Although the final permit numbers for new housing units are not in, there is very little new construction activity in December, and so a downward trend in housing starts has definitely emerged for 2015. With that caveat in mind, this past year brought an 11.23% decline in single-family building permits, a whopping 41.38% decline in duplex permits, and a 15.05% decline in multi-family permits. With the challenges builders and developers face with the implementation of the new Title 21 on January 1, 2016, new home buyers can expect that decline to continue with fewer locations and home plans available to the home-buying public. While new home activity has declined this past year, the residential real estate market has remained steady in sales activity and inventory. This past week there were only 440 single-family homes for sale, just a slight uptick from this time a year ago. The only problem with that segment of the market is the continued aging of resale homes with more repairs identified by home inspectors and required by lenders. Replacement of furnaces, roofs, windows, et cetera, decrease the value of the final sales price of homes that are 30 years or older. Not only do these homes face cosmetic, but also functional obsolescence, resulting in a diminishing economic life.

However, in many areas of Anchorage and Eagle River, a resale home is the only alternative, pushing the cost for maintenance and replacement into the future of the new home owner as opposed to paying for it upfront as a higher purchase price of a new home with built-in warranties and increased energy ratings.

Couple this lack of new home inventory with the aging housing stock, and add on the increase in mortgage rates as a result of the Fed's action on December 16, 2015 and Anchorage's housing challenges for availability and affordability will continue well into 2016. Buyers can expect a tight housing market, higher mortgage costs, and increases in new construction costs as builders and developers grapple with the new Title 21 requirements for more aesthetically attractive streetscapes and exterior elevations on homes, including the requirement to minimize front-loaded garages on narrow lots. The indication from the Federal Reserve is that interest rates will continue a slow creep upward, topping out at 6% over the next two to three years. This affects not only what a home buyer will pay for his mortgage but also what builders and land developers pay for their commercial loans and lines of credit. While mortgage rates have hovered between 3.75 and 4% for almost a decade, commercial borrowing for land development and home building has had rates at 5.5 to 6.5%, depending on the project and financial capacity of the borrower. Increased costs for financing affects every item in a new home, from the front door knob to the insulation. All items for Alaska's new homes comes from somewhere else and while transportation costs, i.e. gas prices, have declined, that doesn't appear to have deterred price increases for goods and services.

So my advice to home buyers is to buy now. There is still mortgage money available at the lower rate before the Fed increase. Last week, there were 440 single family homes for sale in Anchorage. Buyers should look long and hard at existing inventory, whether a resale or new construction home, because the only thing that's going to happen in 2016 is inventory is going to remain in short supply, and new home prices will increase. Without a major economic debacle, i.e. major job and population loss, the Anchorage home buying market is in for a belt tightening.