Why is the Real Estate Market So Crazy?
Contributed by Mary Van Diest
Our current situation really started in 2007 with what economists call the “Great Recession”. From 1990-2006 our Alaska economy and the Mat-Su housing market in particular saw slow but steady growth. That growth accelerated in about 2003-2006. In 2006 we had well over 150 builders in the valley and new construction was booming. By 2007 the volume of sales started to slow and by 2009 prices started to fall. In fact if you bought a house in 2007 you would have been hard pressed to sell that house before 2012 without losing money.
Few builders.
Many small builders got out of the business in the recession so that now we probably have about 50-70 active builders in the valley. Currently there are only 84 new houses on the MLS for the Mat-Su Valley and only 53 of those have started construction.
A New Buying Generation. The millennium generation is the largest generation since the baby boomers. They have reached prime home-buying age. This has increased demand over previous years. Typically, first time home-buyers purchase houses in the lower price ranges. We could see the inventory crunch coming in 2019 and earlier because more buyers were coming into the market.
Lower Inventory. A balanced inventory with no perceived advantage for the buyer or seller is about a 5-6 month inventory. More than that is a buyer’s market. Less is a seller’s market. As of March 10, 2023 we have 248 houses on the market in the Mat-Su Borough. In the last month 278 houses went under contract, so we currently have less than one month worth of inventory.
A Low Inventory and High Interest Rates Keep People From Selling. Many people would like to sell to scale down. Children have grown and moved and they see no reason to live in a large house. But they also see the dearth of homes for sale. And they see the high interest rates. Many people decide to “age in place” as long as they can handle the stairs.
Low Inventory Hurts Buyers. Most homes under $400,000 in the valley result in multiple offers unless the seller pushed the price to start with.. Some people refuse to get into a bidding war and thus refuse to make offers. Others lose out on multiple bidding wars before finally winning a house they can buy rather than the house they want. It’s a very bad situation for buyers.
Investment Buyer Increase Competition. The last few years introduced the advent of investment buyers. Nationwide some of these are huge conglomerates that are buying about 15% of all the single-family homes. They turn these into monthly or short-term rentals. It’s hard to measure this in the Mat-Su Borough but it certainly has an impact. The impact is greater because they focus on the same houses first-time-homes buyers need. Lower priced homes in reasonably good condition.
How Long Will This Market Last? The best news is that it can’t last forever. At some point it needs to break. Ultimately, we need more supply. That means we need to build more houses. Already the Mat-Su is building 44% of all the houses in Alaska with only 15% of the population. But we need more. Building is expensive and time consuming. There was a time when supply chains worked and labor was available that a house could be built in 90-120 days, or less. Today I warn buyers that it can take six months to a year to get a house built.
So, how long will this last? Until we get more supply. That can only happen if demand drops to the point where very few people are buying houses, OR, we build about 2X the number of houses we are currently building.