Life Changes, Economic Factors Drive Anchorage’s Residential Real Estate Market

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.