Cautionary Take-Aways for Buyers in Today’s Market

Published in Anchorage Daily New on 1.18.2024

By Connie Yoshimura

On January 15, 2024 there were only 180 single family homes for sale. With the average original list price in the last six months of $506,172, there were only 6 homes between $500 and $549,000 for sale.  Only three of the six were built after l992 when the 5 star energy rated was adopted.  Only one home was built in 2023 and the next youngest was built in 2016. The condo market isn’t fairing much better for buyers.  Condos have had a 25% increase in value since 2020. December’s closed average value of $284,06 compares to August’s 2017 value of $196,741. Residential  land prices have also skyrocketed.  For example, the Girdwood-Turnagain Arm district average sales price has increased 54.27 percent from $132,200 to $203,940.  Multi family days on the market have decreased by 49.02 percent to only 26 days on the market.

Select any residential  type and the story is much the same.  No inventory and skyrocketing prices.  And we now know new construction  2023 permits had the lowest total number of new housing starts in decades.  It is obvious we can’t just build our way out of this dilemma without significant changes to our Title 21 which takes time for assembly approval even if there is consensus among its members that change is desperately needed.

So what advice can we give  to buyers who want to own their own a home?  First and foremost, get pre-qualified with a local lender.  Alaska is different than the lower 48 and even though those outside quoted rates appear attractive Alaska is a different place when it comes to the nuances on the HUD settlement statement such as escrow hold backs, septic replacements, et cetera.  Know your financial limitations compared to your expectations  and be prepared to compromise. You may end up selecting an older home but one that comes complete with landscaping, window coverings and appliances—all cost savings when compared to a 2024 brand new build.  Mark Twain said “Buy land.  They don’t make any more of it.” But buyers beware!  Not all land is created equal.  A savvy buyer should ask for a four corner staked survey, soils reports, adjacent well depths or the location of public water?  Is it at the intersection or in front of the lot?  Many older lots may have a water line in the street but not the connection (pigtail) to the lot itself. Condo buyers need to use caution and carefully read the resale certificate. Know your neighbor!  As a single person, you may be sharing your water and sewer cost with the large family next door. And don’t assume your shared party wall neighbor is part of the same phased plan. He/she could be living six doors down.  So carefully read your resale certificate! The good news is that your utility costs may be deducted from the monthly HOA dues and so you may qualify for a larger unit.  In today’s mortgage world, every $100 is important.

Buying a duplex, triplex or fourplex may not be your dream of first time home ownership but that opportunity should not be overlooked.  As an owner occupant, your downpayment may be as low as 5% or zero (VA) and you only have to owner occupy the unit for one year before you can rent it out and then are able to purchase a single family home as an owner occupant that almost  always has lower mortgage rates and less downpayment than as an non owner occupied investor.  Many first time homebuyers buy their single family home first rather than the other way around.

Finally, I am seeing assumptions advertised for sale.  I started my investment career buying single family homes with assumptions.  And, yes, I did some of them with wrap around deeds of trust held by private escrow companies.  But today I have to ask this question:  Why would a mortgage investor be willing to allow an assumption on a  3%  30 year fixed mortgage  when they could resell the property with a 6% mortgage and double their investment income?  The approval of that type of assumption is more likely to occur if it is a VA buyer and seller but buyer/seller caution needs to apply on all assumption transactions. Assumptions that are not approved by the investment lender can usually be called so read the fine print.

None of these cautionary tales takes away from the desire of home ownership.  First time buyers, in particular, need to know the risks.  Most everyone aspires to home ownership.  Just proceed with caution in today’s environment.