You still hear it often in local conversations, the “We’re not like the lower 48” and thank goodness for that when it comes to our local residential real estate market which has experienced fewer highs and lows over the past eight years than our neighbors to the south. Our 2008 real estate recession was mild in comparison to the 25% drop in home values found in many parts of the lower 48. But now some of those communities that were hardest hit have ridden a wave of rapid appreciation in 2013. Riverside, California, had a 16% increase in appreciation; Las Vegas, 22.3%; Phoenix, a haven for Alaskan snowbirds, a whopping 24% (I wish I had bought a condo on my credit card) and our Seattle neighbor to the south 17%. While back home in Alaska, our rate of appreciation was a modest 4%.
But that rate may change in 2014 due to the ever dwindling inventory of homes for sale. For the last week of December 2013, there were only 375 active homes on the market, another historic low. My prediction for 2014 is that Anchorage may experience an appreciation rate as much as 6 to 7% due to a lack of available land for new residential developments and a drying up of any remaining foreclosed or short sale properties. With another increase of 4%, no homeowner who purchased at the height of the market should be underwater. That’s good news for local Alaskans while Florida, for example, still has over 200,000 zombie (vacant) homes. Our appreciation will occur despite a rise in interest rates come March and April as the Feds finally pull back their bond buying activity. However, keep in mind that a mortgage rate in the 5% range is still very low. On a $200,000 mortgage, that is only an increase of $160 per month.
New construction will lead the way for our local appreciation as builders and buyers scramble to find homesites for which there is a dwindling supply. Some of the handful of residential developments that did get started in 2013 did not get finished in the fall and so there will be a lack of homesites until well into the third quarter of next year. Plus, everything that goes into an Alaskan home comes from the lower 48 and as that market rebounds, material and shipping costs are certain to increase. New natural resource developments around the state bring higher wages and subcontractors who are normally content to work in residential construction take higher paying jobs which require residential builders to pay more for labor.
None of that, however, will stop the local home buyer from wanting to find a home of their own as rents continue to skyrocket due to only a 3% vacancy factor which is, in essence, no more than the time it takes for one tenant to move out and another to move in. The local condo market, which has basically been flatlined the past few years, will also take a sizeable rebound as more first-time home buyers give up living with their parents and make their entry into the market. The ideal move-up single family home will be 2,400 square feet and have four bedrooms, all on the same floor, a great room plus den/office on the first floor, a triple car garage long enough to park a full size pick-up, and despite our six months of winter, oversized outdoor decks for brief summer barbequing. Laundry rooms will be on the same floor as the bedrooms and everybody wants more storage, via mud rooms, tall crawl spaces or a basement. Starting price: $450,000, without the basement.