No Real Estate Bubble In Alaska
I attended a presentation at Evangelos Restaurant in Wasilla by Ted Jones titled “Bubblettes and the Economy”. He is the chief economist and senior vice-president of Stewart Title Guarantee Company.
Here is the gist of my notes, I just wrote down the parts of the talk that interested me so the points do not really string together.
- Investment or speculation. If you are buying a house with the hopes of making money it is only an investment if the property will pay for itself. The house should rent for about 1% of it’s market value. If you are purchasing it with the hopes of making money because of appreciating values you aren’t investing, you are speculating. Jones says there are two new Latin words for speculators…Californian and Floridian.
- Now is the time for a fixed rate loan. The interest rate difference between a fixed rate loan and an adjustable rate loan, (an ARM), is extremely small. Yet, 21% of current mortgages are still ARMs. He blames some lenders for encouraging ARMs because they make more money on them. He says many of these are time-bomb loans because they will blow up in a few years and result in a massive increase in foreclosures.
- Interest rates will increase to 7% by the end of the year. Some economists believe the interest rate will remain at about where it is now…the low 6’s, but Jones thinks the rates will likely be close to 7% by years-end for 30 year fixed rate mortgages. If you are waiting and watching before you buy think about what that 1% will do. It will increase the monthy payment for a $200,000 loan by about $130 per month. Multiply that times 60 months, (five years), and you just payed $7,800 more for your house because you waited to buy. Of course, he could be wrong. Interest rates may go down, but no one is betting on that.
- Oil prices have not risen because of greed. They have risen because of the devaluation of the dollar. 75% of our oil is purchased from overseas. Most of the dollars we spend for overseas oil is changed into euros which have gained in value compared to the dollar. So the Saudis and others need to charge more for the oil to maintain the value.
- 79% of home buyers begin their search on the web. I am convinced that an even higher percentage of Alaskans use the web for real estate. Yet, Realtors and sellers still spend most of their money on print advertising. I am moving most of my marketing efforts to the web for this reason. I noticed long ago that I receive more from online advertising than from print media.
- Land costs are high in Alaska. Compared to the rest of the US, the cost of land here is high in relation to the total cost of building a house. The cost of land has risen much faster than the labor and materials cost to build a home. That is the reason many builders keep building homes because they need to get some return on the land that they purchased.
- Job growth in the Matanuska Valley is much higher than the national average. The growth of jobs in Alaska is significantly higher than the national average, and the growth in the Palmer and Wasilla areas is almost twice the national average. Increasing jobs means an increasing population and the need for more housing.
- We do not have a real estate bubble in Alaska. Because we did not have the huge increases in real estate prices seen in other parts of the county, we are not seeing a correction. Real estate prices may not increase like they did in 2005 but because of the continued need for housing, they will not decrease either. Some areas of the country ARE seeing huge decreases in real estate values…namely parts of California and Florida. But Ted Jones does not expect to see prices in Alaska to go down.
Hey…fast eddie. Yes, it’s true that the higher priced homes are not selling as well as the builders and private sellers would like. But that doesn’t make it a bubble.
There are currently 149 homes on the market between 300-600K in the Palmer, Wasilla, Houston and OC areas. Since March 1 of last year 183 were sold, the previous year saw 160 sales and the year before that only 90 in the same price range.
The demand has remained about equal to last year but the supply has increased, so houses are on the market longer, and they haven’t appreciated as much as they did in 2005.
But that still doesn’t make it a bubble.
A bubble is when a speculator can buy a brand new home, and put it immediately back on the market for $100K more and actually sell it like they were doing in California. A bubble is where 30-50% of the market are speculators, not owner-occupied buyers, like you saw in some developments in Las Vegas.
You know for sure it’s a bubble when it pops, like it has in California and a lot of those speculators are now trying to sell those brand new homes for $50-$100K less than the purchase price. Or as Ted Jones mentioned in Naples, Florida where some houses are selling for 41% less than last years prices.
Hi Eddy, If “hands on” buyer means someone who reads the newspaper for real estate ads, yes those will be there, but they will shrink in number every day.
Why would someone look for their houses in the paper when they can do their own searches on the web? More and more people realize that they find more houses, more information about those houses, and more current information on the web then on any print media.
Just think about the people that ask you about houses. Where are they getting their info. Yesterday was a good example, a man with the national guard came in to ask about some homes that his wife in Minnesota found on the web. He had a list of MLS numbers with stars by certain ones. It is rare these days that they bring in a marked up newspaper or color real estate magazine.
[…] Notice what we have been saying all along. Total sales are just about the same as they have been in past years. So demand has not dropped. But supply has risen so that now there is a higher supply than in 2005. But the supply in February of 2007 is almost identical to that of 2006. So far, it looks like Ted Jones is right…there is no bubble here. […]
[…] Original post by Marty […]
[…] Ted Jones on Valley real estate […]