Buying a Home is a Lifestyle Choice

Under most circumstances, buying a home should not have anything to do with the price of oil and the slashing of the state’s operating and capital budget. Rather, it should be about quality of life and lifestyle choice. Yes, there are investors, large and small, who repeatedly buy and sell homes, hoping for a 10% or greater cash on cash return. However, they are a small percentage of the 65% of Americans who enjoy home ownership. If you plan to live in your home for five to 25 years, (as more and more baby boomers elect to age in place and general population mobility declines) whether or not your home appreciates 3.8% a year or declines 2.5% should not be a relevant factor. What is more important is the interest rate you will pay for a mortgage and right now, those rates are the lowest they have been in 18 months at 3.85% for a 30-year fixed rate. Also, important is the price you pay for your home. However, in today’s Anchorage market with less than 500 homes for sale in any given week, you can realistically expect to pay 99% of the listed price.

Qualifying for a home mortgage obviously requires you to have a job with appropriate income and so, job growth or decline, along with population increase or decrease, are better indicators of the health of any real estate market. During the real estate recession of the late 1980’s, our community lost jobs and significant population. This situation was made worse by excess inventory. In l984, at the height of our building boom, we had 6,000 building permits, which was more than the city of Phoenix that same year. Builders and lenders learned from the mistakes of oversupply and in 2014, our single family building permits will be less than 300 and our inventory of homes continues to remain at record lows.

Four out of the five basic reasons people buy and sell homes: marriage, birth, death, divorce and job change. That last one is the key indicator to watch in 2015.

I have never won an argument about the economy. Everyone has an opinion based upon their own personal circumstances and experience. What I can tell you is that every year, every season in real estate is different. Home values go up and down. We’re lucky in Alaska that for the last 30 years we’ve had a pretty steady rate of appreciation. Even during the mini-recession of 2008, our home values dropped less than most any other location in the U.S., certainly more than the 40% drop in Florida, Las Vegas, southern California and Arizona. But, six years later, those communities have rebounded with new building. Having shelter is right up there with food and clothing, whether it is the mega McMansions in LA or the entry level condo in the U-Med district of Anchorage. Everyone has a housing need, regardless of the price of oil.