Monday, April 16, 2007

Anchorage Home Price Increase Continues

The price of an Anchorage home continued to rise in the first quarter of 2007. Statistics issued last week by Alaska MLS, Inc. shows an average selling price of $320,787. That's 1.92% over last year's average.

Prices hovered just above and below $300,000 during the last half of last year, ending at $310,132 with the December sales reports.

The appreciation rate for last year was 8.16%, according to updated reports that picked up sales recorded late in 2006 but not reported until this year.

That home prices are continuing to rise is interesting in light of a 7.5% decrease in the total number of sales reported in the first quarter, compared with last year's first quarter. I'm not surprised to see this decline, given the cold months of November and December, which would have been the source of sales reported closed in the first two months of 2007. I take away from this that the winter buyers were still motivated and willing to pay more, given the supply of homes.

These buyers negotiated price more assertively, however. The gap between the last price a property was listed for in the first quarter, and what it sold for in the first quarter, compared with the first quarter of last year, increased from 0.74% to about 2.59%.

This means that even with more price negotiation taking place, values in 2007 are continuing to increase, and at about the same rate as last year. The appreciation rate is only about 2/3 the rate of the first years of the current decade. But it's two to three times the rate of price inflation during all the 1990's.

That there is more price negotiation squares with an increase in the average selling time of Anchorage homes from 49 days to 73 days, first-quarter '06 compared with '07 . Sellers used to hearing about quick sales in recent years get nervous after two months and are more willing to negotiate. Buyers, driven in part by negative press about real estate issues in the Lower 48, have been pressing their offers harder, too.

A final factor in this price escalation is inventory. I wrote you last fall to report that the inventory of homes for sale had increased to about 1200. That followed several years of about half as many or fewer homes for sale. This chronic shortage was a major factor in the higher rates of price appreciation in the 2001-2005 years.

Last fall I was quick to say that 1200 homes for sale, while headline grabbing at the time, hardly represented a "glut". All through the 1990's we typically had 1300-1400 homes for sale, and then a smaller population base and lower total housing unit count.

My other observation last fall was that a substantial number of the 1200 homes for sale consisted of what I called the "wanna-be seller". This is the household that was saying "gosh, if my home is worth that much, maybe I'd be willing to move". That wished-for price was often 'way above-market and produced a listing I believed would never sell.

As I predicted, those wanna-be's didn't sell, and dropped out of the market over the winter. I foresaw an inventory decline to about 2/3 of then-prevailing levels. That prediction proved right-on: the September count dropped from 1234 to 855 at the end of the year. As of the end of March the total inventory of new and resale homes stood at 933.

To summarize:
  • We have a normal market, one that is stronger and more healthy than some markets outside Alaska that are correcting after a period of intense speculation -- and even fraud -- that we did not experience.
  • The market is somewhat stronger than what we considered "normal" through the 1990's. It might normalize somewhat further toward those levels as the year goes on.
  • The 2000-2005 market, while go-go by Alaska standards, still lagged many Lower-48 markets. Today an average home is closer in price to the average US home: we aren't a high-cost market by comparison with at least half of the rest of the country.
  • A seller today, given longer selling times, should plan a measure of patience in the marketing plan. When prices are rising, one doesn't have to panic if there isn't an offer on the property in the first month. Be prepared to compromise more in the eventual negotiation, however.
  • The buyer who waits to make a purchase, thinking wrong-headedly that "prices will continue to fall" will end up paying more later this year, or next year. Rising interest rates will compound that higher cost of home ownership for these shy home buyers.

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