Alaskanomics

Alaska's Current Economy - Spring 2024 presentation

Northrim Bank hosted its annual Community Summits in Nome, Soldotna, Homer, Anchorage and Fairbanks this past week. At these events, this economic update presentation was given by Mark Edwards, Chief Credit Officer and Bank Economist. 

Alaska Economic Update - May 2021

By Mark Edwards, EVP - Chief Credit Officer & Bank Economist

2020 was a challenging year for the global economy as health policies led to significant disruption in normal business activity. It is counter-intuitive to have a year where payroll jobs declined by 8.5% and gross state product fell 5% in Alaska, yet per capita income rose over 3% and housing prices and sales activity increased substantially.  This was only possible because billions of dollars in federal stimulus money reached Alaska and helped support businesses and individuals through the most challenging times. Record low interest rates and low levels of building activity also contributed to home price increases. 

Oil prices were shocked much lower at the beginning of 2020 at the height of the virus fears and low level of travel activity.  However, as the year progressed, oil prices returned to a more stable level and oil production levels in Alaska also followed a similar path.  The demand for energy increased as the transportation and tourism sectors accelerated.

March 2021 employment data from the Alaska Department of Labor shows a 6.9% reduction in total payroll jobs, a decline of 21,900 jobs compared to March of 2020.  Leisure and hospitality was hit hard from travel restrictions, down 23% year over year, a loss of 7,200 jobs.  Direct Oil and Gas jobs fell 36% or 3,600 jobs. A decline in public education positions led to a 2,000 job decrease in local government. Transportation, Warehousing and Utilities declined 10% or 2,000 jobs since last March. Professional and Business Services has also been negatively impacted, down 9% or 2,500 fewer positions.  According to the Labor Department report, State Government was the only sector to grow year over year.  The 1% or 200 job increase was attributed to hiring people for contact tracing and to process unemployment insurance claims.  The level of unemployment claims in the second week of March was 5 times higher than the same week in 2020.

Alaska’s real gross state product (GSP) was $52 billion in 2020, compared to $55 billion in 2019, according to the Federal Bureau of Economic Analysis (BEA). The U.S. GDP declined 3.5% in 2020.  Alaska’s reduction was 5% and the worst state was Hawaii at 8%.  Both states were more negatively affected by travel restrictions reducing tourism.  Alaska’s GSP declined sharply by 34% due to COVID-19 in the second quarter of 2020, but then grew by 32% in the third quarter.  This is very similar to the nationwide economic swing in production. Alaska’s largest GSP declines in 2020 came from Transportation and Warehousing, followed by Accommodation and Food Services, Oil & Gas and Health Care.  All of these sectors showed positive recovery in the 4^th quarter of 2020 in Alaska, helping place it 9^th fastest growing for the quarter of the 50 U.S. states.

Alaska’s seasonally adjusted personal income for 2020 was $47 billion compared to $46 billion in 2019, according to a report released by the BEA.  Personal income in the U.S. in 2020 increased 6% and Alaska rose 3%.  In a typical year, the majority of personal income is derived from wage earnings.  Additionally, some people receive government transfer payments, such as social security, Medicare and Medicaid. Personal income is further supported by earnings from dividends, interest and rents.  However, in 2020 earnings from wages and investments decreased in Alaska. The U.S. growth was entirely from a net $1.1 trillion increase in government transfer payments.  About half of the transfer payment increase was from unemployment insurance. Direct stimulus payments accounted for a large part of the remainder.

Per capita income in the U.S. was $59,700 compared to $64,800 in Alaska.  This placed Alaska as the 9^th highest income of the 50 U.S. states.  In Alaska, earnings from wages decreased 1.5% or $435 million in 2020 and investment income fell 1% or $65 million.  Government transfer payments however, rose 24% or $1.9 billion over 2019 levels.  By far the largest drop in wage earnings came in Accommodations and Food Services, followed by State and Local Government and Oil & Gas.  There were positive increases in wages in the Professional and Technical Services Industry and Health Care.

The price for Alaska North Slope (ANS) crude oil had monthly averages in 2018 and 2019 ranging from $59 to $80 a barrel. Prices fell quickly at the beginning of 2020, responding to fears that COVID-19 would devastate the global economy and reduce the demand for travel.  The low month was April when ANS averaged $16 a barrel.  However, by June the oil markets stabilized and for the last six months of the year the average monthly price remained between $40 and $50.  In the first three months of 2021, the monthly average has climbed from $56 to $66.

Alaska’s crude oil production averaged 485,000 barrels per day (bpd) in fiscal year (FY) 2020, which ended in June.  This was a decrease of 4.8% compared to the previous FY end.  The State Department of Revenue forecasts production on the North Slope to increase by nearly 1% in FY 2021 to 489,000 bpd.  The average production for the first quarter of 2021 has been higher than the forecast.

Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation.  According to the Mortgage Bankers Association, the percentage of delinquent mortgage loans at the end of 2020 in Alaska was improving to 6.2%. However, this is still significantly higher than 2.9% at the end of 2019 before the effects of COVID impacted the market.  The comparable delinquency rate for the entire country was higher than Alaska at 7.2% at the end of 2020, compared to 4.1% at the end of 2019.

The Mortgage Banker’s survey reported that Alaska’s foreclosure rate was 0.45% at the end of 2020.  This is an improvement from 0.63% at the end of 2019.  The comparable national average rate was slightly higher than Alaska at 0.56% at the end of 2020, and 0.78% at the end of 2019. This is somewhat misleading because the federal moratorium on foreclosure activity on occupied homes led to declining numbers, even though job loss strained the economy and borrower’s ability to pay.

Many people across the country took advantage of mortgage forbearance plans available from lenders to delay payments or pay interest only on their homes.  Until they catch up on past due payments these loans will appear delinquent because they are still behind according to the original terms of the mortgage.

According to the Alaska Multiple Listing Services (MLS), the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $397,000.  This is following increases of 0.5% and 2.3% in 2019 and 2018, respectively.  Average sales prices in the Matanuska Susitna Borough rose 9.9% in 2020, continuing a decade of consecutive price gains.  These two markets represent where the vast majority of Northrim’s residential building activity occurs. 

The low interest rate environment has been a major factor in rising prices.  According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U.S. hit all-time record lows last year.  Rates began 2020 at 3.7% in the first week of January and fell one percent to 2.7% by the end of the year.  Rates began to rise in the first quarter of 2021 and finished March at 3.2%. However, in April they declined slightly to 3%.

The number of units sold in Anchorage was up significantly in 2020 by 19.5%, climbing from 2,719 homes sold in 2019 to 3,249 last year.  The main difference was a record number of sales occurred in the last quarter of the year, when sales activity typically declines in the winter. The Matanuska Susitna Borough also had strong sales activity, up 9.7% in 2020 to 2,135 units sold compared to 1,946 in 2019. The Mat-Su also had stronger than normal sales in the second half of 2020. 

In Alaska, the number of building permits issued for new home construction were 1,680 in 2019.  According to the U.S. Census Bureau this fell 15% to 1,420 housing units in 2020.  This does not include building in unregulated parts of the state.    

Across the country, the prosperous baby boomer population is living longer and often keeping a second cabin or vacation home.  This housing inventory is not turning over at the expected rate, as the even larger population of millennials are finally becoming home owners.  The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, determined that the nation was undersupplied by about 2.5 million homes pre-COVID.  Now that has grown to 3.8 million homes in April of 2021.  The high cost of building has constrained construction levels and also made the price of a new home out of the reach of hundreds of thousands of first time homebuyers.

Inflation is generally caused when there is an increase in the money supply that outpaces economic growth. Trillions of dollars in COVID-related deficit spending expanded the money supply and diluted the value of existing money. Spending on a home mortgage or rent is the largest expense for consumers.  The rapid rise in home prices across the nation in 2020 will be a large inflationary force.  The second largest consumer expense is energy for home heating and transportation.  The energy index rose 13% year over year through March of 2021. The increase in oil prices have been good for the Alaska economy, but are a major part of rising inflation figures.  Across the board there are signs of rapidly rising prices of most commodities. 

The Consumer Price Index or CPI rose 2.6% between March of 2020 and March of 2021.  For the first quarter of 2021 the CPI increased 0.9%.  This was the largest first quarter increase in 13 years. The index rose 0.6% this March alone, which was the largest single monthly increase in the last 9 years.  This acceleration in inflation will be one of the most important economic indicators to track in 2021.  Since the 2008 recession, Americans have benefited from a prolonged low inflation environment, averaging only 1.7% a year over the last 12 years.  2% is the Federal Reserve’s long-term target rate for inflation. Many economists feel sustained inflation over 3% will be problematic for the economy unless GDP growth also accelerates concurrently.

Supply chain disruptions have slowed the pace of economic recovery.  Most impactful is the dramatically lower level of workforce productivity due to millions of workers losing their jobs.  Trade with our leading partners Canada and Mexico has been affected by cross boarder restrictions slowing the supply of many goods and raw materials.  Numerous companies did not have sufficient IT infrastructure in place to quickly react to a work-from-home scenario.  Government permitting and regulation approval took longer than normal in many instances. Significant storms, such as the one that hit Texas hurt chemical production and other manufacturing.  Cargo shipping had embarrassing setbacks.  These and other factors resulted in high commodity prices and low product availability throughout the world.

The economic roller coaster of 2020 was not a normal business cycle.  It was created by governments around the world forcing millions of businesses to close or seriously constrain business activity.  The economy was also rescued by massive deficit spending that reached consumers and businesses quickly to stop a serious problem.  Recent news suggests the Biden administration is preparing to increase taxes to help pay for the record deficits.  Typically, this is a drag on the economy and lowers future investment.  Therefore, more than ever, to predict where the economy is going in the coming year will depend on the policies government officials enforce on taxes, health regulations, and monetary policy.

An economic rebound is definitely occurring, it is just slightly disorganized.  Abundant cash should continue to drive consumer spending and force companies to work out kinks in the supply chain to meet a growing demand for goods and services.  Trillions of dollars in federal stimulus money is providing much needed relief to millions of Americans impacted by COVID regulations.  Excess cash is also driving investment into the stock market and leading to a slow recovery of jobs.  However, it has also created inflation by expanding the money supply and diluting the value of existing money. 

This is putting upward pressure on interest rates as investors want to maintain a “real” rate of return after factoring in the effects of inflation.  The yield curve is still flat and near record lows for maturities less than two years.  However, it is getting steeper for medium and long term rates. The five year U.S. Treasury rate has increased a half percent in the last year.  The 10 and 30 year Treasuries have both increased slightly over 1% since April 30, 2020.

Fears of higher taxes to pay back the large deficit spending is also dampening the enthusiasm of investors and led many to question if this short-run economic growth will be sustainable. At least for the near term, it appears the massive liquidity in the financial system should spur on an economic rebound.  Government health regulations, changing tax rates, and monetary policies will be the largest variables impacting inflation, interest rates, and the stock market in 2021.  There will undoubtedly be more unexpected economic challenges to come.  However, companies that are nimble in a changing environment; well-prepared to meet technological and distribution challenges; and have financial resources available can still succeed in these challenging times.

                                                                                                                                                Mark Edwards

                                                                                                                                                May 4, 2021

 

 

References:

https://www.bea.gov/

http://almis.labor.state.ak.us/

http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx

http://www.tax.state.ak.us/

www.mba.org

https://www.alaskarealestate.com/MLSMember/RealEstateStatistics.aspx

https://fred.stlouisfed.org/series/MORTGAGE30US

Standard Time.

Alaska Housing Market

Throughout the recent recession many wondered when the housing market would feel the pinch. The price for a single-family home in Alaska has remained stable during the recession that started in 2015. This is mostly likely due to a few different factors. Low interest rates, migration patterns, measured selling and buying, and controlled building were likely part of the reasons for the stable prices. Many of the jobs that were lost were from non-residents, who don’t own homes in Alaska.

Interest rates have remained low over the past three years, which means that houses are more affordable to more people. More people have moved out of Alaska than have moved in. This has helped to keep housing prices low. Buyers and sellers have been moving at a slower pace than usual, which has helped maintain housing prices. Finally, there has not been a huge push to build new housing. New units have stayed slowly decreased in the past three years. There has been less competitive bidding, fewer buyers, and lower sales volume, but less activity hasn’t driven housing prices down.

Overall housing prices have become more affordable, down payments and mortgage insurance continue to be barriers to homeownership. To avoid mortgage insurance a home buyer needs to put down twenty percent, on the average home price in Alaska, this is upwards of $65,000. This is a large amount for most people to be able to afford, even with low interest rates and stable prices. Potential buyers are likely waiting on the sidelines and saving money for a down payment and other expenses.

All of these factors have led to stable housing prices during the current recession. Homes are selling relatively quickly, but there final sale price is often close to the asking price as there are fewer bidding wars as there were in the past.

More details on Alaska's housing market can be found at the State of Alaska's website.

 

 

Alaska Economic Update- Part 2

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.

Alaska Housing Market Remains Steady

A recent article in Alaska Economic Trends outlines the state of the housing market in Alaska. While the recession has slowed growth in the housing market, it remains healthy. Fewer homes are being built, but sale prices are stable, rising 2.6 percent from 2015 to 2016. Like many things in Alaska, homes are more expensive than in the rest of the U.S., averaging 40 percent more for a single-family home.

Experts note that the fact that prices haven’t dropped during the first year of the recession in Alaska is a sign of a relatively stable market, even with the job losses seen throughout the state. This is in direct contrast to the housing bust that was seen during the recession in the 1980s in Alaska.

Another piece of the market that has remained relatively stable is affordability. This is measured by the number of average paychecks required to afford the average single-family home. It’s determined by area’s wages, sales prices and interest rates, which continue to be near historic lows. In 2015 and 2016, affordability was the same with 1.24 average paychecks needed to afford a typical home. While wages have remained flat, low interest rates have offset the slight increase in prices to remain in at the same level of affordability. Purchasing a home in Fairbanks, Juneau and Kodiak became more affordable, while it because less affordable in Anchorage, Mat-Su, Kenai and Ketchikan.

For more information on the Housing Market or Alaska Economic Trends, visit the State of Alaska's Department of Labor. 

Alaska Economic Update- Part 4

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 2^nd 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 9^th 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%.

 

2016 Economic Forecast Events

Tis the season for forecast luncheons throughout Anchorage. One of the largest business events of the year is the AEDC Economic Forecast Luncheon, held on Wednesday, January 27. The format was like past events, with an introduction from the Anchorage Mayor, the Anchorage Economic Forecast from AEDC President and CEO Bill Popp, and a keynote address.

Mayor Berkowitz kicked off the presentations by saying that he has two sets of responsibilities in Anchorage, foundational and aspirations. He continued by sharing his vision for Anchorage in the coming year. He said the municipality will focus on public safety by working to increase the number of police officers from 350 to 400 officers. He also wants to help make Anchorage attractive for investment that will help the state as a whole. The Mayor said that we need big thinking to fix the affordable housing issues in Anchorage and address the issue of homelessness in our city. The Mayor concluded with a list of how his administration has managed resources well and decreased the budget to a level that is sustainable.

The focus of the luncheon was Bill Popp’s presentation of the 2016 forecast. The complete forecast is at aedcweb.com. Population is expected to go down approximately 2,200 people, which is higher than the loss of 1,500 seen in 2015. As was the case last year, many of those individuals will move out of Anchorage to the Mat-Su Valley to find a break in housing costs and availability. There could also be significant losses if there is a troop reduction at JBER. We will know later this spring if that will occur.

The jobs forecast also shows a reduction, but less than the population decrease. Anchorage is predicted to lose 1,600 jobs during 2016. The largest reductions will be seen in Oil and Gas (-600), Government (-500), Construction (-400) and Professional and Business Services (-400). The biggest winner will be Healthcare, which is predicted to add 300 jobs this year. The industry has added 5,000 jobs in the past ten years. The loss of 1,600 jobs is about 1 percent of the Anchorage job market.

Popp continued with the Business and Consumer Confidence Index reports and the reports illustrated how the state’s fiscal crisis was beginning to erode the faith of local Anchorage business leaders and the public. The composite of the index is at its lowest point since the survey was started in 2009. The composite index is at 48.8, down 7.2 points from 2015. Business leaders are now pessimistic when it comes to the Anchorage economy. The most significant change in this year’s report was the index that reflects the Anchorage economy. It was down from 46.9 in 2015 to 32.8 this year. Business leaders are mildly confident in their own business but are pessimistic about the state situation. 89 percent believe that it is a barrier to growth in the coming year.

The presentation concluded with the message that there is an upside to the forecast. Anchorage has the ability to invest in ways to improve the lives of residents and the work climate in the city. It is also possible to fix the fiscal crisis this year, which would go a long way to rebound the confidence of business leaders and individuals.

The Associated General Contractors of Alaska hosted their annual Spending Forecast event and released the 2016 Alaska’s Construction Spending Forecast on Thursday, January 28. Like many other sectors, spending in the construction industry is predicted to be down in 2016. The drop will bring the industry back to the levels of a few years ago before there was a bump in spending in 2014 and 2015. The bright spot in the forecast is that federal spending will increase, mainly due to Department of Defense spending. Tourism, fishing and air cargo is also likely to increase. These industries are aided by the low oil prices and the state will benefit from increased activity.

The short term outlook for construction spending will be challenging, but many feel that the industry will get through the rough patches and will be better off in the long term. The full report is located at agcak.org

Cost of Living in Alaska

Throughout Alaska’s history, the cost of goods has been much higher than the rest of the country.  As noted in the July issue of Alaska Economic Trends, during the Klondike Gold Rush a pound of canned butter was $5, or $142 in today’s dollars. While the price of butter has improved, the cost of living, especially in rural Alaska, remains a significant challenge for many. Alaska Economist Neal Fried explains that there are two ways to measure the cost of living. One is to examine the differences between places at a single point in time, and the other is to look at price changes in a single place over time.

Anchorage is the only city in Alaska with its own Consumer Price Index (CPI), and therefore is the only true measure of cost over time. This can be tricky because cost in Anchorage often does not reflect cost in other communities, but the measurement of price change is usually close to that seen in other communities. In relation to price changes, 2014 was a good year. It was the second-smallest increase in the past ten years. Price changes can only be used to compare prices in the same place over time. You cannot compare a Consumer Price Index between cities. Anchorage is the smallest city, of 27, to have its own CPI, and is used as the de facto measure of inflation in Alaska.

It should come as no surprise that Anchorage residents spend the bulk of their monthly budget on housing. Anchorage residents typically spend over 40 percent of their budget on housing and in 2014 the average cost increased by 2.7 percent. Housing price does include the cost of energy and is therefore more volatile. The Anchorage cost is likely much different from communities outside of Southcentral Alaska because many Anchorage residents use natural gas to heat their homes. The price of natural gas is far more complex than the price of heating oil and gasoline, which is used outside of the Southcentral region.

Housing prices in Alaska vary widely depending on the region. Anchorage has the highest average cost for a home at $360,965, while the statewide average is $306,042. Rent for a two-bedroom apartment is the highest in Kodiak, where the average is $1,420 a month. Anchorage is second with $1,331 per month.

Health care does not comprise a large part of the index, but has seen significant increases in the past decade. The cost of health care in Anchorage increased by 3.2 percent in 2014, the largest increase in all categories in the index. Alaska has the highest health insurance premiums in the nation. This is because of higher hospital costs, much higher physician reimbursements, and the higher cost of doing business in Alaska.

Alaska cities are expensive, but not the most expensive in the nation. 11 cities topped Alaska’s most expensive city, Kodiak, in 2014. According to the Council for Community and Economic Research (C2ER), Manhattan and Honolulu are the most expensive cities to live in. Alaska ranked fourth in states with the highest cost of living, behind Hawaii, Connecticut and New York. A few examples of how Alaskan cities compare to others in the nation are:

• National average for a pound of banana $.59, Anchorage $.88, Kodiak $1.26
• National average for a pound of coffee $4.49, Anchorage $5.87, Kodiak $6.09
• National average for a doctor’s visit $105.03, Anchorage $169.40, Fairbanks $173.50
• Cheapest Quarter Pounder Pittsfield, MA $1.99, Anchorage $4.65, Most Expensive Hilo, HI $5.02

The cost of living is a large factor for many when choosing where to live. Anecdotally, Alaska is very expensive, but we can see that it is not the most expensive location in the nation. While Pittsfield, MA may have cheap Quarter Pounders, you can bet that they do not have to share their drive thru with moose and bears as you can in Anchorage.

For more information on the cost of living in Alaska and other cost measures, visit: http://labor.alaska.gov/trends/

Anchorage Housing Gridlock and Density Discussion

For many in Anchorage, the reality of homeownership is out of reach. According to a recent presentation from the Housing Subgroup of the Live.Work.Play initiative, Anchorage is the 19^th most expensive city in the US and 21^st most expensive when it comes to housing. The lack of affordable housing is not just a concern for individuals, but also for businesses trying to hire new employees from out of state. The Anchorage Economic Development Corporation (AEDC) conducted a survey of Anchorage employers to determine the biggest concerns of employers and employees in the Municipality. The number one concern of employers was being able to attract and retain good employees and a large part of that was being able to have housing for their employees. Companies have had individuals turn down jobs in Anchorage because of the lack of affordable housing. There is a lack of selection and of quality, especially in rental properties. Many potential employees cite that it is too difficult to move to a new, high cost area with the uncertainty of a new job and without affordable housing.

Many issues have created the housing gridlock being seen in Anchorage. Available land for new developments, the cost of construction/renovation, and the difficulty of navigating the permitting process have all lead to the housing crunch. A solution to this issue is to reconsider housing density.  There are many ways to create more dense housing in Anchorage without building skyscrapers that house hundreds of residents. Density is an important concept that helps maximize the value and utility of land.

At a discussion hosted by Housing Anchorage, attendees wrestled with the best way to consider approaching the subject of density in Anchorage. Many noted that perceptions and misconceptions about density would need to be changed before moving forward to find a solution. Everyone agreed that it would be helpful to have a successful example of more dense housing in Anchorage to use as an example in moving forward. Creating higher density housing would break up some of the gridlock being seen and allow for more flexibility in the housing market. A representative from the Municipality’s Planning Department noted that the department was going to target certain areas of the Municipality for higher density projects. A shift to higher density would only be made in areas where it was appropriate and it would be strategic.

Discussions regarding housing in Anchorage are continuing and include a variety of subjects and potential solutions. For more information, visit www.aedcweb.com.

Alaska Economic Update- Part 4

By Mark Edwards

Today we wrap up our series on the Alaska Economic Update. Over the past three posts, we have looked at oil prices, jobs, and population. We wrap things up today with the housing marketing and the building environment. For the complete Alaska Economic Update as well as other important studies, visit our ‘Resources’ section.

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 2014.

It reported 6,889 loans were originated statewide for single family homes and condominiums for a total amount of $1.8 billion. This is nearly identical to the volume in the first 9 months of 2013. Loans were done with an average down payment of 11% for the last five years.  Single family homes accounted for 87% of statewide mortgage lending activity with 52% 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.

10% of total mortgage activity for the quarter was for condominiums and only 3% was multi-family.  91% of condominiums were financed in Anchorage. Juneau accounted for 5%, and the Mat-Su, Kenai and Fairbanks 1%. 

Refinance activity slowed rapidly in 2014, but may rise as interest rates are falling again - 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 less than $200 million in refinance loans completed per quarter in Alaska in 2006 and 2007.  In 2008, the average rose to $400 million.  Then in the first quarter of 2009 the activity spiked to $1.4 billion, followed by $1.2 billion in the second quarter.  During this time, the average 30 year interest rate declined nearly 1.5% in six months. 

The refinance pace slowed somewhat in the last half of 2009, but still finished the year with $3.7 billion in refinanced mortgage loans according to AHFC statistics.  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 you can see on the far right of the graph, the result has been a steep drop off in refinance activity.  Rates began declining again last year and finished 2014 at 3.86% on average.  AHFC data is only available through the third quarter of 2014 at this time, so we have not yet seen the year end results.  Rates continued lower in February to 3.71%.  This should be a positive trend for both home sales and refinance activity this year.

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. Through the third quarter of 2014, Alaska ranked 5^th and 7^th best in the nation out of 50 states in foreclosures and delinquencies of all loan types.

The total inventory of foreclosures in process is 0.9% in Alaska, while the country has a much larger lingering foreclosure inventory at 2.4% due to higher rates during the recession and longer resolution times. These rates are an improvement from four years ago when Alaska’s rate was 1.4% and the U.S. foreclosure rate was 4.6%.

Delinquent loans are more than 30 days past due, but not yet in foreclosure. Alaska is fifth best behind North Dakota, South Dakota, Montana and Hawaii in the overall level of delinquent loans. Alaska’s delinquency rate is 3.6%, while the U.S. average is 6% for all loan types. This is an improvement for Alaska from 4.8% four years ago. The U.S. delinquency rate has also come down more dramatically from 9.4% at this time four years ago.

Subprime lending to traditionally non-qualified borrowers was a large contributing factor to the national mortgage problems. The survey covers 95,176 mortgages in Alaska. 6,110 or 6% were considered subprime, compared to 9% nationally. The rate of delinquencies and foreclosures on subprime loans is significantly higher. However, Alaska is in a far better position and again leads the nation as having the lowest level of foreclosures and is second in delinquencies for this important category. Subprime foreclosures in Alaska are at 2% while the national average is 9.8%. Alaska’s subprime delinquency rate is 9.4% compared to the national average of 19.3%.

Building permits up 430 units in 2014, but 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 8^th straight year.  It had been under 1,000 units since 2007, but in 2013 it grew 9% to 1,081.  Last year saw a dramatic jump up to 1,509.  However, this is still half the level seen 10 years ago.

Growth in single family homes increased from 877 to 1,114 last year.  The number of duplexes permitted fell from 66 to 50.  The number of structures with three or four living units decreased slightly from 49 to 45.

The other major growth area beyond single family homes was in multi-family.  The number of structures with five or more units climbed from 10 in 2013 to 33 in 2014.  In terms of housing units that meant a growth from 87 to 300 last year.  The biggest challenge has been making new construction affordable enough to meet buyer’s income levels.  There is a shortage of low cost housing in Anchorage.  Vacancy factors are very low and the number of existing homes under $350,000 is in short supply.  It appears builders have started to take more risk in this market segment, likely aided to some extent by government subsidy programs.  Anchorage is expected to follow other growing cities by becoming denser, building vertical and redeveloping older properties.