‘We Could Be Overbuilding’ In Alaska
A pair of rare reports on housing in Alaska. “Homer was rich in modest homes on a couple acres of land for prices the average Homer wage-earner could afford. The tide began to shift in the late ’90s. The average sales price of a Homer-area home crept upward from $119,000 in 1999 to $132,000 in 2002. In 2003, that number jumped nearly 8.5 percent, and by last year, it had soared to $190,000.”
“In some areas of Homer, the leap was even more dramatic. What cost $136,000 in 2002 was suddenly worth $215,500 in 2005.”
“While home prices have risen dramatically, wages have not. The average household income in the Kenai Peninsula Borough in 1999 was between $40,000 and $50,000. A retiree who just sold a home in California ma be able to afford those prices, but the average Homer resident still can not.”
“Census figures show an increase in residents with those kinds of bankrolls, but the vast majority remain well below such income ranges.”
The Alaska Journal. “Still growing, but slowing, best describes residential real estate sales in the Matanuska Valley, which have cooled a bit in the wake of a surge of development. ‘It’s common knowledge that there are more active listings of real estate than there were at the same time last year, but the cause of that is somewhat in question,’ said banker Taka Tsukada.”
“‘The market has changed,’ Anchorage demographics consultant Sue Fison said. ‘It’s the affordability issue.’ Those families who could qualify financially for a certain-sized home a year ago may not qualify now, she said.”
“Another real estate agent selling property in the same subdivision had a different vision of the market, saying several builders constructed homes on speculation last year.”
“One prominent developer, Chuck Spinelli, acknowledged that the market has slowed down considerably, probably by 25 percent. ‘It’s a mystery,’ Spinelli said. ‘It probably had a little to do with (rising) interest rates, gas prices, and might have a lot to do with the number of unlicensed residential contractors operating out here.’”
“Builder Dennis Byler said he hasn’t noticed any overbuilding in multi-family housing. While the number of large ‘for rent’ signs continue to increase around these properties, Byler said he is not getting any feedback from his customers that they are having trouble renting what they bought from his company. ‘I’m building another duplex right now,’ Byler said.”
“(Homebuilder) Jess Hall was less enthusiastic. ‘We are seeing a slowdown in the market this year compared to the last few years,’ he said. ‘We could be overbuilding, but it’s hard to tell,’ Hall said. ‘We don’t have a permit process,’ which makes it hard to determine just how many new homes are building built, he said.”
Alaska may be like Canada; a short term shortage of labor combined with outside money may drive prices up, but eventually the abundance of land and material will force an equilibrium with incomes. Check out this realtor from the Kenai article:
‘Still, home ownership on the Southern Peninsula is not unattainable for those who are patient and creative, real-estate professionals said. Whitney said that while the Homer home with the Kachemak Bay view may now be out of reach to all but the well-to-do, a 15 to 30 minute commute is hardly a big sacrifice by a national standards, and the outlying communities where homes are affordable have much to offer.’
‘That is not a bad thing - people having to move out of Homer,’ she said. ‘There’s a lot to be said for those areas. Every place you live in is special.’
My guess: As in western Canada, the commodities bubble is spilling over into Alaska’s housing market. Any opinions?
It is.
we truly are running out of land in Alaska. Even more so in California. Just do a flyover, and one will be wondering where all of the settlements are.
I remember hearing in school (so a few yrs back). If every family in the world was given 1 acre of land, we could fit the population of the entire world within Alaska. And most of us live on plots much smaller homesites.
Area of alaska; 571 951 square mile = 366 048 640 acre
World pop; 6.5 billion
Speaking of out of the way Little Siberia type places, check this out. Is this ad in Phoenix, San Diego, Boston?
Nope. Sioux City, South Dakota. Does anyone there make 1400 a year much less a month? Amazing.
http://sd.craigslist.org/apa/176570743.html
Same Old Story.
It is. But isn’t it a remarkable coincidence that the big run up in home prices started and continued at about the same time, all over the country? Even on the Kenai peninsula.
I liken it to a larger-than-usual tsunami, which runs inland far more than the typical case.
Home price inflation is nothing more than the result of monetary inflation. I just don’t understand why people don’t want cheap housing. People hate expensive gas and food, yet love expensive housing!! Most of this is the result of monetary inflation.
The simple explanation is that houses represent investment goods — big ticket items which provide a service flow over time at a relatively low ongoing cost compared to their purchase price — while food and gasoline are consumption goods — buy it now, consume it this week.
If I buy a house, and houses subsequently go up in price relative to gas and food, then I can sell my house later on for a capital gain, or else use the housing ATM to fund current consumption out of my home equity gains. Since most of us (with the possible exception of the Mormons in the audience) do not have a long-term store of food or fuel on hand, an increase in their costs relative to a household’s income and savings budget constraint represents a loss of future consumption potential.
:People hate expensive gas and food, yet love expensive housing!! Most of this is the result of monetary inflation.
Sad but true.
When the concept of property as an asset class comes apart, then all hell will break loose.
America’s Siberia is the last place in the world where there should be a housing bubble. The oil rich Deadhorse/Purdoe Bay region already has plenty of residential units for temp workers.
My comment wasn’t meant to be flip or dismissive. I am just tired of the the SOS repeated from every corner of the US and, seemingly, every corner of the first world. Will it be that everyone gets horribly burned by this bubble?
In my little corner we are seeing sales of SFH at prices 25% over last year. The water cooler talk is the usual buy-now-or-face-higher-payments-tomorrow…. And the hourly employees are jumping in. Plus, it’s Summer, the weather’s fine and there are tourists with equity driving around looking for bargains.
The Ponzi scheme continues.
Colorado?
this is one of the most extreme bubble areas in the nation
yikes!
If I had abundant cash I would choose the Kenai Peninsula as one of my places to live. I used to dream as i drove past the bluff and saw the for sale signs back in 1994. Summertime. I loved the area and named my wolfdog after the place.
There is no national/international housing bubble here, move on people there is nothing to see.
D. Lereah 2006
I already knew this. Waiting2LoseMoney reminded us all just yesterday.
Yeah, I saw those comments. Pretty funny.
LMAO!
“In some areas of Homer, the leap was even more dramatic. What cost $136,000 in 2002 was suddenly worth $215,500 in 2005.”
That is some pretty good appreciation. I will have to point this out to my hairdresser, who is looking for a more affordable market to invest in than San Diego.
The cost of living in Alaska is very high, as one might suspect. And factor in transportation costs to every family who flies to the “mainland” or even the interior…going to visit Grandma is a multi-thousand $$$ endeavor. It’s not easy living in Alaska, and it’s really all about a lifestyle choice.
While it’s beautiful, it’s very very expensive, aside from real estate…I’m even a little shocked with the reports Ben put up.
It is expensive; I was surprised at the pay being so low on Kenai.
I found the suzanne commercial, hysterical.
Suzanne Researched This Commercial(Video)
Every time I see it I get sick to my stomach.
“We can do this”
Not, “we can afford this”
Not, “this is a good deal for us”
Its… It can be done…
I 2nd the motion that this induces illness…
Neil
I wonder if they are talking about houses with or without siding. There are all kinds of wierd little compounds with plywood sided, self-built facsimilies of ranch houses.
$190k to live by the Clampetts and have 4 hours of daylight? No thanks. They are out of their minds if they think Californians can hack it up there.
Now, $30k, we might have a deal…
“In some areas of Homer, the leap was even more dramatic. What cost $136,000 in 2002 was suddenly worth $215,500 in 2005.”
Folks become mesmerized by the absolute dollar appreciation without figuring the rate of appreciation. In this case, the rate of appreciation works out to 16.6% unadjusted for expenses or leverage. A remarkable three years, but not overwhelming in comparison to the halcyon periods of other asset classes.
Well, Homer won’t be as overbuilt as Whittier any time soon. : -)
Anyone who would even think of moving from the lower 48 to Alaska needs to watch the movie “Insomnia.” Might be the most beautiful place on Earth, but that doesn’t mean you want to live there. Also, what the heck would the local economy in Homer be based upon? Fishing boats? Tourism? Oil industry? Not exactly the stuff McMansions are made of.