A Stable Residential Market for the Rest of 2023

According to Rob Kreiger in the Alaska’s Economic Trends’ May issue, “the market may cool off but a price collapse is unlikely.” Published by the Department of Labor and WorkForce Development, the research and analysis of Alaska’s housing market provides insight into what many realtors know from firsthand experience. The first take away is that although the sharp mortgage interest rate increase from less than three percent to now hovering at 6% was not the driving force behind a 40% drop in closed transactions. Rather, it is a substantial lack of inventory, from years of under building in the Municipality of Anchorage. The year 2022 was a near low with less than 200 single family permits but it has been followed by an even greater dip in the first quarter of 2023. In other words, we are not building and can not build our way out of a severe lack of inventory which is the major contribution to our 40% drop in sales—not increased mortgage rates. After all, buying and selling a home is almost invariably as a result of  marriage, birth, death, divorce, and job change.

With those life events, there are two major demographic groups that drive our housing market. The millennials, born between the early 1980’s and the mid-1990s  are now ready for prime time home buying — if only they could find a home to purchase. After all, not everyone wants to make the 45 minute drive to and from the Valley in order to purchase a $350,000 single family home with a fenced backyard large enough for a dog and two children. A recent conversation with Anita Bates, a BHHS Alaska Realty realtor, demonstrates the difficulty still being  encountered by first time home buyers. Anita had 11 offers on a single family home in southeast Anchorage which was perfect for a first time home buyer. The winning offer was from a  buyer who agreed to pay $15,000 extra to bridge the gap between an appraisal and the final purchase price should the appraisal came less than the listed price which it did. Another BHHS realtor sold a brand new ranch home for $200,000 less than anything similar in Anchorage. New construction prices have risen over 30%  both in the Valley and Anchorage since the beginning of COVID. And although supply chain issues have lessened, the shortage of skilled labor for plumbers, framers, electricians, tile installers and anyone  else who works on new construction continues to have increased wages  and labor delays increase commercial interest charges. The difference between the Valley and Anchorage has to do with their abundance of land and not just any land but land with good soils, including gravel while Anchorage climbs farther and farther up the mountains to build new homes, nearing the $1 million price point.  

Sold residential volume in Anchorage has declined 39% for the first four months of 2023. However,  the average sales price has increased by 3.5%. That’s a modest increase compared to the 30% plus from the combined three years ago. But it  foretells the modest price increase in 2023 while the new construction costs sky rocket. However, high prices have not deterred many new home buyers who are determined to buy ‘brand new’ either in the Valley or Anchorage. We are finding that new construction buyers are willing to wait the eight to ten months for a new home; have financial resources independent of mortgage interest rate hikes; and have decided they do not want to be in competition with multiple offers. They want, after all, the home of their dreams, whether they are an aging baby boomer or a prime time millennial with financial resources  to purchase their first time home.

After World War II, the now aging boomer was privileged to obtain  home ownership through zero down VA loans or 3% down with an FHA loan. Those programs still exist but wages and salaries have not kept up with the recent  rising cost of home ownership due to the doubling of interest rates and 30% increase in construction costs. Home ownership in Alaska has now become a privilege rather than an opportunity for many.