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Why Interest Rates May Not Matter

by Connie Yoshimura

A few weeks ago, I wrote about rising mortgage interest rates. At that time the 30 year fixed conventional rate had risen to 4.3% and I predicted that interest rates would go to 5% by the end of the year. Well, this week that same 30 year fixed rate went down to 4% which has made me stop and think about whether buyers and sellers really make their decision based on interest rates. Over the years of selling real estate, I’ve discovered that there are five basic reasons that motivate buyers and sellers and it has nothing to do with interest rates but rather changes in their life. Buyers and sellers are propelled to make a lifestyle change when marriage, birth, death, divorce or job change impacts them. Obviously, some of these changes are positive and others not so much. I’ve often said I’ve had more babies in my office the past two years than the previous ten. When millennials marry and start a family, they move out of their two bedroom apartment or condo into a three bedroom single family home. A widow moves from her single family home with stairs and a big yard into a flat with a deck in a secure building. A divorced mother moves into a townhouse not far from her children’s school. A longtime middle manager oil company employee takes his retirement package and his home is purchased and resold by a relocation company. These are real life home buying and selling scenarios that have nothing to do with today’s interest rate.  

I’d now like to add a sixth to that list: age and health. Boomers have for the past three decades dictated and defined America’s consumerism. They have bought McMansions, art, fine furniture and cruises while at the same time helping their children through college. Some boomers have saved while others have overspent. How and where they live in the future is the talk of the residential real estate industry. Here in Alaska, every week I meet boomers who are trying to decide how and where to live. And none of them mention interest rates. I met one woman who decided to spend $30,000 remodeling her kitchen because she wants to stay in the neighborhood where she has lived for the past 25 years. I met a couple yesterday who spent the past year travelling all across the west to Sedona, Boise, Carson City and parts of California looking for a new home and community. Now, they’re back in Anchorage, Alaska. Another retired couple have decided to give up their hillside view of the inlet because they want to be closer to shopping and medical facilities. Many are paying cash for a new home while others put 20% down to avoid mortgage insurance or go to a 15 year mortgage. No one, however, whether a millennial, generation X or Y, or boomer makes their decision to buy or sell based upon the mortgage interest rate so perhaps it is just our industry that wants to define the market by the current interest rate. The one caveat, however, to any rising rate discussion is the first home homebuyer. A higher interest rate does downsize what a first time home buyer can afford but that, in itself, won’t stop them from buying. So for now, I’m going to stop discussing interest rates.

Why Interest Rates May Not Matter

by Connie Yoshimura

A few weeks ago, I wrote about rising mortgage interest rates. At that time the 30 year fixed conventional rate had risen to 4.3% and I predicted that interest rates would go to 5% by the end of the year. Well, this week that same 30 year fixed rate went down to 4% which has made me stop and think about whether buyers and sellers really make their decision based on interest rates. Over the years of selling real estate, I’ve discovered that there are five basic reasons that motivate buyers and sellers and it has nothing to do with interest rates but rather changes in their life. Buyers and sellers are propelled to make a lifestyle change when marriage, birth, death, divorce or job change impacts them. Obviously, some of these changes are positive and others not so much. I’ve often said I’ve had more babies in my office the past two years than the previous ten. When millennials marry and start a family, they move out of their two bedroom apartment or condo into a three bedroom single family home. A widow moves from her single family home with stairs and a big yard into a flat with a deck in a secure building. A divorced mother moves into a townhouse not far from her children’s school. A longtime middle manager oil company employee takes his retirement package and his home is purchased and resold by a relocation company. These are real life home buying and selling scenarios that have nothing to do with today’s interest rate.  

I’d now like to add a sixth to that list: age and health. Boomers have for the past three decades dictated and defined America’s consumerism. They have bought McMansions, art, fine furniture and cruises while at the same time helping their children through college. Some boomers have saved while others have overspent. How and where they live in the future is the talk of the residential real estate industry. Here in Alaska, every week I meet boomers who are trying to decide how and where to live. And none of them mention interest rates. I met one woman who decided to spend $30,000 remodeling her kitchen because she wants to stay in the neighborhood where she has lived for the past 25 years. I met a couple yesterday who spent the past year travelling all across the west to Sedona, Boise, Carson City and parts of California looking for a new home and community. Now, they’re back in Anchorage, Alaska. Another retired couple have decided to give up their hillside view of the inlet because they want to be closer to shopping and medical facilities. Many are paying cash for a new home while others put 20% down to avoid mortgage insurance or go to a 15 year mortgage. No one, however, whether a millennial, generation X or Y, or boomer makes their decision to buy or sell based upon the mortgage interest rate so perhaps it is just our industry that wants to define the market by the current interest rate. The one caveat, however, to any rising rate discussion is the first home homebuyer. A higher interest rate does downsize what a first time home buyer can afford but that, in itself, won’t stop them from buying. So for now, I’m going to stop discussing interest rates.

First Quarter Building Report Highlights Commercial Activity

by Connie Yoshimura

The Municipality of Anchorage has reported that the total value for all categories of building permits in the first quarter of 2017 has increased by $15.26 million when compared to the first quarter of 2016. This increase is directly related to commercial permits rather than residential permits which remain at historic low levels. New commercial activity for the first quarter of this year includes a $27 million plus permit for an ODOM Distribution Warehouse. Other permits include a veterinarian office/ER building at 2545 Tudor Road awarded to Watterson Construction; Hyatt Place Hotel at E. 101 Tudor Road for $16 million; $1.47 million for an office building in mid-town and AWWU’s new waste water facility on Artillery Road in Eagle River.

Several building/alteration permits also increased commercial activities. They included a $2.3 million Bristol Design Building Services permit for W. 111 16h Street; a Cook Inlet Elder Housing permit for $1.32 million on CIHA’s Muldoon campus and a National Bank of Alaska mid-town permit for $3.5 million. Davis Construction and Engineers has been awarded a contract for $2.5 million in the Providence Medical campus and the MOA has pulled a $7.4 million alteration permit at 8800 Bald Eagle for the Municipal Light and Power plant.  

Anchorage housing permits continue to dribble along at the bottom of the market with continued historic low numbers. For the first quarter of this year, only 27 single family permits were issued, just one more than last year. Only 12 duplex units were permitted—down two from last year. So far this year only one four-plex has been permitted. This lack of housing continues to be the sore spot in our local building industry.   

All commercial/residential/alteration and addition permit valuations do not include any land values. The permit value is the value estimated by the MOA to establish the cost of the permit and is also used to determine the tax assessed value. All builders and developers continue to grapple with the new title 21 regulations and the increased permit values may be due in part to these new regulations.

Anchorage's Housing Shortage Continues into 2017

by Connie Yoshimura

Today is the final day of the Spring Preview of Homes. Twenty-seven brand new homes in various stages of construction are open from one to five pm. I encourage all of you, whether you are a buyer looking for a new home, a real estate professional, a homeowner looking for remodeling ideas or a curious neighbor, to support our local home builders by visiting these homes. As these charts demonstrate, Anchorage has a housing crisis. For a city of approximately 298,000 to have less than two hundred new homes built in a year demonstrates a lack of civic responsibility. Not only by its financial institutions who have curtailed lending but also by elected officials who promise stream lining for development and building and have yet to deliver.

This week’s recently released permit figures for the first quarter in 2017 show the trend continues with only 27 new single family permits—one more than in 2016. Only 12 duplex units were permitted in 2017 compared to 14 in 2016 and no multi-family permits have been issued so far this year. While communities and builders in the lower 48 work to catch up with low inventory, Anchorage lags behind the rest of the nation. At this rate, Anchorage is not even replacing the housing units that are destroyed by fire.

Our local home builders, many who are born and raised in Alaska, work year round to create energy efficient new homes in a climate that requires more cost and supervision than in the lower 48. Let’s support them by showing our appreciation of their efforts by taking the time to visit their homes on a sunny afternoon. I’ll see you there.


Why Price Per Square Foot Is Not the Answer

by Connie Yoshimura

Next weekend on April 8 and 9th is the Spring Preview of Homes with 27 entries from Anchorage home builders. Unlike the fall Parade of Homes, entries may be in various stages of construction providing visitors an inside look at the framing, electrical, drywall and trim stages of homes. One frequently asked question is ‘What is the price per square foot of this home?’ Visitors may find prices between $186 and over $300 per square foot. So what can create almost a doubling in costs? First, let’s look at location. What is the difference in value and cost between a 6,000 square foot lot and an acre home site? How about well and septic systems on that acre lot versus public water and sewer that is already calculated in the price of the lot? Then, let’s look at topography and soils conditions.  Does the lot need gravel import and if so, how much? Will the septic system be for a three bedroom home with a den or a four bedroom? What about the length of the driveway? The minimum driveway setback in Anchorage is twenty feet but a pie shape lot requires the home to be set back further which adds cost for fill and asphalt. Some decks are only four by eight but even a small deck requires hand rails if it is more than thirty inches off the ground. A larger deck plus stairs and handrails can add over $10,000 to the cost of a new home without adding square footage. Some garages are only 20 x 20 and are not even large enough to fit a full size pick-up. Others may be 22 by 24 but both are considered a double car garage.

We all know landscaping in Alaska is expensive. Some new home communities are required in their MOA approval to top soil and hydro seed the entire lot. Others have specific requirements such as the type and height of trees and shrubs. Obviously, landscaping installed by the builder adds to the quoted square footage cost of the home. Leaving it up to the first homeowner to install reduces the cost per square footage but adds to the buyer’s out of pocket expense after the sale. Requirements for lap siding on all four sides rather than just the front of the dwelling also increases the quoted cost per square foot.

Two-story elements, whether in the foyer or great room, add to the cost of the home without adding to the square footage. All that’s missing in a two-story element is a floor. Ceiling height is another hidden cost. Most new homes now have nine foot ceilings in the main living level. However, eight foot ceilings on the second floor and basements are still standard. Increasing the vertical space increases costs. Count the number of windows included in any plan and you can increase or decrease the cost by $300 to $500 per window depending on its size.  

Then, despite all these differences in the lot and structure, builders also have different strategies when it comes to quoting a square footage price. Allowances for appliances, lighting, cabinets, flooring, et cetera may be lower to initially attract buyers but by the time all the selections are made the price per square foot may be as higher or higher than the competitor.     

So when you’re at open house today or next weekend’s Spring Preview, take time out to consider all the variables when it comes to judges the true value of a home. You might be surprised at what you discover.

 

Displaying blog entries 1-5 of 5

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