Building lot sales are an indication of the amount of future growth in an area.  If you are going to build a new construction home, you will need to have a lot.

While new construction is a significant portion of the total market, land sales have dropped off faster than has new home building.

Here are the numbers for lot sales for the first 4 months of 2006–2008.  These statistics are for the Palmer-Wasilla Core area.

Here is what I think is going on.  You will notice that while the smaller lot median prices have dropped by almost 50%, the larger acre sized building lots have not seen a significant median price drop.  

The speculative building boom has stopped.  Most of the speculative building was happening on the smaller lots.  There still are bunches of these lots out there waiting for the next boom.  Bankers are not loaning on specs.  They want the builder to have a buyer lined up.  Even then, they generally want the builder to front a larger part of the project. 

When a buyer is in the picture ahead of time, they are opting for the larger lots.  They are turning to the acre plus sized lots for their new home.  They know they are paying a little more for the total package but the difference is not much in comparison to the total cost of the project.

The two largest builders are doing most of their work on their own lots.  Since they already own the lots, they don’t show up in the lot statistics even though a new house sale does hit the books.  These two builders are Hall Quality Homes and Spinell Homes.  

So the development boom in the Mat-Su valley is at a pause.  Growth is not over because the Mat-Su is the place to go in Alaska.  But we have enough empty lots for awhile and we need to fill them up with houses before we develop more.  If you are planning to make your killing developing subdivisions, I would wait for a more opportune time.

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In Wasilla and Palmer, new construction homes still have a large share of the real estate market.  I have been noticing quite a few new houses in the closed sales list every week so decided to take a look at the numbers…here they are.

First lets look at the whole Palmer Wasilla real estate market.

In 2007 for the first 3 1/2 months of the year there were 336 homes sold compared to 245 homes sold in the same period this year.  That is a significant reduction in volume.  Obviously, there are fewer buyers this year.  These fewer buyers have a greater selection. 

In addition, the median price of the sold homes dropped from $213,260 down to $204,675 for this same time period.  The median price is different than the average price and is not skewed by a few very high end sales. 

Now lets look at the new construction market.

In 2007 there were 124 new homes sold in the first 3 1/2 months of the year.  This was almost 37% of the market at the time.  This year 78 new homes were sold to equal about 32% of this years market. 

It is interesting to note that the median price of new construction stayed essentially equal.  In  2007 it was $231,100 compared to $231,300 this year.  Building costs have increased in the last year, but builders have cut some of their profit, and buyers have moderated their expectations so that prices remained the same.

Serious sellers are still selling their homes. Pretty much the only people who are selling right now are the ones who really need to sell.  A lot of  people are holding on to their homes in anticipation of a future price increase if gas line talks result in real progress.

I update a list every week or so that I call my motivated sellers list.  I cannot post this on the web because of MLS rules, but I can email it to you.  If you would like to receive this just send me an email asking for the motivated sellers list by clicking on my contact link above right.

The data above was taken from the Alaska MLS system.  Please see their disclaimer below.

 AlaskaMLS disclaimer…“This representation is based in whole or in part on data supplied by, and to, the subscribers of Alaska Multiple Listing Service, Inc. (AK MLS, Inc.). AK MLS, Inc. does not guarantee nor is it in any way responsible for its accuracy. Data maintained by AK MLS, Inc. is for its own use and may not reflect all real estate activity in the market. “

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Neal Fried, an economist with the State of Alaska recently gave a presentation on the Matanuska-Susitna Borough’s economy.  All the slides in this post are from Neal.  They are all thumbnails, just click to expand.

As the chart to the left shows, the economy in the Mat-Su has enjoyed more than a decade of uninterrupted growth. 

The valley’s population grew at a much faster rate than any other part of the state.  Certain portions of the valley have had huge increases in population.  The Knik-Fairview area is not a town or a community, it is just the populated area to the West and South of Wasilla.   As you can see, it grew by 74% in the last 6 years.

Many more people move to the Valley than they do to Anchorage.  The Mat-Su is still dependent on Anchorage since more than 30% of the valley work force commutes to Anchorage for jobs.  The primary reason people live in the valley is because of housing. 

House prices are almost 30% lower in the Mat-Su Valley compared to Anchorage.  In addition, not only do you get more house for your money, you also get a larger lot.  Anchorage has a shortage of land whereas the Mat-Su Valley still has a surplus.  When you buy a house in the Mat-Su, you normally get about one acre, or perhaps 1/2 acre if you purchase in a subdivision with community water.

Things are not all rosy however.  The new construction real estate market has slowed considerably.  As you can see, there was a significant job loss in the construction industry.  We still do have new homes being built and sold, but not nearly as much as in 2004–2005.  For example, out of the 689 homes on the market as of today, 98 of them are new or under construction.  Three years ago, that number would have been closer to 200.

As I keep saying, it all comes back to oil.  Until we figure out some other way to make a living in our great state, oil will call the shots.  And as the chart shows, we better start thinking because production is declining.  Terrence Cole, Alaskan Historian, said, “The balance sheet of Alaskan History is simple: One Prudhoe Bay is worth more in real dollars than everything that has been dug out, cut down, caught or killed in Alaska since the beginning of time.”

Even though production is declining, oil patch employment is up.  That is likely because of the high oil prices.  Companies are exploring and developing more marginal fields.  I hear rumors of completely new oil fields being explored.  But I haven’t heard any rumors of a Prudhoe Bay sized discovery. 

If the oil prices stay high our economy will probably get by in the near future.  We will have to do without as many federal dollars and a weaker construction industry, but we shouldn’t worry too much about a crash caused by Alaskan based calamities.  The global economy is out of out control.

As today’s Monday Market Memo shows…real estate activity is picking up for the spring.  This is the time to get your house on the market.  Give me a call if you would like more information on our consulting model for real estate sales…it can save you thousands.

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This beautiful sunrise photo was taken just outside the RE/MAX of Wasilla office about a month ago.  I’m not sure if the real estate sun is rising as well, but Countrywide Home Mortgage apparently feels that Alaska real estate is among the lowest risks in the country.

Countrywide recently published a list of soft markets across the country.  Over 1,000 counties were rated high risk, (a 5), down to the lowest risk, (a 1).  The Anchorage, Mat-Su, and Fairbanks boroughs were all rated a 1 on this list.  Click here to download the pdf document from blownmortgage.com

Just because Countrywide says it doesn’t mean that it’s true, but I do agree that the Alaska economy is somewhat independent.  Since we are primarily an oil economy, a mini-Saudi Arabia, our economy is more dependent on the price and production of oil than on any other economic activity.  However, we don’t have a seemingly unlimited supply as does that desert country.  Our production is slowly ebbing and we need to do something to replace that part of our economy.

The average sales price for all of 2004–2007 is shown in the chart to the left.  As you can see, we had a big jump in prices between 2004 to 2005 and after then the increase has been more modest.  Most appraisers seem to think that the prices are holding steady or slightly increasing.

It does appear however, that prices are weakest in the high price ranges. Those would be the prices above $350,000.   Sellers need to price their homes competitively in any price range, but the higher the price, the stiffer the competition.

For more detailed info, feel free to call me on my cell phone at 907 232–7900.

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We have seen quite an increase in prices over the last seven years.  Below, are the figures from the MLS system that show many more homes sold this year compared to 2000 and at a much higher price. 

Notice that the average days on the market for sales in 2000 was 140 days.  This year so far it has been only 77 days.  Of course the average days on the market for the entire inventory in general is much longer than that.  Many of those homes will never sell.

If you average the total increase in median value over the last five years it comes to about 7 1/2 % per year.  That is tame compared to some of the areas of the country with huge increases.  Some of the large West Coast cities saw single year increases of more than 40%.  Some of these same cities are currently experiencing decreasing home prices of about the same magnitude.

Here are the prices from 2000 and from 2007.

Jan 1, 2000–Oct16, 2000  560 sales, Median price $130,058   140 dom

Jan 1, 2007–Oct 16, 2007  977 sales, Median price $217,500    77 dom

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For the second week in a row the pending sales price has averaged less than $200,000.  This is where the most market activity is taking place.

There are quite a few builders targeting the below $200,000 market so a good amount of the pending sales are new construction.  We have represented a lot buyers with new construction in this price bracket this year.  We can help you find a builder from this price on up to this house we recently pended on Hart Lake. 

The total inventory rose a little this week.  It should begin to decline as we enter the snowy season.  The buyers that are still in the market during the winter will be starved for new listings so you may want to think about entering the market when most people are not.

Give me a call on my cell to discuss your personal selling and buying strategies.  907 232–7900.

I will actually sit down to discuss your real estate needs, we try to help you, not sell you.

Real Estate Consulting…or Real Estate Selling?

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An important guage of housing prices in any area is a comparison of the average sales price to the average income in the area.

The closest figure I could find was $56,084 as a median income for the Matanuska-Susitna Borough as a whole in 2004. So I am making a couple of assumptions to come up with a working figure.  First, I assume that the household income is higher now than in 2004 and, second, that it is higher in Wasilla and Palmer than in the whole borough. 

Let’s use $60,000 for an average household income, I think that it is a reasonable number…plus, it’s nice and round.  For you in the Mensa Society, I do realize that median and average are two different things. 

$60,000 divides nicely into $5000 of income per month.  If we use the old standard that your monthly housing payments, (PITI), should be 30% of your monthly income or less, that leaves $1,500 per month to pay your Principle, Interest, Taxes, and Insurance, (PITI).  This 30% standard has been stretched in recent years but it is a good safe standard to use.  Pushing beyond that amount often puts people into financial difficulty.

Taxes are running at about 13 mils which equates to $1,300 for every $100,000 of assessed value, or about $2,990 for the average Wasilla-Palmer home.  You can check out the taxes on any particular house on the Mat-Su Borough website. 

As you can see from the following two charts, (click on them to expand), the average sales price for Wasilla and Palmer is about $230,000

.

You should be able to get insurance for about $900 per year for an average house in Wasilla or Palmer. 

That equals $3,890 for taxes and insurance…plug it in to the mortgage calculator in the right column.  You need to put the total amount for taxes and insurance in the tax slot.

The default on the calculator is 6.5% interest on a 30 year fixed loan.  Don’t choose anything but a fixed loan unless your have very good reasons for doing so.  You might be able to get a little better than 6.5% if you shop around.  I mentioned an attractive quote just the other day in this post.

That equals a monthly PITI of $1770.93…oops…a little high.  If you get 6% interest you can get it down to $1703.14 but you are still high.  Play around with the mortgage calculator and you can find a price that equates to our magic 30% of monthly income figure of $1,500 per month.

Depending on how you play with the numbers the average price for the average household should be between $190,000–$200,000.  Hmmm…no wonder most of the sales are under $200,000.  But we certainly aren’t as high on the affordability scale as many parts of the country are.  A starter home in Los Angeles for example is higher than $500,000 with an average household income of only $75,000.  No wonder their prices are coming down to reality so quickly.

Can you get a house in Palmer or Wasilla for $200,000?  You certainly can.  Jay and I recently did a final walk-through on a just completed brand new three bedroom, two car garage home that we recently helped someone buy in Palmer for only $175,000.  We both commented on how nice a home it was for the price.

Here’s a nice one on one acre for $179,900.  You can get a lot of house for less than $200,000. 

Give me a call on my cell (907) 232–7900 if you need help finding a home.

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Or dollars as the case may be.

First I should tell you that most of the 31 duplexes currently on the Wasilla real estate market do not cash flow.

Cash flow means that after you collect your monthly rent and pay your monthly expenses, you still have at least a dollar in your pocket. Hopefully you have a few hundred dollars.

Most of the duplexes on the market today will cost you money at the end of every month unless you use a very large down payment to decrease your loan amount and your payment.

Here is the situation.

Purchase price, $250,000 Monthly with rents totalling $1,000 per side.

• 5% down = $12,500 which results in a loan for $237,500
• At 6.5% interest for 30 years you have a P&I of $1,501.16
• With $3,000 annual taxes and $1,200 annual insurance your PITI is $1,851.16
• Garbage pickup=$30 per month
• Maintenance Costs = $200 per month
• Management Fee = $200 per month, ( you need to figure this in even if you self-manage)
• Vacancy rate $100 per month (that’s a five percent vacancy rate)

Total costs so far = $2,381.16. 

So you are going into the hole at a rate of $381.16 per month.  There are other hidden cost which inevitably come back to bite that aren’t figured into this.

So How does it make sense?  (Or cents)

…Well let’s try this!

You are someone who only wants to pay about $150,000 or less for a home.  You look on the market and really can’t find anything that you like for a home in that price range.  So you get the bright idea of buying a duplex and living in one side.

Let’s compare the cost of a $150,000 house to a $250,000 duplex:

•  With 5% down you have a loan of $142,500 on the house
• At 6.5% interest for 30 years thats a PI of $900.70
• Add taxes and insurance and you are at a $1,150.70 PITI
• Figure garbage and maintenance at $220 per month

That comes to a total monthly cost of about $1,370 or so.  We left utilities out of the equation since you will be paying them in the duplex as well. 

If you move into the duplex and pay the $1,000 rent to yourself and absorb the $381.16 cents negative cash flow you are about breaking even. 

So…Duplexes only make sense under one circumstance:

You have put down a large enough deposit to reduce your loan payment down to a level where the duplex will cash flow. 

In the first example of the $250,000 duplex, we need to reduce the loan payment by $381.  That means you would need to put down $75,000.  That would give you a loan of $175,000 and you would have $14 in your pocket after paying your bills each month.

Occasionally duplexes come one the market that actually produce income with a minimal down.  I sold 2 like that this year.  But most of the time they do not and that is why there is 31 months worth of inventory on the market right now.

PS…09/08/07…I have had a couple people contact me privately with some disagreements or corrections to this post.  I can add an appendix if I need to but if you think I’m nuts, go ahead and comment.…

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I thought I’d put a little dose of reality out there for Wasilla area real estate.  There is a lot of bad news out there and a lot of it truly is ugly. 

If you only like to read the ugly stuff, here is some for today

•  Alaskan mortgage manager goes to jail, (thanks to Raney Hardman, REMAX of Eagle River for the link).
• The sub-prime/Hedge fund connection
• Wells Fargo drops 100% financing

The Wells Fargo link doesn’t clarify whether this effects us in Alaska.  Perhaps one of the local people can chime in on that.

But, the good news is…we still had 135 single family residential closings this month.  That’s down from last year, but it isn’t a crash by any means. 

The homes that sell have to be priced very competitively.

Here are the numbers

• August 2007, 135 closings, Average price of $221,442, 67 days on the market.
• August 2006, 143 closings  Average price of $228,251, 64 days on the market.

As I mentioned in a previous post, this data is from Alaska MLS and the true difference between this year and last year is likely a little worse than this…but not a lot worse.

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I have been working for awhile trying to come up with some good statistics to show where we are for the summer.  But it has been frustrating trying to find good statistics.

I have been trying to compare this summer beginning on May 1st until today to the same time frame last year.  But I haven’t been able to do that completely. 

The chart above from Alaska MLS purports to do that.  And they are doing it the best they can with the information that they have. 

I have also tried to do it with the Valley MLS system and I came up with completely different numbers…

Here they are:….

AKMLS shows a total of 285 single family residences sold in the core Wasilla area in the summer of 2006 compared to 262 this summer.  That is a decrease of about 8%. 

Valley MLS shows a total of 386 single family residences sold in exactly the same are during exactly the same time frame in 2006 compared to 293 this year.  That is a decrease of almost 25%.

The problem is that the data is very likely skewed.  There are more licensees inputting data in AKMLS this summer compared to last summer which makes the decrease smaller than it really is.  And there are fewer licensees inputting data into the Valley MLS this summer compared to last making that decrease larger than it really is.

 I believe that the accurate number is somewhere between the two and is likely about a 20% decrease in number of units sold this summer compared to last summer. 

I’m going to be meeting with computer whiz Ray Wood of Prudential Vista sometime in the next week to try to get accurate figures.  We’ll see how close my guess of 20% is. 

What we don’t know is if there are real value decreases.  I suspect that there are, but they are hard to show right now.  Values do not seem to have dropped significantly compared to last year but I don’t have hard data to back up that statement.  I discussed this recently with Appraiser Bill Johansen who said that appraisers are not yet showing a negative value adjustment.  We will try to get some numbers on that as well.

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