By Mark Edwards
Home lending activity flat - The Alaska Housing Finance Corporation (AHFC) released its third quarter report on Alaska housing indicators. It tracks new loan activity for single family homes and condominiums in Alaska. The data is based on a survey representing approximately 95% of mortgage lenders in Alaska and also includes AHFC loans. The survey covered mortgage lending activity in the first nine months of 2015.
It reported 6,511 loans were originated statewide for single family homes and condominiums for a total amount of $1.77 billion. This is a slight decrease in volume relative to the first 9 months of 2014. Loans were done with an average down payment of 11% for the last five years. Single family homes accounted for 88% of statewide mortgage lending activity with 49% of those loans occurring in Anchorage. The Mat-Su contributed 18% of the volume, 10% in Fairbanks, 8% in Kenai, 5% Juneau, 2% Kodiak, and 1% in Ketchikan.
9% of total mortgage activity for the quarter was for condominiums and only 3% was multi-family. 85% of condominiums were financed in Anchorage. Juneau accounted for 5%, and the Mat-Su, Kenai and Fairbanks combined for another 5%.
Refinance activity slowed rapidly in 2014 and has leveled off this year - 30 year conventional fixed interest rate mortgage loans have been getting less expensive for three decades. In 1981 they peaked at 16.6% and have undergone a slow and steady decline ever since. In early 2009 rates dipped under 5% on average for the first time and a surge in refinance activity began.
According to AHFC statistics, there was about $400 million in refinance loans completed in Alaska in 2006 and 2007. In 2008, the average rose to $1.6 billion. Then in 2009 the activity spiked to $3.7 billion when the average 30 year interest rate declined nearly 1.5% in six months.
In 2010, the refinance volume declined to $2.4 billion, followed by $2.1 billion in 2011. 2012 saw an unexpected decrease in interest rates again to an all-time historic low of 3.3% by the end of the year. This led to an increase to $3.1 billion in refinance activity.
Rates increased throughout 2013 and have maintained close to 4% over the last two years. Most recently they were 3.89% as of November 2015, resulting in a low level of refinance activity because rates have not really improved for consumers in the last few years. Nearly everyone who could have benefited from a refinance likely has by now. According to AHFC, annual refinance activity fell to $1.6 billion in 2013 and only $500 million in 2014. Through three quarters of 2015 there has been $647 million of refinances in Alaska.
Housing statistics still good relative to the U.S. – The recently released survey by the Mortgage Bankers Association shows that Alaska continues to have some of the lowest levels of foreclosures and delinquencies on residential mortgage loans in the United States. At the end of 2015, Alaska ranked 4th and 2nd best in the nation out of 50 states in foreclosures and delinquencies of all home loan types.
The total inventory of foreclosures in process is 0.7% in Alaska, while the country still has a larger lingering foreclosure inventory at 1.8% due to higher rates during the recession and longer resolution times. These rates are an improvement from five years ago when Alaska’s rate was 1.4% and the U.S. foreclosure rate was 4.6%. Housing markets appear to have stabilized in many parts of the country.
Delinquent loans are more than 30 days past due, but not yet in foreclosure. Alaska is second best in the overall level of delinquent loans. Alaska’s delinquency rate is 2.7%, while the U.S. average is 5% for all home loan types. This is an improvement for Alaska from 4.8% five years ago. The U.S. delinquency rate has also come down more dramatically from 9.4% at this time five years ago.
The National ‘Great Recession’ largely spared Alaska, as shown in the below table:
Subprime lending to traditionally non-qualified borrowers was a large contributing factor to the national mortgage problems. The survey covers 93,384 mortgages in Alaska. 5,829 or 6.2% were considered subprime, compared to 7.2% nationally. The rate of delinquencies and foreclosures on subprime loans is significantly higher. However, Alaska is in a far better position and has the lowest level of foreclosures and delinquencies for this important category. Subprime foreclosures in Alaska are at 1.7% while the national average is 7.8%. Alaska’s subprime delinquency rate is 6.3% compared to the national average of 16.2%. State across the country, including Alaska, have shown steady improvements in reducing the subprime problems over the last five years.
Building permits still historically low - According to the U.S. Census Bureau, the number of building permits for new, privately owned housing of 1 to 5 unit buildings remained low for the 9th straight year. It had been under 1,000 units since 2007, but in 2013 it grew 9% to 1,081. 2014 saw a jump up to 1,509, with a small decrease to 1,291 last year.
A larger number of single family homes and multi-family structures were built in 2014, while slightly more duplexes and 3 to 4 unit homes were built in 2015.
The biggest challenge has been making new construction affordable enough to meet buyer’s income levels. The newly implemented Anchorage Title 21 regulations will provide further upward price pressure on new construction due to increased regulatory requirements. There is a shortage of low cost housing in Anchorage. Housing vacancy factors are very low and the number of existing homes under $350,000 is in short supply. There is less than two months of inventory available in all price ranges below $350,000. Anchorage is expected to follow other growing cities by becoming denser, building vertical and redeveloping older properties.
Alaska Multiple Listing Service (MLS) shows the average sales price of single family homes has grown each of the last four years. Since 2011 the average price has grown from $321,958 to $366,585 in 2015. That is total growth of 13.9% in four years. In 2015 rate of change was up 2.3%.