No Bargain Basement Homes in Alaska’s Housing Market

Listen up, Alaska, if you’re waiting for the housing market to tank so that you can buy a bargain basement home, your wait may be longer than you think.  Alaska ranks ‘Best in the Nation’ when it comes to subprime delinquencies at 6.3% when compared to the U.S. average at 16.2%.  Want to buy a subprime foreclosure?  Again, Alaska ranks ‘Best in the Nation’ with a 1.7% compared to the U.S. rate of 7.8%.  Alaska is also ‘second best’ for  total delinquencies at 2.7% versus a U.S. rate of 5%.  Total foreclosures in progress is 0.7% compared to U.S.’s 1.8% , making Alaska ‘fourth best’.

These foreclosure and delinquency rates are for 1-4 unit residential properties and come from a  recently released survey by the national  Mortgage Bankers Association.   A subprime loan is made to borrowers who traditionally don’t qualify for underwriting guidelines.  Alaska, along with other states, have reduced their exposure to subprime loans, by tightening their lending requirements.  In the past, many subprime loans had ‘stated income’ borrowers which simply meant there was no income verification. Another example would be a 90% letter I once received  in 2008 that stated I could buy a condo I wanted in Marina Del Rey, California.  That was in 2008 and thank goodness, I never came to an agreement with that seller because the market crashed shortly thereafter.

But, Alaska is not California, Florida, Arizona, Nevada or even Texas and our housing market and thus our mortgage market, is steady, thanks to historically low building permits over the past eight years.   All communities, except the Mat-Su Borough, has a shortage of housing.  In particular, Anchorage suffers from a lack of affordable homes in the $350,000 to $400,000 range.  And, unfortunately, most of those homes were built well before the twenty first century, making them twenty to thirty years old.  Sales in this price range are occurring with homes built in the l970’s.  Older homes have larger lots, mature landscaping and are usually priced 20% lower on a price per square foot basis than new construction.  However, buyers need to be aware of the future, hidden costs for maintenance and repair.

As pressure continues on the local housing market, local planners continue to push for denser housing and more stacked, vertical construction as if it were the solution to affordable housing.  What they don’t realize is that the  cost of this type of housing is more expensive that the traditional single family or zero lot line.  These type of residential properties are built to condo specifications and require homeowner’s associations that need professional management.  Dues include insurance and management fees, as well as accounting  and legal fees.  It is not unusual for these dues to run between $300 and $400 per month for each homeowner.  In order to qualify for the mortgage, a buyer would need to make an additional $1,200 to $1,600 per month.  So why wouldn’t a buyer prefer an older home, even with its potential future risk for roof, electrical and mechanical repairs?