What Are the Most Popular Price Points for New Home Construction?

The affordable home category ( $200,000 to $400,000) in Anchorage and Eagle River is doing a brisk business. However, the same can’t be said for the upper end market which is reflected in the latest new construction permits.

Anchorage building permits and Eagle River land use permit valuations do not include the value of the land. Rather, they simply value the improvements (vertical construction) to be built on the property. Keeping that in mind, there were eight valuations over $700,000 in 2009 and none so far in 2010 . A valuation over $700,000 would mean a total home value close to $1,000,000.

There were 8 permits valued over $600,000 which would place the total home value around $800,000. Over half of these homes were on nearly an acre. Eight permits had valuations over $500,000. They were located in a variety of subdivisions, including Powder Ridge and Brookwood North which are subdivisions that are fully improved with public water, sewer and publicly maintained roads.

Fifty-six permits had valuations over $400,000. These new home permits were located throughout the Anchorage area, with the most popular areas being in southeast Anchorage and on the hillside.

There were 109 permits with permit valuations in the $300,000 category which would equate to homes in the low $400,000. Many of these building permits are in WestPark in southwest Anchorage and Eagle Crossing in Eagle River. WestPark’s original marketing plan was for upscale homes in the $500,000 to $600,000 range. However, due to the real estate recession, several partially developed tracts were sold by the original developer at a discount, creating lower priced lots. The subdivision has found a middle of the road market niche with occasional homes being built over $500,000 but the predominant home values are now in the mid $300,000 range. These homes are being built primarily by Hultquist Homes and Spinell Homes.

The most popular price point for new construction is between $200,000 and $300,000 with 154 permits issued over the past eighteen months. These valuations include attached zero lot lines which the MOA places in the single family category. Many of these permits were in the WestPark and Eagle Crossing subdivisions.

These new construction permit values track well with current MLS numbers. There is over a 24 month supply of upper end homes priced above $750,000 on the market. That means a seller could wait up to two years to sell a home in this price range.

The maximum mortgage amount available is $688,500. This is a Fannie Mae loan with a rate of 4.375%. This loan requires only a 5% down payment but it also includes a hefty $682.32 per month mortgage insurance premium which guarantees the investor against the buyer’s default on the mortgage. To eliminate that insurance premium, requires a 20% down payment.

Both builders and resale owners are trying to build and sell to that maximum loan amount which means there are some motivated sellers in the marketplace. Unfortunately, many of the resale homes are 20 years old or greater. Unless, they’ve been recently remodeled with darker cabinetry and granite countertops, buyers are looking at a considerable cost to rid these homes of cosmetic obsolescence.

However, if you can find a brand new home or one that is less than ten years old under $725,000 it is one of the best buys available on a price per square foot basis. Any home valued above that amount is going to have a much longer market time and will result in value discounting. Unless situated on a bluff or lake with outstanding views, these ‘trophy’ homes will continue to face decline in the marketplace due to expensive pricing for mortgages and fewer buyers. In the recent past, many homes in this price point were purchased with ‘stated income’ which required no verification. That financing option has long since vanished. And savvy homebuyers are a lot more cognizant of the cost of maintaining a large home, including the cost for taxes, utilities, maintenance and repairs, new furnishings as well as landscaping and lawn upkeep.

The year 2010 should see a considerable increase in building permits from the lows of 2008 and 2009. The trend towards increased production of middle priced housing ($300,000 to $450,000) will continue while the market for Anchorage’s most expensive homes will grow staler accompanied by a decline in value unless it is new construction which will maintain stable values as buyers seek new homes vs. an older home that has functional and cosmetic obsolescence. In particular, new home buyers in the $700,000 price range are looking for larger master bathrooms, the great room concept, large kitchens with 42” cabinets and island work spaces and seating.