Photo courtesy Mike Race

A Buyer’s Market

Though interest rates are rising, there are still plenty of reasons to invest in the Alaska housing market. 

By Nicole A. Bonham 

Graced by the advantage of unusually low interest rates the past several years, the real estate industry nationwide–and corresponding lenders–have burned the midnight oil to keep up with demand.

Now, with rates rising again–if relatively slowly–what impact does that have for buyers and sellers and those in between? Also, at the start of a new year, what’s ahead for investors, first-time buyers, and those looking to move up? Brokers and agents from around the state check in with their opinions and in-the-trenches perspective.

Slowing Evident

Already, as residents here and throughout the nation adjust to the increasing interest rates, the impact is evident of a minor slowing in the race to snap up bargain deals. Industry watchers predict some moderation in the coming year, with economic indicators suggesting the boom that came from the lowest interest rates in several decades is slowly correcting itself.

Mike Race, the owner/broker of Juneau-based Coldwell Banker Race Realty, reports sales up in 2003 compared to the previous year. “Up 55 percent,” he says. “We have done well, with great attitudes.”

This despite Juneau having among the state’s highest costs for new construction of single-family housing, according to Alaska Housing Finance Corp. For second quarter 2003, AHFC reports the average sales price of a newly constructed home at $342,044, with an existing home costing an average $211,896.

“Rates may climb or stay the same,” Race predicts for 2004. It’s undeniable, however, that whatever happens, rate fluctuation does have a measurable impact. “Low interest gives a purchaser more purchase power, more bang for the buck,” Race says. “Real estate buyers and sellers find the appraisers busy with re-financing, which slows the process for home purchases.”

The Juneau Realtor applies quantitative logic to the impact property sales have on the local economy.

“About 20 percent of a purchase price goes back into the community, stimulating economic growth, buying paint, carpet and furniture,” he suggests.

Dave Somers, owner/broker of Fairbanks-based Somers & Associates, also reports positive figures for 2003–with strong potential to continue this year.

“The market (in 2003), compared to the previous year, is slightly improved,” Somers says. “Still a strong seller’s market for anyone who has a nice, clean house in good repair.” House prices are up in all categories, with some indication that will continue, he predicts. There is a strong buyers’ demand. “We have plenty of buyers and not so many houses.”

The average cost for an existing house in Fairbanks during the second quarter last year was $176,467, according to AHFC, with new construction costing an average $208,786. By the end of the second quarter 2003, AHFC listed 1,150 single-family loans and 27 condominium loans.

In Ketchikan, 2003 was evidence the community is weathering its storms of decreased timber activity, government cutbacks and a fishing industry increasingly under fire.

“Ketchikan’s real estate market–residentially–in 2003 was much better than it’s been over the previous three years, both on a purchase and sales side, as well as the rental side,” reports Zig Ziegler, co-owner and broker of Ketchikan-based Alliance Realty. Ziegler is a lifelong resident of Ketchikan, with 14 years in real estate. Alliance Realty employs some seven full-time agents.

The average sales price to build a house in Ketchikan last year was $252,500, according to second quarter statistics from AHFC. To buy an existing home cost an average $250,524.

“Certainly low interest rates played a role,” he says. “More than that, it was a combination of stabilizing influences in the Ketchikan area … and the increase in the tourism industry and its service sector, as well as stability in our other industries .…”

Ziegler doesn’t see much influence yet from increasing rates.

“They’re still awfully low, given our 15- to 20-year average,” he says. “Interest rates right now are very user friendly. The hopes are that they will stay relatively affordable.”

And while it’s difficult to forecast the future, Ziegler suggests increased pressure for residential home sales in Ketchikan in 2004. “We just don’t have a huge inventory of available homes,” he says.

“Overall, 2004 looks pretty good for us,” he says, with new local growth and continued tourism activity. “We do have some major construction projects that are on the agenda … schools and highway projects.”

“The rates that hovered around 5 to 5 ½ percent were definite stimulants to the market,” says Angie Newby, owner/broker of Homer Real Estate. “The ‘new arrival’ market was not as affected, since many of those buyers can qualify for larger payments, or purchase with cash from the sale of another home out of the area.”

And even the weather may have contributed to sales.

“We’ve had lots of housing starts over the past two years and I would call our market brisk,” says Annie Whitney, associate broker with Coastal Realty in Homer and 2003 president of the Kachemak Board of Realtors. “Last year, the South Peninsula had little snow, which meant we were selling raw land through February–an unheard of event.  This winter is colder and snowier and land sales have dropped off. However, there are lots of home buyers, with a small inventory of homes.”

New Investors, Moving Up

The low interest rates gave baby boomers and near-retirement professionals opportunity to move up to more expensive homes. On the flip side, it afforded young, first-time buyers the chance to get out of the renting ranks and into ownership. Low rates offered the perfect excuse for a second home or resort property for some. And still others saw it as a chance to pick up a bargain investment property.

“Upward and downward movement are normal (for Alaska),” says Race, “as well as transfers in and out for both military and corporate, (plus, there are the) adventurers and escapists.”

Homer property agents hope to continue riding a wave of increased interest from mature buyers.

“Over the last five years, we are seeing a definite growth in sales to ‘early retiring’ and ‘thinking-about-retiring’ buyers from all over the country,” reports Newby.

“Sales were very steady (in 2003), as they have been for several years,” she says.  “Homer is experiencing a real growth in the second home and early retirement market. I personally have clients from more than 30 states. These buyers love Homer’s commitment to the environment, the arts, the recreational opportunities …. And our custom-home pricing in the $200,000 to $300,000 range is a real bargain. I am firmly convinced that the Homer real estate market is undervalued, as compared to Anchorage and other prime resort locations.

“People love the real estate values, and enjoy the secure sense of a small, arts and mariner community,” she says. “Anchorage buyers now have to share their ‘recreational backyard’ with the rest of the world!”

In Ketchikan, Ziegler says local agencies have seen interest from a variety of customer sectors. “It’s across the board,” he says. “There are some really attractive programs–and obviously first-time home buyers are taking advantage of them. A lot of people are upgrading. We do have new people moving in. We do have a sector of our community that is transient–Forest Service, Coast Guard, the hospital and construction.”

In the Fairbanks region, Somers echoes “customers all across the board this year.” With prices moving upward and corresponding rents increasing, some first-time buyers have opted for duplexes or four-plexes to rent and also owner-occupy, he says.

This phenomenon is somewhat connected to a similar trend apparent in the Anchorage Bowl, where available land for development is at a premium and is increasingly being sought for multiple-family units, condominiums and the like.

The Anchorage Home Builders Association last year reported that, of the 1,800 houses built in the city in 2003, some 40 percent of those were anticipated to be multiple-unit housing or condominiums.

Juneau reports a similar lack of developable space for single-family homes, a situation that has the local Home Builders Association and city planners concerned, worried the lack of developable housing could adversely impact the community’s economy and attractiveness to potential newcomers looking to relocate to the capital.

 Meanwhile, the Mat-Su Valley, with its expanse of available land and increasingly improved roads system poses strong commuter potential and, as a result, has blossomed as a place where houses are affordable and opportunities for development bountiful.

The Mat-Su Borough reported more than 1,000 new residential structures in 2001, with an increase of 200 the following year.

From a statewide perspective, by second quarter 2003, AHFC reported 789 condominium loans so far that year in Alaska, with an average sales price of $134,100; and 4,979 single-family loans, with an average selling price of $204,712.  For multi-family complexes, the average sales price was $367,461.

Of the second-quarter loan activity for single-family housing, the greatest number of loans (2,350) went for existing housing, though construction tallied in at 452 loans for the quarter. The average sales price in the second quarter was $235,453 for new construction and $198,799 for an existing home, according to AHFC “Alaska Housing Market Indicators” report.

Great Land

So what makes doing the business of buying and selling property in Alaska different from the Lower 48? Simply put, it’s a case of “distance, travel, and weather,” says Race. All factors come into play, both in terms of buyer preferences and during the actual logistics of the purchase or sell.

And the Alaska factor is evident in the types of inquiries, Ketchikan’s Ziegler says.

“Anyone in Alaska can probably say this: ‘We’re really different than anywhere anybody has been,’” Ziegler says. “We’re an island. We have remote appeal.

“We’re seeing activity that ranges from folks who definitely want to get away from it all,” he says, “to folks who want to come here and be part of the frontier spirit and yet still have some amenities.” Alliance Realty receives inquiries from throughout the world. Tourists visit on cruise ships and opt to return, looking for second homes or extended-stay options, “the cabin in the woods sort of thing,” he says.

Similar story in the Kachemak area.

“When they come to Anchor Point and Homer and see the volcanoes, the ocean, Kachemak Bay, the Kenai Mountains and the glaciers, plus experience the fishing and bird watching and bear watching, they’re just mesmerized and want to own a piece of it,” Whitney says.

The Alaska state of mind plays into the characteristics of the real estate agents themselves, according to Newby.

“Homer Realtors, and I believe Alaskan Realtors in general, are much more attuned to technology and the Internet, than their peers elsewhere,” Newby says. “Because we are a world-class destination, we are more aware that the world is our market.”

Of Concern

So in terms of policy, issues and concerns, what is on the minds of Alaska property professionals? Their responses range from national issues to state budget woes and local development controversies.

For Race, it’s a case of public access and lobby power.

“Rumor has it the administration is trying to sunset the Real Estate Commission, which would be totally rude to the public whom it serves and protects,” he suggests. “Why they would follow whacking senior citizens with the largest lobbying group nationwide baffles me.

“The Alaska state Realtors I have talked with are baffled and horrified as to the government taking over a citizen-supported control group,” he says.

The concern in Homer is more localized.

“One big issue down here (Homer) is the coal bed methane leases that have cropped up and taken everyone by surprise,” Whitney says. “Potential buyers aren’t interested in purchasing property that have active leases. And that’s probably going to impact our market if the state doesn’t buy back the leases.”

For Ziegler, it comes down to finances and the state’s ability to fund improvements necessary for locals and potential newcomers, alike.

“Of concern to everybody is our state budget,” he says. “The Legislature is dealing with the shortfalls. How we’re going to do that is going to impact everybody.

“The cutbacks and continued deficits are going to have a major impact on all of us…” Ziegler says. “When (people) are shopping for a place to go–they look at … tax structures, schools for their kids …. All those things are going to play a role in what people choose.

“This state needs to sit down and take a hard look at how they want to generate revenue,” he says.

[ Home ] [ Up ]

Send mail to webmaster@akbizmag.com with questions or comments about this web site.
Copyright © 2004 Alaska Business Monthly.