Friday, July 22, 2011

Moving Up to a Better Home? Watch for Bargains This Fall!

If you live in an older home that's not meeting your needs, this fall may be a great time to upgrade. Signs are developing in some market segments that bargains will appear.

Price and value have everything to do with supply and demand, as we all know. So look for value in market segments where there is an excess of supply and weak demand. If one of those market segments has the type of home you want, your timing is fortunate.

Your timing couldn't be better as to the cost of your mortgage loan. Interest rates are still at at historic lows. (How the US handles its debt issues and how bond markets respond could drive the cost of borrowing higher very soon, however.) The interest rate of your loan can affect your cost of homeownership far more than the price you pay for a property. The take-away these days is to corral as much cheap mortgage money as your comfort level and overall financial picture permits.

If you want to move this fall, now is when you need to see your mortgage banker. Moving up is not as easy as it used to be. The bank is going to want to know what you are doing with your present home. You might not want to sell it and have to be out not knowing where you are going to live next. And no seller will pay attention to you if you make an offer asking the seller to wait for your home to sell. So if you are keeping your home, the lender is going to look at how much equity you have in it. And, they will want you to qualify for that payment, as well as the payment on your next home. And, the lender may want you to make a large down payment on that next home. And, after all that cash commitment, the lender may still want to look at how much money you have left in reserve, such as in retirement accounts and other savings and investments.

So see your banker now. You must have that financial plan in place before you shop. You won't have the luxury of figuring out how you are going to pay for that next home when the opportunity presents itself.

Assuming you and your banker have comfort with each other, where are bargains? That's the "excess-supply-weak-demand" formula. And this fall it's possible that the kinds of homes that many local homeowners would choose for a move up are going to be in their sights.

These homes are often owned by people whose employers move them around regularly. They are in Anchorage for three or four years, then it's back to Lower 48, or overseas. These same employers give them financial incentives in the form of cash payments to get their homes sold. That gives them an edge on the market, enabling them to price their homes aggressively.

Another employee benefit can be the employer's promise to acquire the home if it doesn't sell. When that happens, the employer's third-party relocation service provider puts the home back on the market as an "inventory property".

If this fall market develops as I believe it might, the bargains will be the alignment of three stars that explain weak demand and excess supply.

This summer we are seeing the usual transfers of corporate employees out of Anchorage. It's not "last one out turn off the lights". Just normal activity. That's the first star. 

The oversupply would develop because of weak demand. Second star: not as many corporate transfers into Alaska appear as would be required to purchase the homes of those who are leaving.

Third star: because of tighter financing requirements for local upgraders -- that's why I want you to see your banker now -- many Anchorage homeowners can't afford to move into one of those homes. Fewer buyers explains weak demand.

If those stars align as I believe they could this fall, and you are prepared with your financing plan, you could be very pleased at the prices of some of the homes. A corporate seller, for instance, is not going to want to keep an inventory property over the winter. It will be priced for a very prompt sale. When it is, you won't have long to react. At the right price, no matter how weak the demand, anything will sell. If you are ready, you will benefit before the next folks.

For full property searches, virtual tours and many other Anchorage real estate resources, visit

Are Foreclosures a Good Deal?

People often begin a home search saying "I want to buy a foreclosure". What's really meant is "I want a good deal". So what constitutes a "good deal"?

That may depend on how you define the phrase. Sales hype sometimes uses phrases like "below market". To me that's silly. "Market" is the price that willing sellers and buyers who are not under duress will agree. "Unexpected" might be the better word for a price that seems low.

Foreclosures sometimes seem priced unexpectedly low. But there's a reason the market will pay less for these properties. Usually it's condition. A homeowner being foreclosed on is hardly going to leave a home staged for optimal showing. I've seen far worse: on the way out the door an angry homeowner has been known to take a sledge hammer to the place. I'm in the premarketing stage on one where the bid to trash out the place is $12,500!

Sometimes the property is in such poor condition that no bank will finance it. When you see a home with a tax-assessed value of $250,000 being offered for $175,000 that's usually the situation. You have to write a check for the whole price. And, have the additional cash to fix the place. There can be an opportunity in that. If you have that kind of financial depth, and repair skills, you could profit when you resell it.

Even when a foreclosure will qualify for financing there's a market discount associated with simply being a bank-owned property. It's like the kind of stigma that sometimes attaches to a home that has been a crime scene, or is close to commercial development. The discount isn't much in the Anchorage market, perhaps 10%-15%. Lenders would prefer that it not be disclosed that their property is bank-owned, but at present Alaska MLS requires its members to check the box that says it's a foreclosure.

That market discount is not without logic, however. It's just generally true that an institutionally-owned property is often cosmetically that much (maybe 10%-15%) below the standard that most private owners offer. You can buy a foreclosure for less, but if your tastes are like most people you'll be spending as much or more of the difference when you make improvements.

So, yes, foreclosures can be a good deal. If fun for you is playing with your home, go for it.

Yet when you start your search, don't limit your consideration to bank-owned homes. Alaska has one of the lowest foreclosure rates in the nation, which explains our stable market. (See the blog post immediately below this one.) There aren't a lot of foreclosures. Keep your search broad. Focus on all the homes that show some potential for meeting your needs. As you narrow the search you'll form opinions you can trust about which ones represent the best value. Or, "good deal" as you might define the phrase for yourself.

For full property searches, virtual tours and many other Anchorage real estate resources, visit

"Normal" is Good in Anchorage Market

Anchorage home prices doubled in a ten-year period from the late 1990’s. In 1997 the average sales price was about $160,000. Residential prices settled in the mid-$320,000 range in 2007 and have stayed there since. We have become accustomed to "normal" while many markets in the Lower 48 and Hawaii have cratered.

The average sale price for the first half of 2011 was $323,914. What about the first six months of last year?

The first half of 2010 was a market driven by a Federal tax incentive of up to $8000 for first-time home buyers and others. Anchorage prices rose slightly as a result. This year prices have retreated 2.5% to about the same level as the previous three years. It's back to "normal" this year.

Our condo market enjoyed a similar surge in sales in the first half of last year, with close to 120 properties per month sold in the second quarter. The norm is about 80. Prices remained stable, in the $190,000 range. The average selling price for the first six months of this year was $196,489.

The number of residential properties sold annually in the first six months of the past four years has been about 25% below the rate of sales during the seven prior years, beginning in 2001. This year has seen 1030 homes sold through June. That’s 8.5% fewer than the 1126 sold in 2010, which was fueled by the tax-credit. This year exceeds 2009, however, which had only 998 sales. Earlier in the decade, the first half sales rate was between 1400 and 1500.

Strong demand and many sales early in the last decade played beside insufficient new home construction. A shortage developed, with fewer than 700 homes for sale being the norm for about six years. In the past four years, by contrast, inventory has returned to historic levels that exceed 1000 in most months. At the end of June this year there were 1120 homes for sale, close to the average of the prior four years.

Comparing the number of homes for sale with the rate of sales per month is another way to consider housing availability. A balanced market has about six months’ worth of homes for sale. Lighter inventory means sellers have an edge. Buyers enjoy an advantage when there is more than six months’ supply. The chart to the left shows how Anchorage is a seller’s market up to about $400,000, with buyers having more bargaining power in the upper-middle and higher price ranges. Condo supply, as shown on the last line, has increased after last year’s strong absorption that was due to tax credit sales.

There are early signs of weakness developing in the market this summer. The number of new (pending) sales reported in June was somewhat below historic norms for the month. Homes have taken longer to sell, 76 days during the first half of this year compared with 65 days last year. There were only 74 pending condo sales this June, where the norm has been closer to 100 in that month.

For full property searches, virtual tours and many other Anchorage real estate resources, visit