials still living in their parents’ basements and paying off student debt.  The amount of interest paid over the lifetime of a mortgage is two to three times the original cost of the home which makes quibbling over a few thousand dollars seem irrelevant on the long term.  Unfortunately, many buyers get hung up on negotiating the purchase price when in reality, interest rates play a much more important financial role.  A quarter percent drop in an interest rate is only 69 cents per month per $5,000 of loan amount, a lot less than four lattes.   And, the Feds will not hold rates down forever.  We’ve had mortgages at 4% or below since 2008, an unprecedented period of low rates.

   Locally, Residential Mortgage, the state’s largest mortgage company, has now introduced the 3% down for conventional financing. Under this program the seller may also pay up to 3% of the borrower’s closing costs and pre-paid expenses.  One buyer must be a first-time homeowner and reserves may be required from some borrowers but those reserves can come from a gift.       

   Although you still need a good credit score to qualify for any mortgage, it appears in general that the pendulum of overly restrictive constraints on mortgage applicants is somewhat loosening.  Over 90% of all mortgage activity is from FHA, Fannie Mae and Freddie Mac.  Their reduction in the annual mortgage insurance premiums, the lowering of down payment requirements and the all-important low interest rates will continue to help generate the national housing recovery and locally allow more homeowners to move up, leaving inventory available for the first time homebuyer.

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503