By Tim Bradner
Alaska Journal of Commerce

Alaska's real estate markets are stable, although they are cooling from the go-go years from 2004 to 2007, according to the head of Alaska House Finance Corp.

"We're not seeing anything that concerns us," said Dan Fauske, CEO of the housing corporation, told the House Special Committee on Economic Development, Trade and Tourism in Juneau Feb. 17.

September 2008 data, the latest available to AHFC, showed average sales prices stable in Anchorage and the Matanuska-Susitna Borough, and slightly up in Fairbanks, Kenai and Kodiak. Delinquency and foreclosure rates are small compared to national figures.

"New housing construction is slow but contractors and subcontractors are busy with remodeling," Fauske said.

The state is pumping several hundred million dollars into the economy for weatherization and home conservation measures, and that is also helping, he said.

Things are a lot different in the Lower 48. "It's a collapse brought on by excessive speculation and an incredible lack of oversight," by banks and regulators, Fauske told legislators. "The defaults in high-risk sub-prime mortgages started a cycle of depreciation in home values," that is now dragging down the economy, he said.

Fauske faulted borrowers and lenders for sheer greed.

Alaska isn't alone among states that are in better shape, Fauske said. There are many area in the South and Midwest where conditions are better. The problems are concentrated in a few places, such as the Southwest, he said.

Luckily, only a few Alaska banks dabbled in sub-prime home mortgages and AHFC has none in its portfolio.

"We were under a great deal of pressure to get involved in the sub-prime market and people actually got angry with us," Fauske said. "Now they look at us and wonder how we saw something they didn't see."

The upshot is that Alaska's delinquency rates of 2.66 percent on home loans were less than half the 6.99 percent national average at the end of the third quarter of 2008, the latest data available to AHFC. Delinquencies in the state housing corporation's portfolio were even lower, at 2.29 percent, he said.

The housing corporation has been monitoring delinquencies, foreclosure rates and real estate sales through the fourth quarter but has detected no changes in trends, Fauske said.

There is little doubt the market is slowing, however. Third quarter data shows home sales down 20 percent in Anchorage and the Mat-Su, 13 percent down in Fairbanks and 17 percent down in Kenai.

"We see this as the market cooling to what we would describe as a 'moderate' compared with a 'hot' market that prevailed from 1999 through 2005," Fauske said. "There were times in 2004 when you could almost sell your house while walking out to get the mail."

AHFC doesn't have a lot of data for Southeast communities, but Fauske said housing is always tight - and expensive - in Juneau. Vacancy rates for rental units are often at zero to 1 percent. But most of the remaining buildable land in Juneau is owned by the local municipality, Fauske said.

"There's not a lot we can do in creating affordable housing for Juneau until the city does something about that," in terms of making land available, Fauske said.

Ketchikan's economy and real estate market appears stable after several years of severe difficulty when Ketchikan Pulp Co. closed its mill there. Development of the shipyard and other industrial activity in Ketchikan has helped stabilize the community.

Despite Alaska's strengths, the problems of the national economy are having their effects. Banks in Alaska have money to lend but they are tightening credit for home buyers and home builders. New lending guidelines discourage speculative building or building on land a developer doesn't own.

"It's tougher to get loans but that's not a bad thing," Fauske said. "The years of being able to buy homes with no down payment are gone."

Fauske is also concerned about consumer confidence in Alaska being eroded by a barrage of bad economic news from others states. Last fall AHFC sponsored an advertising campaign, "Built to Last," aimed at shoring up confidence among consumers in the Alaska real estate market.

Alaska Housing Finance Corp. is a state-owned housing development corporation that works with banks in financing residential single-family and multi-family housing.

In recent years AHFC has also been involved in financing student housing at the University of Alaska and housing for teachers in rural school districts. The corporation also owns and manages public housing for low-income Alaskans.

Years ago the state Legislature appropriated several hundred millions of dollars to give AHFC its initial endowment to undertake financing activities. The corporation pays an annual dividend to the state treasury from its earnings.

Tim Bradner can be reached at timbradner.@alaskajournal.com.

Daily Real Estate News  |   February 19, 2009

5 Tips for Homebuyers Seeking a Mortgage

Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.

"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.

Gumbinger says homebuyers should consider these things before they apply for a loan.

1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.

2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”

3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.

4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.

5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.

Source: Chicago Tribune, Mary Umberger (02/15/09)

You've had to have heard by now about the "stimulus" bill pased by the House and Senate and signed in to law by the President earlier this week. While the $15,000 home Buyer tax credit did not get approved, the House and Senate did agree on an $8,000 home Buyer tax credit. While $15,000 would have been better for Buyers, $8,000 will still be a big boost to those Buyers who have not owned a home in the last three years. Here are the details of, and what you need to know about, the home Buyer tax credit that was part of the stimulus bill that the President signed into law earlier this week.

1.  The home Buyer tax credit is equivalent to 10% of the purchase price of the home, but it is capped at $8,000 and applies only to first time home Buyers for their principal residences.  Unlike the earlier $7,500 home Buyer tax credit, this one does not have to be repaid.

2.  First time buyers defined.  For the purpose of this legislation, a “first time home buyer” is someone who hasn’t owned a principal residence for three years before buying a house.  The date of purchase is considered the day that the title is transferred.  That means if you’ve owned a vacation home, but not a principal residence within the past three years, you would still qualify for the credit. 

3.  2009 buyers only.  Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won’t be able to take advantage of it.

4.  Income limits.  The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that’s $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits. 

5.  Refundable.  Because the tax credit is “refundable,” qualified buyers can take advantage of it even if they don’t have much tax liability. In other words…unlike the $15,000 tax credit, this tax credit will be refunded to a buyer, if his year end tax liability is less than the credit.

6.  Recapture.  Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government.  Exceptions will be made in certain cases, such as death or divorce.  While the final approved tax credit was not nearly as generous or as liberal as the original Senate version, it is still better than nothing for first time home Buyers and many Buyers will be able to make a purchase.

Taken, with permission, from a newsletter I receive by e-mail.  I think this guy has his head screwed on pretty straight most of the time.

February 18, 2009
Three Peas in a Pod
Written by Jeff Thredgold, CSP, President, Thredgold Economic Associates

Economic pain in the U.S. is shared by major economic players around the globe.  Much of the developed world is also in recession, while many developing nations are reeling from soft commodity prices, declining exports, rising unemployment, and extremely volatile stock markets.

Two principal players—Europe and Japan—are in worse shape than is the U.S. As noted frequently, the U.S., Europe, and Japan are in recession simultaneously for the first time in the post-WWII period.

Europe

I have no doubt that European politicians and business leaders were laughing at America 6-12 months ago for the enormous housing and financial mess we got ourselves into. They stopped laughing last fall when the reality set in that European challenges exceeded those in the U.S.

The 16 nations sharing the euro currency saw the economy contract 1.5% (after inflation, or real) during 2008’s final quarter, when compared to the prior quarter.  The U.S. decline in the same quarter was reported at a 3.8% real annual rate.

However, apples and oranges are being compared.  The 1.5% decline in Europe results in a 6.0% real annual rate of decline, exceeding that of the U.S.

Besides severe weakness within the financial system, a major problem is exports. Export-dependent Germany, which comprises nearly half of European economic output, actually fell at a faster rate, with shrinkage of 2.1% during the October to December period. 

Japan

As recently as three months ago, the International Monetary Fund (IMF) forecast that Japan’s economy would outpace that of the U.S. and Europe in 2009. After all—so the story went—Japan had largely avoided the U.S. housing and credit bust that precipitated the global recession…whoops.

More recent IMF projections now suggest that Japan’s economy is now the weakest in the developed world, with a deeper recession underway than in the U.S. or Europe.  The IMF now suggests that Japan’s economy will shrink 2.6% this year, versus contractions of 1.6% and 2.0%, respectively, in the U.S. and Europe (bloomberg.com). 

The problems are primarily two…weak exports and a strong currency

Japan’s dependence on exports to the U.S. and around the world is a major problem in a world where economic growth and exports are in decline.  A good example is Toyota, viewed by many as the world’s premiere automaker.  Toyota management in recent weeks forecast its first loss in 70 years during 2009…and slashed production in Japan by half in the current quarter.

A stronger yen has also hurt export opportunities for the Japanese.  A roughly 20% rise in the yen’s value versus other major currencies during the past year simply makes Japanese-produced cars, electronic equipment, and most everything else more expensive around the globe.

Oil Down…Gas Up

No shortage of discussion during the past six weeks has focused on the fact that even as reported oil prices have continued to decline, gasoline prices have continued to rise.

According to AAA, U.S. gasoline prices averaged $1.96 per gallon for the regular unleaded product on February 17, 2009.  Some “experts” suggest a move toward $2.25, or higher, is likely in coming months. Wholesale gasoline prices have jumped more than 20% this year, while oil prices have fallen roughly 25%, closing near $35.00 per barrel yesterday. 

Is there a logical explanation for this?

Two Reasons

The first reason is that U.S. oil refiners have cut back on gasoline production since December.  As of February 6, the latest data available, U.S. refinery capacity was used at an 81.5% rate, the lowest level in 17 years. By comparison, refineries were running at 87.4% of capacity in early December (USA TODAY)…

…the underlying premise of economics—supply and demand—does work sometimes.  Less supply of any commodity typically means a higher price.

Why have refineries been cutting production? Most industry experts suggest that, given the sharp plunge in oil prices during 2008’s second half, refiners lost money on every gallon sold during the October to December period.

Note, however, that refineries are now profitable again. Should gasoline prices move slightly higher in coming weeks as many suggest, even as oil prices possibly stabilize, more gasoline production will likely push prices modestly lower again.

WTI vs. Brent

The second reason is the “disconnect” between the primarily reported oil prices. Most references to oil prices in the U.S. media are for the West Texas Intermediate (WTI) contract, a highly sought after light sweet crude oil that trades on the New York Mercantile Exchange.  This oil, highly preferred versus many other oils in the world that require more costly refining, typically trades at the top of global oil prices.

However, a major glut has developed in the Southwest, with U.S. crude storage at an 82-week high.  For the record, an excess supply of any commodity, especially when in one primary location, depresses the price.

By comparison, the current contract for Brent crude oil, the primary European and U.K. measure of oil prices, closed yesterday at $41.03 on the ICE Futures Exchange (cnbc.com).  This measure of oil is typically $5-$10 below the WTI contract price.

The point here is that much of the oil we use in this country—most of it imported from around the globe—is higher in price than the simple U.S. measure reported by the media would suggest…

…it’s pure economics…boring stuff at best

At last night's Girdwood Board of Supervisors meeting Agnew::Beck Consulting and Anchorage Water and Wastewater Utility presented information about an upcoming project.  Our existing wastewater treatment plant, constructed in 1978, needs to be replaced.  This is a $40M - $60M project to be paid for by all A. W. W. U. customers and could be eligible for stimulus money.  A. W. W. U. is seeking approval by this summer, with design, bid, and construction completed by 2014.  Construction is anticipated to take two years.

For more information, see the Agnew::Beck website at the end of this month at www.AgnewBeck.com .  Also look for Agnew::Beck and A. W. W. U. to make appearances at the Land Use Committee and again at the Board of Supervisors in March and/or April.

First of all, my apologies for posting this information in February and not January; we have been very busy successfully negotiating the sale of two pieces of Vacant Land and one Condo.  We just this weekend successfully negotiated the sale of another Condo that should close in the middle of March and I expect to be soon negotiating the purchase and sale of two different pieces of Vacant Land.

The Girdwood real estate market was characterized in 2008 by a drop in overall market activity.  Looking back in time, this historically happens every 3 - 4 years and last happened in 2005.  The market saw a 41% drop in reported sales from 2007 to 2008 from 81 reported sales to 48 reported sales.  The segment most affected was the Residential home segment, particularly at price points over $600,000.  I am thrilled to report that RE/MAX of Alyeska only saw a small drop in volume when compared to the market as a whole.  Our thanks go out to the many Buyers and Sellers we were able to help meet their objectives in 2008.  We are off to a solid start in 2009!

Residential:  There were 17 homes sold in 2008, versus 34 homes sold in 2007.  Days On the Market increased from 157 days to 180 days, but Sellers could expect to receive  98% of their asking price in 2008, versus 96% in 2007.  The increase in the Days On the Market reflects a transitioning market, whereas Sellers receiving a higher percentage of their asking price reflects that Sellers, who can be slow to adjust to a transitioning market, are making the adjustment.

Condominium:  There were 25 condos sold in 2008, versus 38 condos sold in 2007.  Days On the Market decreased from 135 days to 123 days, but Sellers could expect to receive 96% of their asking price in 2008, versus 97% in 2007.  Statistically speaking, not much of a change between 2007 and 2008.

Vacant Land:  There were 5 pieces of Vacant Land sold in 2008, versus 8 pieces of Vacant Land sold in 2007.  Days On the Market increased from 170 days to 242 days, but Sellers could expect to receive 98% of their asking price in 2008, versus 94% in 2007.  Looking at what sold and how many new construction homes were started in 2008, it is clear that the Vacant Land market has softened considerably.  Fortunately, Sellers are getting in line with the market by being realistic in most cases with their asking prices.  In fact there have already been two Vacant Land sales and one pending Vacant Land sale during the first six weeks of 2009.  We are also seeing an increase in the number of owner financed Vacant Land sales.  All is not lost however for those wishing to sell their Vacant Land as desirable lots are still selling; in fact, 2008 saw two Vacant Land sales in the $180,000's.

Markets are dynamic by nature.  A Seller's market does not remain a Seller's market, nor does a Buyer's market remain a Buyer's market.  Markets transition from one to the other and this transition can either happen quickly, or it can happen slowly.  Furthermore, one has to really analyze the market segment (Residential, Condominium, and Vacant Land) as well as the price point to get a true sense of what is really happening.

Regardless of segment or price point, it is clear that we are somewhere in a transition.  I believe this to be a slow transition and a transition that has been underway for several months at a relatively slow speed.  What is for sure is that the market has become very sensitive to price, condition, and location.  The other trend we are noticing is that the Buyers who are in the market are serious, ready to buy, and expect to be able to negotiate; Sellers should not misread this as a sign to over price their property expecting to come down because the market is sensitive enough that their property will be passed over.

Whether you are a Buyer or a Seller, it is a good time in our market.  Buyers have choices and interest rates on their side, while Sellers own property in a stable market.  I hesitate to make predictions, but I believe that the trends we have seen over the last several months will continue for several more months.  Critical factors affecting our market will be the price of oil and it's effect on our state economy, in-state tourism, out-of-state tourism to some effect, and the implementation of the Resort's Area Master Plan.

Chugach Electric Association approaced the Girdwood Board of Supervisors earlier this winter about upgrading and expanding their existing substation in Old Girdwood.  The upgrade would include new lower profile equipment that would increase reliability and the expansion would be to adjacent lots already owned by the Chugach Electric in order to accommodate increased demand for electricity in the future.  Chugach Electric was looking to obtain a permit in 2009 in order to construct the project in 2010.

Chugach Electric's plans were met with very stiff resistance from adjacent property owners, most of whom, if not all, purchase their property well after the construction of the substation in the 1960's.  This triggered a discussion to move the substation to another location.  Chugach Electric's representatives estimated that relocating the substation could cost as much as $3M to $5M and would likely have to be borne by the 1,620 metered locations (as much as just over $3,000 per metered location).

A subcommittee of the Girdwood Board of Supervisors, Land Use Committee, has been formed in order work with Chugach Electric Association in determining alternative sites for the substation.  It is Chugach Electric's hope that alternative sites can be recommended to them by the committee by March 15, 2009 so that they can evaluate each site and respond by May 15, 2009 with the following site specific information in order to keep the project on schedule:

• Feasibilty.
• Amount of land required.
• Overview of work.
• Estimated cost.
• Net out cost (cost of moving substation, as opposed to originally proposed upgrade and expansion).
• Estimate per-meter assessment.

For more information you may contact Jerry Reichlin, Land Use Committee President, and Dora Gropp, Chugach Electric.