Continued Housing Market Stability in 2017

According to the Anchorage Economic Development Corporation report, Anchorage lost an estimated 2,700 jobs. People are motivated to buy and sell homes primarily as a result of marriage, birth, death, divorce and job change. You would think that the reported 2,700 job loss would have resulted in a significant decline in the housing market. Think again. It barely made a dent. Depending on what statistic you want to reference, the average sales price of $366,000, as reported in MLS, didn’t move one square foot. The decline in sales was miniscule—under 50 units. The number of sales and the amount of inventory varies by month so let’s compare January 2017 to January 2016.  Last week, there were a reported 45 pending sales. In 2016, there were 46. Current active inventory, after pending and solds in 2016 was 456. Last week, the reported inventory was 410. And therein lies why, at least the real estate market, is not in a recession. Lack of inventory is the major contributing factor to the stability of our local housing market. Between $200,000 and $500,000, there is less than a two month supply. Assume for a minute, you want a home built since 2000 so that it has higher energy efficiency and your price range is $400,000 to $450,000. There are exactly 6 with 4 bedrooms and double car garage built since 2000 for buyers to select from.

Lack of inventory and the threat of rising interest rates have propelled buyers and sellers to make a housing decision. The threat of three quarter per cent prime interest rate hikes in 2017 and its effect on mortgage rates is more of a concern to buyers than the local economy. After all, the long term cost of a home is not the purchase price but the amount of interest paid. If there is a damp down in values in 2017, it will come not from job loss because despite someone else’s financial hardship, the market needs the inventory, but from the devaluation of our aging housing stock which has gone beyond cosmetic obsolescence to hard dollar functional obsolescence.

If inventory remains low, prices will remain stable and the Anchorage market will absorb any supplemental inventory which is in modestly good condition. Although the AEDC report doesn’t report the type of jobs to be eliminated in each category, I suspect small business employers will keep key employees and let entry level jobs go unfilled. Major employers, like oil companies, have already shed higher paid seniority employees and replaced them with lower paying and younger transferees who have been encouraged to buy below their income qualifications. Alaska has the highest population growth rate of any state of ‘boomers’. They will continue to need health care, the bright spot in our local economy. Most have amassed, through savings and wise investments, a comfortable nest egg. Their evolving housing needs will be a stabilizing factor in our residential market in 2017.