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Why Are New Homes So Expensive?

by Connie Yoshimura

There’s no denying that new home buyers are frustrated by the high cost of new construction. Whether it’s the land cost or price per square foot for the vertical, buyers are having a hard time wrapping their heads around builders’ quotes for  new homes.  Unfortunately, Alaska is not immune from the inflation occurring in the lower forty-eight for all types of home building materials and supplies.  Alaska is like an island of economic activity with all goods coming by sea, road or air to build a new home or remodel an existing one. Lumber is a key component of every new home. According to a local supplier, lumber is 11 to 12% of the cost of a new home.  And lumber prices have been on a roller coaster ride this past year. But, despite the dip in the fourth quarter, all predictions are that lumber prices will remain higher from  a year ago. One reason is that last year the Pacific Northwest was literally on fire—with 72 ongoing fires. Plus, the tariff on Canadian lumber also had an immediate affect on U.S. lumber costs. U.S. mills contended that the Canadian government subsidized the Canadian mills  and thus gave them an unfair advantage. The tariff was good for the U.S. mills but not for the home building industry.

 

Much of Alaska’s  lumber supply comes from the Port of Tacoma but the trucking costs to get to the port have increased substantially. The U.S. is short on truckers and transportation companies have had to increase  wages just to keep supplies moving. Plus, proposed gas taxes will get passed on directly to the end user. Despite all these challenges and higher costs, buyers are taking a serious look at new homes because the cost of remodeling their existing home will also increase. Seventy-five percent of Alaska’s current housing inventory was built between 1970 and 1990. And much of it was built with two by four construction instead of the now widely required two by six. Increased utility costs will also make older homes more expensive on a monthly basis.

 

New versus pre-owned has always been the ying and yang of home buying. Currently, the disconnect in pricing on a 2,000 square foot home in Anchorage is probably close to $100,000. That’s a lot of investment dollars to be spent for a brand new home with an open living concept and white cabinets which are preferred by 80% of new home buyers. Sometimes, however, it’s not always about the dollars but the lifestyle. We continue to see a high demand for ranches from seniors and aging boomers. The well stacked 3,000 square foot home is also popular for multi-generational families as well as  homes with a finished  basement either for teenagers or mother-in-laws. And then there are the millennials who are beginning to think long term and so prefer a new or newer home.                

Preparing Your Home For Sale

by Connie Yoshimura

Despite a slight increase in single family homes for sale after the first of the year, it’s still a frustrating buyer’s market with aging inventory. Making your home market ready for a buyer, who may have unrealistic expectations for a home that is twenty or more years old, is definitely challenging for sellers so here are some helpful hints that may help create a sale. Most of us go in and out of our garage but buyers start at the front door so make sure the porch is shoveled and your Christmas decorations are down. A nice winter or soon to be spring wreath is a welcoming precursor to a home tour. In the spring, touch up the paint around the door frame and make sure the key in the lock box doesn’t stick when trying to open the front door.

Inside the home, change out all your light bulbs to the highest wattage available. Consider adding some contemporary light fixtures. They’re not all that expensive at Lowe’s or Home Depot. Light fixtures are the jewelry of the home and can update an older home. Make sure all your lights are on for a showing, even when the sun is shining. More light makes all spaces appear larger. Take down heavy draperies or curtains, particularly those that are made from heavy material. Stylized, gathered draperies make a house feel heavy. Instead, consider some window shades or levelers. Make your home more spacious by removing items off the floor like that worn out ottoman, stacks of magazines, that chair you could never figure out where to put. More floor space gives breathing room to a home and allows buyers to use their imagination when placing their own furniture. If you have a beautiful yard and garden in the summer, make sure to have the photos available on the dining room table. Costco has a great program that inexpensively enlarges photos so check it out.

Remove and replace broken shower tile and graying grout. Freshen up the bathrooms with some new towels.  Knobs and pulls in the kitchen go a long way to wake up aging cabinets. Add a couple of live plants. Hang some art work from Pier One or Target. Take the blender, kitchen aid, toaster off your countertops. Leave the coffee maker. You’ll need it for all those home buying tours. My home has some purple and dark red walls but it is not for sale because my husband won’t move. If it was, however, back to neutral. You might love, green, orange, or purple but if you’re putting your home up for sale, paint it out with a neutral white or at best grayish. And that includes rec rooms and children’s bedrooms. Clean your garage and paint the walls white with a primer. It makes even a small garage look larger. 

Buyers have a hard time looking beyond clutter and bright colors. That’s not what you want buyers to see or remember when they tour your home. If you would like a personal consultation, or have any questions, please contact me at [email protected]. I look forward to hearing from you.

 

Limit Home Inspector Reports to Health and Safety Items Only

by Connie Yoshimura

Dear Readers,

I wrote the following article in September 2016 which was published in the Alaska Journal of Commerce. It is worth reprinting here because of its increasing relevance today as our housing stock continues to age. In my experience, home inspectors are over-reaching beyond health and safety issues. Home inspections are full of ‘recommendations’ that are not related to health and safety. The more items identified on a home inspection report, the more work is created for general contractors or handymen, many of which are the same as home inspectors. But, not all the fault lies with the inspectors.  Much of it is also the fault of my own industry. As realtors, we need to dampen the expectation buyers have when purchasing a home that is 20 to 30 years old and counsel them as to what is truly health and safety items. So, here’s the article.   

Selling a home is a four step negotiating process. Step one is deciding the asking price in consultation with your realtor. Step two is negotiating the price and terms of any offer that you receive. Step three is negotiating the recommended list of repair items from a home inspection report. Step four is any change in the final sales price as a result of the appraisal coming in less than the agreed upon sales price.

Step three is the sticky part where the buyer, seller and realtors often disagree with what needs to be done as a result of the home inspector’s recommendations. This is a growing issue in our local industry due to Anchorage’s aging housing stock. Buyers want everything fixed or replaced that is identified in the report, often times requesting beyond the health and safety items to include cosmetic and maintenance items. Sellers, on the other hand, see no need for most if any of the items called out on the report because they have lived comfortably in the home during their ownership.

Thus, the home inspector report becomes almost the defining negotiating document in any transaction and becomes as important as a buyer’s credit score or an appraiser’s value. So who are these home inspectors and what are their qualifications? There are seventy-two licensed home inspectors in the state of Alaska. Twenty-two are in Anchorage. Home inspectors must pass significant national exams in order to become licensed in Alaska. They are also required to be bonded and insured by the state of Alaska, according to the Statute and Regulations for Home Inspectors published in January 2015. So what does the license allow them to do? It allows them to do a ’visual’ inspection of an existing or new residence of the heating and air-conditioning systems; plumbing and electrical system; built-in appliances such as stove, hood, dishwashers; roof, attic and visual insulation; walls, ceilings, doors, windows and floors; foundation and basement; visible exterior and interior structures; drainage to and from the residence; and other systems and components as specified by the department of commerce. They must physically inspect the property and write a written report. The statute does not authorize them to address general maintenance issues, lawn care, stained or frayed carpet or any other interior/exterior cosmetic items and should not be noted in the report. That responsibility falls to the appraiser to address the general condition of a home.

It is in everyone’s best interest to sell a home with all health and safety issues clearly identified and repaired prior to closing. Home inspectors should be careful, however, not to extend their comments to items of general maintenance or address items of cosmetic discretion or preference. And first time home buyers need to remember that they might very well be purchasing a home that is older than they are and may need to lower their expectations for a like new home.

 

Rate Increases Wakes Up the Local Housing Market

by Connie Yoshimura

The spring buying season starts after Super Bowl Sunday and this year there are more active MLS Anchorage homes for sale than in the past five years. MLS has also reported a 5.89 percent drop in average closed sales price in January to $343,541 which is the lowest in over five years. But, despite the increase in inventory there is less than a two month supply of available homes in that average price range. Overall, Anchorage has only a 2.5% supply of current active inventory. And much of that inventory is above $500,000 which will face challenges in the coming month due to the finally realized increase in mortgage interest rates. In the past, a bump up of interest rates has slowed sales as buyers adjust to what they can afford. However, this increase appears to have had the opposite effect. January pending sales over the past three years are virtually identical at 200. First time homebuyers, on the sidelines or in their parents’ basement, the past couple of years appear to finally be taking the leap to homeownership and downsizers are saying it’s now or never as fear of interest rate creep has finally hit home.

One year ago the VA 30 year fixed rate was 3.75. Today, that rate is 4.5%. Similar increases have occurred with all mortgage programs. A 15 year fixed conventional rate was 3.5% and today’s rate is 4.125%. The popular FHA 30 year fixed rate has jumped from 3.75% to 4.5%. With less than 10% down, FHA loan now also requires mortgage insurance for the entire 30 year life of the loan whereas previously it was cancelled after five years and 78% loan to value. Interestingly enough, conventional rates have not jumped as high. One year ago 30 year fixed conventional was 4.125% and today it is 4.5%. Now, I’m not an interest rate or mortgage bond expert but it appears these rate jump ups hit the entry level and one step move-up market the hardest. I’ve never worried about the conventional mortgage rate as higher end buyers frequently have financial resources that allow them to buy down rates and avoid mortgage insurance by putting 20% down. Here in Anchorage, we are also seeing buyers paying cash for a new home. 

What troubles me most about these rate increases is how much more difficult it will be for first time home buyers to qualify for a mortgage and the anticipation that more rate increases will occur throughout the year. I recognize that our historically low rates couldn’t, and shouldn’t, last forever but I also believe that homeownership, which begins at the affordable level, is the backbone of any socially vibrant community. So my recommendation is buy now and lock your loan. There is more inventory in the market, including entry level condos which have remained stable in value, because the cost of home ownership is not the purchase price, but rather your mortgage interest rate over the life of the loan.

Why Anchorage Lacks More Residential Building Sites

by Connie Yoshimura

It’s no secret that Anchorage is running out of lots, whether it’s for multi-family or single family development. There are many buyers in today’s local market that are frustrated due to the lack of larger lots.  Many want to move-up from their 6,000 to 8,000 square foot lot into a more hillside, larger lot community but there is little inventory.  The stream setback requirements of up to 100 feet make building on some lots and tracts  impossible.  Lack of road infrastructure with the heavy burden on the developer, without participation from the MOA, makes some higher elevation land  un-developable,  without going beyond many buyer’s comfort zone for a new home which frequently tops out at around $800,000.

However, Anchorage is not alone in its woes for more building sites.  A recent article in the online publication,BUILDER, aptly described the pressure building on land acquisition and development across the U.S. The front loaded investment for land acquisition at 65% loan to value plus the regulatory stranglehold of the permitting process adds an additional 24% to the cost of development, according to national statistics.  Here in Anchorage during the l980’s and into the l990’s, a developer could buy a tract of land and have finished lots by September of the same year.  Now, add another year for platting and perhaps another year or even two for a rezone if there is objection from the local community council. Meanwhile, Anchorage’s housing crunch continues with home building at historic lows of less than 200 single family units for the past three years.  According to various reports, Anchorage needs 900 new housing units a year.  All total in 2017, including multi family and publicly subsidized housing, Anchorage failed to meet even 50% of its publicly stated goal.   

Locally, part of the problem is lack of advocacy by the home builders themselves.  Most don’t have the personal resources to hire paid staff for advocacy to changes to the Design Criteria Manual which establishes road standards.  Nor do they have lobbyists to lobby the local elected officials for MOA  participation in the extension of water and sewer or sharing in the cost of rural collectors which would open up more hillside vacant land.  I once had a mayor tell me that a city defines itself by its commercial and community buildings.  Well and good but where are the users of those buildings going to live?  In the Valley which continues to have population growth while Anchorage continues to lose over 1,000 citizens for the past few years?

Anchorage needs all types of new housing—both public and privately developed and financed.  After all, 75% of our housing stock was built between l970 and l990 which means most of our units are meeting ‘their end of life’.    But, along with the mega plans for mixed use, multi-story rental units, lets not forget where most of Americans and Alaskans want to live—in a single family home with a garage big enough for their pick-up truck.

 

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