After record price year, construction loans and permits dip

  • A row of new town homes in The Petersen Group’s Clearwater Village east Anchorage housing development soak up some afternoon spring sun March 22. High construction costs and a tenuous state economic situation appear to be slowing home construction in Anchorage early this year. PHOTO/ELWOOD BREHMER/AJOC

Editor's note: this article has been updated to reflect that the current 2016 average home sale price only includes January and February, which are historically the lowest priced months of the year. 

Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them.

With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015.

Anchorage’s land shortage, along with new municipal land use rules, make the Anchorage market spendy, particularly for new construction. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data.

Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects.

“We’re seeing a real hesitation,” said Kissik-Michelsohn. “Once they hire us and we get done with design and get to the costing component, they are so cautious.”

Kissik-Michelsohn said the “cold feet” some of her potential clients get near the end of a contract negotiation loops back to concerns over the state economy and the oil industry. She said one Anchorage customer, a Slope worker asking for a large custom-built house, is waiting until April to finalize plans. He needs to make sure he has a job first.

“Anybody in the oil industry…they’re all scared,” Kissik-Michelsohn said. “The state of the Alaska economy in general has really had a big impact.”

Indeed, municipal records show a drop in new home building interest. In Anchorage, building permit records from the municipality show a decline in building projects from the same time in 2015.

To date, only 13 single-family home building permits have been submitted for 2016, down from 21 during the same time period in 2015.

Totals reveal an even bigger gap. In January and February 2015, applicants filed for a total of $66.6 million in building permits. In 2016, they applied for $35.7 million.

The lack of enthusiasm for new construction collides with state fiscal woes and the highest housing prices on record for Anchorage.

According to statistics, 2015 was the most expensive year ever for Alaskans looking to buy homes, with some of the lowest interest rates.

According to the Freeman-Reed Index, an analytical tool used by the Alaska Multiple Listings Services, the average Anchorage residential price peaked in 2015 at $366,585, lower than the average provided by municipal data but still greater than any year in Alaska history and roughly double the average price in 2000.

In Juneau, the average price for an existing single family home was $377,620 in the third quarter of 2015, and $414,717 for new construction. In Fairbanks, homes were cheaper, at $265,884 for existing homes and $287,833 for new construction.

According to the National Association of Realtors, the average single-family home sale price for existing homes in 2015 was $267,300.

Condominiums followed the same path as homes, with an average sale price of $213,071 in 2015, also the highest in Alaska history.

Anchorage’s residential prices are now coming off their record highs. The lack of new construction coincides with the first dip in average housing prices this decade.

The average residential sale price has declined for the first time since 2011. So far, Anchorage’s average residential price is $353,729, a 3.5 percent decline from last year.

However, these numbers only include January and February - historically, the lowest point of the seasonal ebb and flow of home sale prices, as people are more willing to move in summer months. January and February combined have declined $2,000 compared to the January and February total from 2015. January itself actually increased in price compared to last year. 

Going by three-year average, the prices of Anchorage homes peaked at $356,652 in 2015. That average has lowered to $353,729 in 2016. Similarly, condos’ three-year average lowered from $216,952 to $214,821 in 2016.

Statewide, a steady roll in interest rates coincided with the housing prices climbing. Over 7 percent in 2000, the average Alaska mortgage interest rate came to 4 percent in 2015.

Key indicators from the Alaska Housing Finance Corp. indicate that new construction took a downward bend at the end of 2015.

Statewide, there were 14 percent fewer condos, single and multi-family homes, and mobile homes built in 2015 than in 2014, with each category declining year-over-year.

Loan activity started strong in 2015, but went down in the back half of the year. In the first and second quarters, total loans for single family loans — the largest segment of the housing industry — increased from the same quarter in 2014 over $24 million for the first quarter and over $21 million in the second quarter.

Loan activity for condominiums increased in both quarters, while multi-family homes lost in the first quarter but gained over $3 million in the second.

That turned around in the third quarter.

Loans activity for single-family homes dropped in the third quarter of 2015 by $55 million, and by $18 million in the fourth quarter. Loans for condominiums dropped by $14 million and $2 million in the third and fourth quarters. Only multi-family homes kept the momentum, increasing loan activity by $400,000 and $5 million.

Anchorage took the biggest hits, posting loan declines as early as the second quarter of 2015. In total, the Anchorage real estate market saw a $73.2 million reduction in single-family home loans in 2015.

In Fairbanks, single-family home loan activity declined in every quarter, resulting in an overall $29.2 million reduction in 2015. Single family loan activity fell by $3.5 million in Juneau.

Loans for new construction of single-family homes increased despite the loan reduction. Statewide, $400,000 more worth of loans were used to build new single-family homes, but those numbers skew declines in home building activity in the state’s two largest population centers.

In Anchorage, $8.4 million less in loans was used to fund the new construction of single-family homes compared to 2014. In Fairbanks, $1.6 million less was used.

Juneau, however, saw an increase of $2.6 million in loans used for single-family home construction in 2015.

DJ Summers can be reached at [email protected].

03/25/2016 - 1:37pm