Interest Rate Jump Wakes Up Anchorage Buyers

This month’s mortgage interest rate jump up to 4.125 % has sent buyers scampering to find a new home. The week before Thanksgiving forty-five homes pended in Anchorage compared to twenty-seven in 2015. That trend continued into Thanksgiving week when six additional sales were reported compared to 2015. These sales occurred in all price ranges but particularly noteworthy were five new sales between $650,000 to $750,000.

Mortgage rates have hovered in the mid- three percent range for so long that buyers have taken them for granted but not anymore. On a $400,000 mortgage, the rate increase amounts to $170.21 per month. Plus, a buyer needs to have approximately $680 in additional monthly income to qualify for the same mortgage. Rate increases are projected to continue in December and into 2017 as the economy adjusts to inflation and price increases for materials, goods and services. It’s a dual dilemma for buyers—less home for the money and a higher mortgage payment. Millennial first time home buyers, in particular, are going to be impacted by these increases. Already frustrated because of unrealistic expectations, they may opt out of the market and rent, even though rental rate increases are bound to occur. The second big bulge of buyers in the market are the boomers who may opt to just stay put in their aging home, particularly if they were smart and refinanced at the three percent plus mortgage rate. Already challenged by the price per square foot for new construction, more and more will opt to simply remodel.

It is always hard to identify the bottom of any market. Usually, when it occurs we acknowledge it only in past tense. In Anchorage, I believe that bottom has just passed us by. Last week’s active inventory was only 575 homes. New construction building permits continue at historic lows. Only 175 single family building permits were issued for the first ten months of this year. Only eight Anchorage builders were issued permits for more than five single family homes. Despite the concerns over the state’s economy, buyers are motivated by personal housing needs related to marriage, birth, death, divorce and job change. The job loss we experienced in 2016 resulted in some good relocation buys in suburban areas of Anchorage which were readily absorbed into our market.

If you’ve been waiting to buy a home, now is the time.