By Michael Droege
Through the first half of 2017, the residential housing market across Southcentral Alaska has been stable. Mortgage rates remain at historic lows and homes are selling for about 98 percent of the final listing price. The most interesting phenomenon of the current housing market is the lack of inventory. Compared to recent inventory levels across the four major market areas (Anchorage, Eagle River, Palmer and Wasilla) available homes or “active listings” are down 9.8 percent. In Anchorage, that meant in the first half of 2017 there were almost 300 less homes on the market than in 2016.
Fewer homes on the market would normally result in an increase in sales prices however demand is a bit dampened because of uncertainty in Alaska’s economy. With so much of our economic activity predicated on the health of the oil industry and with the State of Alaska’s budget in deficit, consumers to a certain degree are holding back on major purchase decisions.
The current average absorption rate (the number of months it would take to sell all available homes) is 2.97 months. The National Association of REALTORS® defines markets as follows:
- 0-5 Months Inventory = SELLER’S MARKET
- 5-7 Month Inventory = Healthy Market (Favors neither buyer or Seller)
- 7 Months or more Inventory = BUYER’S MARKET
Even though our market inventory levels look to be a SELLER’S MARKET because of the suppressed inventory it’s not.
More than three quarters of Anchorage’s housing market is comprised of home selling for less than $500,000. The vast majority of the homes in this price range are between $250,000 and $400,000.
New construction is down in Anchorage and Eagle River, primarily because of the lack of affordable, available and developable land. Most of the available land in the Anchorage bowl has either not been made available for sale or if it is available, there are development challenges. These factors all drive up the cost of a new home. A lot in a new development with city water and sewer is going to be an average of about 8,000 square feet and cost $135,000 to $150,000 in the cost of a new home. This makes it very difficult to build even a modest new home for less than $400,000.
In contrast to the Anchorage market, the Mat-Su Valley new construction business has been very strong. There are great values in the Valley, primarily because of the relatively low cost of land. But, for those who live and work in Anchorage, the commute is a big factor.
All in all, the housing market continues to be healthy in the Anchorage area. The cost of owning a home is still better than renting (even with rising vacancy rates in rentals). The cost of a mortgage along with the tax benefits of owning a home still tilt in the favor of home ownership.
Michael Droege is Co-Owner, Associate Broker and General Manager of CENTURY 21 Realty Solutions. He is the past President of the Anchorage Board of REALTORS® and the Alaska Association of REALTORS®. He served on National Association of REALTORS® Board of Directors and on NAR’s Federal Housing and Finance Policy Committee. He currently serves on the Legislative Committee of the Alaska Home Builder’s Association. Michael was awarded REALTOR® of the Year in 2012 and 2014.