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Home builders bask in rising demand.

More amicable than markets in several years, residential real estate this year shows marked improvement.

While the national home building industry watches anxiously for signs of recovery, Alaskans who build and sell homes have been whistling recovery all year long. The tunes vary somewhat from region to region, though, and nobody is belting out "Happy Days Are Here Again."

Particularly when they recall recent years, home builders do have something to celebrate. But real estate agents and many economic analysts regard current trends in residential real estate with cautious optimism.

In January, the Building Industry Association of Alaska held a media luncheon to spread the gospel of an Anchorage housing market poised for a season of impressive new growth. The public relations effort was intended to soothe some of the lingering fears of potential buyers about the wisdom of residential investment and assure real estate brokers that, unlike some of the residences built during the last boom, the current crop of new homes offers high quality to buyers.

Hard on the heels of President George Bush's 1992 State of the Union speech -- which produced his proposal to give first-time homebuyers a $5,000 credit for homes built this year -- the mood of the luncheon was definitely upbeat. Although Congress has not enacted the credit and other Bush proposals intended to spur home buying, Alaska industry representatives say most of their hopes for 1992 are being realized. Projections of 600 to 700 new Anchorage homes for the year, reflected in the volume of building permits, appear to be on target.

In June, the Anchorage market consisted of about 18 percent new construction. According to Robin Ward, president of the Building Industry Association of Alaska (BIAA), appraisals on new homes sometimes top valuations of existing housing stock by as much as 10 percent, essentially leading the market upward.

Ward, who is also co-owner of Crown Pointe Inc., an Anchorage development company, says both market segments have been spurred by the lower cost of home loans. "Interest rates are as good as they will be, maybe forever," she notes. Favorable interest rates have spurred Crown Pointe, among others, to build about 40 single-family homes in South Anchorage subdivisions this year.

Fred Ferrara, president and chief appraiser of Alaska Valuation Service Inc. of Anchorage, says residential values stopped dropping in 1989 and have been improving ever since. But he notes that the market has not seen the return of investment buyers. Real estate experts agree that there is little financing available for residential properties that are not owner occupied.

"Housing in Anchorage right now is probably the best buy we're going to have, ever. I think there's a lot of pent-up demand out there," says Ferrara.

This is not to say that money is going to be easy to obtain by the standards of the mid-1980s, says Barry Hulin, executive director of Alaska Housing Finance Corp., a state-owned mortgage company. But he notes that for more than a year, residential property sales have been substantially exceeding foreclosure rates, and delinquency rates have dropped to acceptable levels.

"It reflects the underlying strength of the local market," says Hulin. "There's a lot more discipline. We now have a market as close to equilibrium as you can get, perhaps for the first time."

Taking Measure. Despite the optimism, builders themselves reflect a measured approach to development. Says Lucille Frey, sales associate for Dynamic Properties of Anchorage, "A lot of builders are being pretty cautious. For example, they're building a model home, then pre-selling the rest."

But no one in the industry faults this blend of confidence and prudence on the part of both banks and builders. Rather, it's taken as a sign that some hard lessons were learned the last time around.

Builders point out that they are not simply seeking to boost the market's appeal. They cite solid numbers and impressive anecdotal evidence to justify their optimism: high school enrollments, new high-income job creation, low apartment vacancy rates with increasing rent levels, and continued gains in home values. One specific economic gain they note is relocations of air-cargo professionals into Anchorage: Federal Express pilots and Japan Air Lines staff.

Positive data has been revealed by sources outside the state, as well. In May, a national survey conducted by Century 21 Real Estate Corp. of Irvine, Calif., showed that Alaska is leading the nation in home value appreciation. The average price of an Alaskan home in 1991 was $100,029, compared with $86,215 in 1990, a 16 percent increase. Also, Alaska is doing better in housing starts than the rest of the nation, where a highly touted housing recovery has faltered, according to federal statistics released in May.

Sue Fison, chief of research for the Municipality of Anchorage Economic Development and Planning Department, points out that lag times in reporting data sometimes make interpretation difficult, however. Her midyear assessment of economic indicators with a direct bearing on the housing market was less than enthusiastic.

"Everything is slowing down," says Fison, noting that overall employment between April of 1991 and 1992 dropped by about 6,000 in Anchorage. She says unemployment was "very high" this year compared to last.

Another technician who works with housing-related numbers is Ken Kincaid, Anchorage manager of the appraisal firm Shorett & Riely. He says even the experts are having difficulty presenting a preponderance of evidence to define the housing market.

"It's hard to quantify the data that's there. From the standpoint of our appraisal work, we're having a very difficult time resolving some of the conflicting data ourselves," explains Kincaid.

Wes Clubb, president of Crown Pointe, agrees that the recovery is still in its early phase and can be influenced easily by concerns about the economic future. "We're still somewhat fragile from the BP layoff announcements, the MarkAir announcements, from the psychology. That's very real," Clubb says.

"But when you look at the overall housing market, it's pretty stable; supply and demand are pretty much in balance. Even 1 or 2 percent growth bodes well for the economy. There's still a lot of activity going on."

Clubb asserts that a community the size of Anchorage should be able to build and sell from 1,000 to 1,200 houses a year. Consumers' lack of confidence in the economy aggravated by news reports of job losses, have kept the current market in check.

Mark Korting, broker and owner of Re/Max Properties of Anchorage, notes that dramatic headlines sometimes prey on the nerves of people rushing off to work in the morning. But he says overall the picture is not as dire as some portrayals paint it. For example, says Korting, some of the positions affected by layoffs of oil company employees are being converted to contractual arrangements.

Further, for the past decade the proportion of oil industry employment to total employment in the state has steadily declined, yet the population and job count are now nearly what they were in 1985, Korting points out. "That's the kind of thing you miss if you just read between the lines," he says.

The psychology issue is especially sensitive in Alaska where nearly half the residential real estate is rented. Residential markets Outside average 75 percent ownership. The different nature of Alaska's real estate is related to transience of the population, 20 percent of which turns over each year.

Sizing Up Cities. The Juneau residential real estate market resembles that of Anchorage. "We're in the most stable market I've ever seen," says Peggy Ann McConnochie, broker and owner of Alaska Coastal Homes in the Capital City. "It's so stable, it's eerie."

McConnochie says housing supply and demand are equal, but with high rents there's pent-up demand for new homes. In contrast to Anchorage, which nervously waits for the next shoe to drop from the oil patch, Juneau residents are afflicted with a sort of positive anxiety, waiting to see if the Hickel administration will keep its budget-cutting pledges, on the one hand, or if one or more substantial mining ventures will start up in the area.

In Fairbanks, recovery is lagging behind Anchorage, although there is new momentum in the housing market. "Things are not looking down, but they're not looking up as we'd hoped," says Radene Schroeder, owner of and broker for Realty Associates: Better Homes and Gardens of Fairbanks. "We've had a huge inventory of institutional (foreclosed) property that has held appraisals down to where a builder can't make money. This is the year that's clearing out that inventory."

Currently, Fairbanks is seeing a respectable 4 percent to 5 percent annual home valuation appreciation rate. Although a few homes are being built on speculation, Schroeder says the area is not yet ready for a builders' comeback.

One of the chief economic worries in Fairbanks centers on how budget cuts will affect the University of Alaska, one of the city's biggest employers. The impacts of American military planning on the residential real estate sector, in the face of shifting security requirements and budgetary constraints, also remain a concern, both in Fairbanks and Anchorage.

Schroeder says many military personnel prefer to live off base just to get away from the proximity and intensity of their responsibilities. Yet some sources in Anchorage report that until recently military families were being advised not to buy homes because of concerns about home construction quality.

According to the Building Industry Association's Robin Ward, this trend has been reversed. But some real estate agents say military personnel now are hesitating because of uncertainties about the length of their Alaska tours.

"I think the military thing is the real question mark," says AHFC's Hulin. While not all the personnel scheduled for transfer to Anchorage have arrived, Hulin cautions that political uncertainties make it unwise to count on the military impact before it happens.

Small Steps. Neither builders nor brokers seem inclined to count on anything before it happens. They learned about caution during the late 1980s market dive that followed the early 1980s boom.

They also recognize wariness in consumers. Now with recovery accelerating, the last year has presented builders and brokers with a very fine line to walk as they try to project their newly found confidence to a cautious market that still associates recession with overbuilding by reckless developers.

One major issue from the recession is not plaguing the current market: the quality of homes being built. "A lot of things have changed since then. The home that you're getting today is quite superior to those built during the period from 1980 to 1985," says Korting.

Much of the concern about quality focused on condominiums, townhouses and zero-lot line homes hastily constructed in the heat of the boom by contractors unfamiliar with the demands of Alaska's rigorous climate. But even condos, which in many areas can command up to a 20 percent to 30 percent slice of residences, are gaining respectability in the current market, says Korting.

Lower-end condos bought for a song by investors for conversion to apartments are being resold as condos, which causes rents to rise. Some observers are hopeful this trend will persist and boost further building.

According to Ferrara and Kincaid, rents will need to increase another 20 percent to 30 percent, and stay there awhile, before new apartments are built.

Mood Metering. Of greater concern to analysts is the need to understand and respond to an unexpected mid-year surge in homes on the market, a move they reluctantly attribute to nagging economic fears. "I'm meeting people who are selling, who are happy to hang on till next year for higher prices, but who are willing to sell now while they can," says Dynamic's Frey.

Ron Loomis, broker for Century 21 Pacific North of Anchorage, points out that several forces are at work. "There's definitely some profit-taking by people who bought between 1987 and 1990 who can now take 25 percent or thereabout," he says. Some of these homeowners bought their properties with proceeds from the Exxon Valdez oil-spill cleanup, Loomis adds.

"Then, there are those who are pessimistic, who are afraid of what's going to happen a year or two from now. That's really knocking the market askew," he says. "There seem to be an awful lot of nervous sellers out there in the world."

Many agree that buyers' attitudes -- generally nervous reluctance that encourages leisurely shopping and a wait-and-see posture -- reflect concerns about the strength of the economy. "Buyers are cautious. They seem to be wanting to shop around and look at a lot of property. If interest rates were to take a jump, a couple of points, all the gloom and doom would come true in a hurry. That scares me to death," says Loomis.

Most observers also agree that continuing low interest rates are the main bulwark continuing skepticism about the economy. Randy Boyd, executive vice president of Key Bank Alaska, says rates are not only the best they've been in 20 years, they're likely to stay that way for awhile. He calls stable rates "a real plus for the homebuyers and the builders."

Residential real estate may not be growing by leaps and bounds, but the plusses of small measurable improvements add up to substantial gains for an industry recovering from a great deal of negative entries.
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Title Annotation:Alaska
Publication:Alaska Business Monthly
Article Type:Industry Overview
Date:Aug 1, 1992
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