By: Mark Edwards – Senior Credit Officer & Bank Economist
In our last post we looked at interest rates and inflation. Today we discuss the housing market.
Housing market – The impact of rising long-term interest rates will be most broadly felt in the housing market. Alaska home purchases are financed, on average, with a 10% down payment and 90% debt. A traditional mortgage loan is amortized over 30 years, amplifying the impact of interest expense over the life of a loan. If per capita income is not rising, then people will either have to devote a larger portion of their monthly income to housing, they will have to reduce the price range of houses they qualify for or the price of homes will have to compress in response to the lower buying power of the average customer in the market.
Multiple Listing Services (MLS) statistics for 2017 show 2,799 single-family homes sold in Anchorage, compared to 2,946 in 2016, a decrease of 5%. The average sales price of $364,967 is $1,200 lower than 2016 levels, a change of 0.3%. Average sales prices were 0.2% lower in 2016, compared to 2015.
As of year-end 2017, there were 547 single family homes listed in Anchorage with 233 sales occurring per month over the last year. That results in an average of 2.3 months of supply on the market. All home price ranges under $500,000 have less than a 3-month supply. $300,000 to $400,000 is the most popular price range. The average days on market were consistent at 51 and 50 days respectively, over the last two years.
Most of the softening in the residential market has come in the higher priced homes. The highest paying jobs in the State are in the areas most impacted; namely oil & gas, construction and professional services. Homes priced $500,000 to $750,000 show 3.8 months supply in inventory. The $750,000 to $999,999 segment shows 7.7 months supply and homes over $1 million have 10.3 months inventory.
According to MLS, there were 993 condominium sales in Anchorage in 2017, down 6.4% from 1,061 in 2016. Average condo sales prices in Anchorage held steady at $213,000 in 2015 and 2016. Last year they declined 0.9% to $211,221 on average. At year-end 2017, there was four months worth of condo inventory on average and only a 2 month supply in the average price range.
In Fairbanks, the 1,155 total sales of homes and condominiums was an increase of 1.5% in 2017. The average sales price was $230,200, a 0.9% increase over 2016. The average days on market decreased from 51 days in 2016 to 44 days in 2017.
In Southeast Alaska, home and condo sales decreased by 9.6% in 2017 to 539 units. The average sales price did grow by 1.6% to $354,554 last year. The average days on market decreased from 104 to 92 in 2017.
Mortgage Rates - 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. They were at a low of 3.4% as recently as August 2016 and have since increased 1% to an average of 4.4% in late February 2018. Rates have bounced within this narrow band since the beginning of 2011. This will be an important year to determine if a strengthening U.S. economy, coupled with the Fed’s short-term rate hikes and a reversal of quantitative easing, will finally result in rising mortgage interest rates bucking a 35-year downward trend.
Building permits – The US Census Bureau reports a total of 1,553 residential building permits for 1 to 5 unit houses were issued statewide in 2017. This compares to 1,503 in 2016, an increase of 3.3%. It is important to note there are many communities in Alaska that do not require the permits that are tracked in this data. Though this data is not comprehensive, it is a consistent report of activity in larger communities like Anchorage and Fairbanks.
The 1,553 housing permits last year was still much lower than the prior decade, which saw an average of 2,781 permits per year. 73% of last year’s activity was in single-family homes and 16% was multifamily projects with five units or more.
Foreclosure and delinquency – According to the Mortgage Banker’s Association, Alaska’s foreclosure rate at the end of 2017 was 0.64%, which ranked it the 13th best of 50 states in the country. This is actually an improvement from the local “pre-recession” level in Alaska of 0.8% in 2014. The comparable national average foreclosure rate was 1.19% in 2017, improving from 2.27% nationally at the end of 2014.
The national survey reported that the percentage of delinquent mortgage loans in Alaska was 3.37% at the end of 2017, a slight increase from 3.05% a year ago. This ranked Alaska 10th best in the nation. As a point of reference, the rate was 2.95% at the end of 2014. The national average has improved from 5.99% at the end of 2014 to 5.45% in 2017.
Our next post will include updates on Gross Domestic Product, Income, Population and Employment.
Comments