Why 2016 is Not Like 1986

There’s been lots of talk from a wide variety of experts about the demise of the housing market in 2016 and comparing it to the real estate crash of 1986. But, there’s one important difference that everyone seems to have forgotten. In 1986 mortgage interest rates were 10.19 percent for a thirty-year fixed rate loan. Today, that rate is 3.75% for the same loan. When comparing the rate on a $500,000 mortgage, the math is shocking. At today’s interest rate the payment is $3,283.95, including principal, interest, taxes, and insurances. At 10.19% the payment would have been $4,880.65, a difference of $1,596. Even more importantly, a buyer’s income would have needed to be $6,000 more per month to qualify for the mortgage.

In 1986, Anchorage had literally thousands of unsold homes, an inventory glut that took the 1992 oil spill to suck up. Now, with a population hovering at 300,000, Anchorage has on a weekly basis only about 500 homes for sale, and despite the potential increase due to Cartus and Brookfield relocation homes filtering into the marketplace, any significant increase in inventory is not likely. Why? Because Anchorage builders are definitely ‘feeling the burn’ of the enactment of the new Title 21 regulations. For the first two months of this year, there have only been thirteen single-family building permits compared to twenty-one in 2015. Both are dismal numbers for a community our size, which is why the Cartus and Brookfield relocation homes coming into the market only bring a sigh of relief to frustrated buyers.

In 1986, the majority of our inventory was in duplex and multi-family stacked condos. In 2015, we had sixteen duplex units built. In 2016, we’ve had two. The ‘burn’ is real for Anchorage builders as they struggle to redesign and re-engineer plans to conform not only to the new Title 21 but also to the International Residential Code of Building Standards which is currently anticipated to be passed by the Anchorage Assembly in April. Not only Title 21, but this new code adoption which will affect hold-downs and other structural items, will cost builders an additional $1,200 just to get them re-engineered let alone increase the actual cost of construction.

In conclusion, let’s take a walk down memory lane. In l984, a Foxwood condo with two bedrooms, two baths, a stall garage, a fireplace, and approximately 800 square feet sold for $86,000. In 1989, it sold for $32,000. Today, one is on the market for $157,000. Does anyone really believe that this year or next, it will sell for $32,000 again? I certainly don’t and I’ve worked the highs and lows of the residential market place for over thirty-five years.