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Residential real estate bounces back: the recovery is not yet complete, but Alaska's residential real estate market continues to improve.

The recovery is not yet complete, but Alaska's residential real estate market continues to improve.

The horrors of the residential real estate market's collapse in Alaska are essentially old news. But they're not forgotten. Despite renewed activity in the housing market, fueled by increased economic activity and population growth in the state, the not-so-distant real estate crash still casts a shadow on the industry.

Alaska's recession, instigated by the mid-1980s drop in oil prices, forced job layoffs. Unable to meet mortgage payments, many people defaulted on mortgages or gave their homes back to lenders, leaving thousands of vacant units. The lending institutions' portfolios of uncollectable loans grew so burdensome that several banks and savings and loan organizations folded.

The housing market found itself with too many units available and not enough takers. Property values continued to drop as supply exceeded demand. To dispose of the excess housing units, special institutional sales programs were developed.

For instance, the state's Alaska Housing Finance Corp., which sells bonds and buys mortgage loans, reported that by 1989 it held more than 4,600 foreclosed properties, including single-family, condominium, zero-lot line, multifamily and mobile homes. By July 1990, special programs had helped to reduce AHFC's inventory to 2,504 properties. Two other prominent institutional players were Mortgage Guaranty Insurance Corp. and the federal agency Housing and Urban Development.

As people left the state, "overbuilt" was one term often used to describe the residential real estate situation, especially in Anchorage. Industry experts don't deny that the market became flooded with offerings. But many believe that, instead of too many housing units having been built in the early 1980s, too many people left. According to Bill Swain, chairman and broker of Jack White Co., an Anchorage real estate brokerage firm, "More people left than the economy dictated."

Certainly there was a glut of housing, resulting in a buyer's paradise for a time. But the institutional efforts to liquidate the excess foreclosure inventory itself helped to stimulate the plunge in residential real estate prices. As that inventory has shrunk recently, prices are moving upward again.

Kert English, president of K.R. English and Associates Inc., an Anchorage real estate appraisal and consulting firm, explains, "Part of this (market recovery) can be attributed to lack of institutionally held properties. The resale value of these properties appears to have been strongly influenced by incentives toward time-measured marketing - conditions requiring that a property had to be sold and closed within 90 days, for example. They (institutions) no longer have that incentive, so they're allowing the price to adjust now."

In addition to reduced inventory, recent population increases are helping establish a healthy housing supply and demand balance. One reason people are coming to Alaska reflects the historically observed pattern of Alaska and the Lower 48 being at opposite ends of the economic cycle. Jack White's Swain says, "For some unexplainable reason, Alaska runs countercyclical to the Lower 48, and people come here when the economy goes down there."

Also, many of the people who left during the recession are returning. Mark Korting, broker at Anchorage's Re/Max Properties, a real estate brokerage firm, explains that many former residents like Alaska and are coming back as they gain confidence in the state's economic activity.

Alaska's economy is experiencing a resurgence right now. The state received a boost from the Exxon Valdez oil spill cleanup, which brought a healthy cash infusion in 1989 and 1990.

Facility expansion, primarily projects aimed at increasing oil recovery, continues on the North Slope. It's been reported that approximately 600 to 800 new Slope-related jobs are expected within the next one to one and a half years. Also, increased military personnel in Alaska are scheduled, which is expected to affect several local economies.

Residential real estate values in Alaska, generally speaking, bottomed out between 1987 and 1989, then gradually started to stabilize and climb upward in 1989 and 1990. But the market has not yet regained the peak levels of the mid-1980s, a fact which continues to haunt those property owners who bought when prices were high and who decided to ride out the rough times. Also, the disasters of the downturn have made people potential homebuyers and lenders alike - cautious even during this recovery phase.

One problem that industry experts predict as a result of the recovery is a shortage of lower-priced housing units. As the population grows and inventory shrinks, starter-type units are becoming scarce for the first-time homebuyer. Additionally, apartment vacancy rates are decreasing while rents are increasing.

The recovery in values has continued unmistakably upward during the first part of 1991. In particular, the urban areas of Anchorage, Fairbanks and Juneau have experienced noticeable appreciation in residential property values.

ANCHORAGE. Real estate industry experts - appraisers, brokers and consultants - agree that a major rebound is occurring in the Anchorage market. According to Real Estate Services Corp.'s 1990-1991 annual Survey of the Anchorage Real Estate Market, for the first time since 1984, respondents recently indicated they believed that the value of all types of properties had increased.

In the opinion of the 99 sales agents and brokers who responded to the survey, between October 1989 and October 1990 the value of single-family housing increased by an average of 11.3 percent and that of condominiums by an average of 14.6 percent.

Multiple Listing Service statistics show that in Anchorage for the one-month period of January 1990, the average sales price of residential properties - including houses, zero-lot line and townhouse-style dwellings was $95,500; a year later, during the one-month period of January 1991, it was $129,900.

Notes Jack White's Swain, "There has been appreciation in the market. Part of this is from the 7 to 8 percent cost of living index increase. But there is appreciation beyond the inflation factor."

The listing service cautions that the increase in average sales price shows not only appreciation in the market, but also an increase in new construction of larger, higher-priced homes. Thus the figures from the two different years reflect a different inventory mix.

English, who has been appraising residential property in Anchorage since the mid-1970s, notes about the recent performance of different sectors of the residential market: "Some is flat, some is up, nothing is down. There's been appreciation in certain sectors, and stabilization in some sectors within the last few months."

The real estate market is stratified according to elements such as unit type, location desirability, quality of construction and square footage. Certain types of properties, although experiencing decreased value during the recession, have maintained their value better than have other types.

According to Bill Olson, deputy appraiser for the Municipality of Anchorage, The better quality homes were less problematic in the recession, with fewer foreclosures. We had a problem with the lower value homes." He adds that the municipality's property appraisal department now is seeing "a significant increase in residential values overall." This includes zero-lot lines and townhouses.

According to English, certain sectors of the residential market have done extremely well - from the upper mid-range condominium to semi-custom and custom homes in the $300,000 to $400,000 price range. Also, he says, well-maintained, well-located detached single-family homes that sold 18 months ago for $200,000 now can bring $230,000 to $240,000. But for older, fixer-upper type houses in less select neighborhoods, prices are inching upward more slowly, he adds.

Anchorage condominiums also are showing increases in value. Multiple Listing Service reports that during the month of January 1990, the average sales price of a condo was $33,400, while during the month of January 1991, the average sales price was $53,500.

Throughout that same one year period, the condo inventory has shrunk by 74 percent. Multiple Listing Service figures include AHFC repossessions, but not HUD or Veterans Administration repossessions.

According to Ken Gain, president of Equivest Realty Advisors, an Anchorage real estate counseling firm, there are fewer housing units now than in 1985. Industry experts attribute this decrease to some properties being intentionally withheld from the market; some properties being absorbed for transient occupancy - for instance, purchased by airline companies for use by their crews; and some properties being demolished.

The municipality's Olson says that property condemnation and demolition became more common as foreclosures increased. He explains that many properties, including multifamily dwellings, ended up sustaining permanent damage - such as from water pipes breaking during winter due to lack of occupancy and of maintenance. He adds that, at one time during the recession, the price of duplexes and triplexes was less than that of single-family residences.

Jack White's Swain calls the reduction of available homes the most significant factor' in the market's upturn. He also notes that new construction is indicating dramatic improvement. In 1989, fewer than 200 new units were built; in 1990, about 400 units were built. Six hundred to 800 new units are expected in 1991.

English says, "This is down from the '83 peak at about 7,700 units. But we're seeing a phenomenal increase now. The percentage looks fantastic. However, the dollar volume is not as great as the percentage looks."

New construction is expected to help to maintain the trend in property value increases. But one obstacle could be rising construction costs which are reflecting cost increases for labor and materials. Equivest's Gain says, "We need an increase in selling values so builders can build."

The prices of building lots, which are relatively scarce in the Anchorage Bowl, are also rising. The availability of vacant land for building sites depends on factors such as road access, soils, utilities (sewer, water, electric, telephone), and now wetlands issues. The land also must be available for purchase. Many current owners of vacant land do not want to sell because they are still in a negative equity position from the recession.

Swain says, "There's pressure about lots for residential. They show strong appreciation in Anchorage. It's rippled out to Eagle River and the Mat Valley."

Most of the new construction is in the higher price ranges. Equivest's Gain predicts, Within two years we'll be building apartments and condos again. That's the only way to keep affordability." The availability of lower-priced housing is expected to continue shrinking. Gain reports that the apartment vacancy rate was about 5 percent in March.

"We saw 20 percent rent increases last year. We'll see it again this year because of the impact of the fighter squadron coming in," he adds. The U.S. Air Force fighter squadron being relocated from the Philippine Islands to Elmendorf starting in mid-1991 is expected to bring in well over 2,000 people.

One holdover from the real estate collapse in Anchorage is lender caution, which has a ripple effect on the market. For existing single-family, owner-occupied properties, the consensus is that financing is available and is expected to remain so.

But financing for new construction is not necessarily as easy. The reluctance of lending institutions to loan money could forestall plans for new projects such as apartment buildings, even though rents are going up and space is running out. Gain says, "We need a 50 percent increase in rent before we can build apartments because the banks are more conservative on financing. It's hard to get a loan."

Another hangover from the recession in Anchorage is negative equity. Prices still are not where they were at the peak, and many people continue to pay on mortgages that are greater than the current market value of their property.

Jack White's Swain says, "People who bought in '84 and '85 still have negative equity. If they have to sell are forced to sell, such as because of a job transfer or a major change in the family - it'll be hard on them, because they can't wait for inflation and appreciation to bring the value back up. As long as there's negative equity, there will be continued heartburn."

FAIRBANKS. Fairbanks residential property values increased a year ago by 10 to 15 percent over the previous year. Based on the shortage of available properties, they are expected to show another 10 to 15 percent increase when spring 1991 figures are tallied, says Rad Carlson, broker with Coldwell Banker Great Land Realty. Multiple Listing Service statistics show residential inventory numbers approximately one half of last year's.

A "typical" three bedroom, two bath, 1,800-square-foot house with a two-car garage was selling in the $110,000 to $115,000 range in March. One year ago, the price was around $100,000 to $105,000, and two years ago in the low $90s.

Condo prices are up at least 15 to 20 percent over two years ago. For example, a unit that may have sold for $15,000 to $17,000 then now sells for around $26,000, reports Carlson.

Even so, properties are still selling 10 to 15 percent under replacement cost, making for a slow construction market, he explains. Some new construction - approximately 40 to 50 new homes - is considered possible in the North Pole area.

Anticipated increases in troops in the Fairbanks area could bring about a housing shortage, which would stimulate the market. This could also tighten the apartment vacancy rate, currently estimated at 5 to 10 percent. Carlson explains, though, that there's a bit of a Catch-22 at work: The government has indicated that it would send in the troops when the housing was in place.

"It seems like we're a year or so behind Anchorage," says Carlson. He notes that overall, the housing market is improving and foreclosure rates are a third of what they were. The foreclosure rate at one time was approximately 30 homes per month, but now the rate has decreased to about 10 homes per month.

During the bad times, however, the foreclosed properties were generally easy to resell - modern and of standard construction. Now, at least three-fourths of the foreclosures are on properties that are of substandard construction have major structural problems, or show non-conforming use, and are thus ineligible for financing.

The lower number of foreclosures is due to growth in employment and population. This in turn is driving up real estate prices. "In Fairbanks, there never was an oversupply of single-family houses," Carlson says. "What kicked the real estate market was fewer people and a drop in income levels by 20 to 30 percent, so the price of houses had to go down. Then, they'd resell the houses to people who could qualify."

Echoing Anchorage, one holdover in Fairbanks from the recession is that lenders are more conservative than they were in the early 1980s. With fewer banks and less competition for loans, the banks in general are making loans that carry no unusual risk.

JUNEAU. The Juneau market reflects much of what is happening elsewhere in the state. Real estate hit bottom about two years ago. Since then, prices have been going up and inventories have shrunk.

According to Randy Crewse, a real estate sales agent with Century 21 Shattuck and Grummett of Juneau, appraisers report that last year, single-family detached dwellings increased in value at 1 percent per month until the first of October; subsequently, they've increased by 1/2 percent per month. Zero-lot-line dwellings, however, have shown steady appreciation of 1 percent per month during the entire year.

Crewse says the Juneau area has approximately 40 to 50 single-family residences for sale, a number that has been stable over the last year. He adds that the tightest segment of the market is with lower-income people, the first-time buyers, who are being squeezed out of the market as prices increase. For the first-time buyer, it's rare to find a property for less than $80,000. During the recession, starter-type homes averaged $50,000 to $60,000, he says.

Crewse estimates apartment vacancy rates at 2 to 3 percent, an indication of a strong market, while during the recession, those rates were at 15 to 20 percent.

"Juneau has a transitory group of people," says Crewse. "It's a pretty dynamic market because of people moving in and out of town." The high concentration of state and federal government workers, many of whom are in Juneau for only two to three years before being transferred, creates a high number of sales transactions, he explains.

Juneau's strong real estate market is fueled not only by the generally improving economy statewide, but also by economic factors unique to Juneau. One is the stabilization of the state government. "The legislature came in with a large surplus budget," notes Crewse.

Mining activity in the area also is increasing. Production at Greens Creek Mine, North America's largest producing silver mine, and exploration activities at the Kensington and A-J mines are attracting home buyers.

Even though the real estate market is thriving, new construction is not abundant. New homes are being built for individual buyers, but developers are not erecting spec homes. As in other communities, residual effects of the recession are reflected in conservative lending practices.

Says Crewse, "In the single-family market, we're getting pretty close to values at the top of the market in 1984-85. Right now things are doing real well. But we're at a year at a time here because of the state government."

OUTLOOK. The residential real estate market's continued health hinges on variables affecting supply and demand, particularly sustained improvement of the local and statewide economies and consumer optimism. Alaska nowadays appears to be on an upswing.

Recent real estate activity in the state indicates confidence in the future. Re/Max's Korting says, "We're beyond the bottom, and the population is growing. There's no reason I can see that it should not continue."

The Anchorage municipality's Olson adds, There's no question that recovery is under way. The question is, When will we recoup the losses that have occurred?"
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Author:Collins, Gloria
Publication:Alaska Business Monthly
Date:May 1, 1991
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