Not long ago, I was called by a former client to provide him a fair market analysis of his home. I had sold him the home, which was brand new, some twenty years earlier. He and his wife were planning on retiring to the lower 48 in 2011. The home, which was located on an acre of land in a desirable area, had been kept in remarkable like new condition. The sellers had remodeled the kitchen and installed hardwood floors. The exterior had recently been painted and the landscaping had been lovingly cared for. The sellers were not unreasonable in what they thought was the value of their home.
The problem was there was a home identical in design and square footage that was priced $30,000 below their value only one block away. It was owned by a relocation company who’s national policy was to reduce prices until they got a sale. The relo home was not in as good a condition, but it was a comparable that could not be ignored. If my seller waited until that home was sold and closed, it would still be used as a comparable by appraisers for at least the next six months. So even if a buyer was willing to pay $30,000 more for an identical home in better condition, the home would not appraise for the added value. And that’s why real estate is local: one street at a home.
As Alaskans we’re fortunate to live in a real estate environment that doesn’t have the woes of the lower 48. But, we are not immune from its negative influence, as the above story demonstrates. We have foreclosures, short sales, and real estate owned by lenders, in almost every subdivision, on almost every street in Anchorage from entry level condos to the million dollar McMansions on the hillside. And even though those distressed properties remain a small percentage of our inventory, its impact has compressed values at a time when they should be increasing at the rate of 3 to 5% based solely on the lack of inventory and the ever increasing costs of new construction.
The Anchorage Economic Development Authority has forecasted a good year for our economy with 1,100 new jobs in health care, transportation and construction. It is estimated that our population will hit 300,000 by the end of 2011 for the first time in its young history. Yet, our real estate market remains tepid and compressed due to the negative impact of the lower 48 housing and financing woes. We could, in fact, compare it to the stock market when it hit bottom three years ago. Now, it’s over 12,000 and we can look back and say we should have bought. The same is true today for our local housing market.
Our homes are under-valued; our inventory old and depleted. We’ll look back at 2011 and say we missed an opportunity. All markets move, they do not remain stagnant forever, and this local market has no place to go but up. Residential building permits are at a 20 year low. Development loans for new subdivisions are rare and expensive, to say nothing about the lack of land available for development and the lengthy and expensive permit and entitlement process.
When local real estate values were appreciating 5 to 7% a year, everyone jumped on the buying band wagon. Anchorage had ten straight years of appreciation and buyers bought, sold and bought again. When our appreciation stalled and then had a slight decline, hesitation and fear snuck into our market. The occasional foreclosure and short sale down the street has created a lack of confidence. But as a buyer, be thankful for that foreclosed or relocation property on the street because it’s keeping values down. And if you’re a seller, do what smart sellers are doing, and wait.