I hope everyone had a pleasant 4th of July weekend which is always a nice mid-summer break before real estate sales pick up for the next four months. Whether or not we have the usual bump in real estate sales activity will be a good indicator of our local economy.
In real estate sales, I always recommend that realtors avoid discussing religion, sex and politics (which is hard not to do this year) but now I’ve been forced to add a new ’don’t’ which is the Alaska economy. Right now, the economy is as controversial as who’s running for president. All four topics generate strong arguments and emotions, but the economy hits home in our pocket book more than any other topic whether it’s the size of the permanent fund dividend check next year or budget cuts to our favorite charity or downsizing state government. But, what we need to remember is that residential real estate sales is a reactive activity. We react to the economy; we don’t create it except for the jobs generated from new building activity which right now is at an all-time low with only sixteen duplex permits and forty-six single family permits. The best way to deal with the ‘economy’ discussion is to look at the real estate statistics.
Yes, there is more inventory. June 2016 single family inventory reached a high water mark of 1,025, the highest June average since 2011. It is also the highest MLS single family inventory in fifty-six months. But, here is an interesting counterpoint to that high inventory. Buyers are still buying. Last week, there were 64 pending sales reported. In 2015, for the same week, there were also 64 sales. The buyer market is strong and steady, thanks in large part to the low mortgage interest rates which last week was only 3.25% for a thirty year fixed rate mortgage.
However, much of available inventory was built prior to 1992 when builder codes began to be upgraded. That means in order for sellers to be competitive in the market they may need to make health/safety upgrades as well as cosmetic renovations to their home. Thanks to Houzz, Pinterest and remodeling TV shows, buyers are expecting more, not less from a pre-owned home, especially when it comes to the kitchen, the most expensive room in any home to build or remodel. Without that kitchen remodel, sellers need to be more competitive when it comes to pricing. Today’s buyers expect like new even if the home is 30 years old. In particular, buyers below $400,000 usually don’t have the extra funds available to remodel once they purchase and so homes that are not remodeled are being discounted in the market, in many instances, beyond, the four percent of original list price as reported by the MLS.
The bottom line is that with the same number of buyers but more inventory homes need to be competitively priced, with or without a remodel. And buyers are looking longer and harder before making a decision to buy, increasing the average days on the market to the frustration of home sellers.