Perception can intensify a feeling of a market falling or rising. Many of us look back to the previous year as an indicator of how the coming year may play out. Generally, supply and demand is a good indicator, but the potential of industry growth and future jobs are also important. So if we look back at 2017, what might drive perception in 2018?
If we start with new construction, the building permits overall reached 460 units in 2017, up from 341 units in 2016. This includes single-family, duplex and multi-family categories. However, most homeowners are primarily concerned with single-family permits, which were up only slightly in 2017 to 196 units from 190 units in 2016. While not a dramatic amount of change in new construction during this time, there was a robust increase in the median sales prices.
For those properties reported as "New – Completed or Under Construction" by the Multiple Listing Service (MLS), the median sales price increased 15.3 percent from $475,038 in 2016 to $547,900 in 2017. However, the actual number of sales decreased at almost the same rate, down 15.8 percent from 76 homes in 2016 to 64 homes in 2017.
For the "New – To Be Built" (speculative – currently vacant land), the median sales price increased 12.7 percent from $496,288 in 2016 to $559,422 in 2017. The actual number of sales decreased almost twice as much, down 21.7 percent from 46 homes in 2016 to 36 homes in 2017.
"Existing" homes showed more stability. The median sales price decreased a meager 0.3 percent from $330,000 in 2016 to $329,000 in 2017. The actual number of sales decreased 4.5 percent from 2,824 homes in 2016 to 2,698 homes in 2017.
One factor contributing to the median sales price increase of new construction and the relative stability of existing construction is there were fewer homes for sale. The total number of new construction homes for sale (actually under-construction) decreased 18.5 percent from 92 homes in 2016 to 75 homes in 2017. The total number of existing homes for sale decreased 7.5 percent from 4,007 homes in 2016 to 3,708 homes in 2017.
In looking forward to 2018, with a continued low supply of homes for sale, a number of potentially positive events could help boost a more optimistic perception. According to the Alaska Economic Trends, increased optimism may come from:
1. Potential agreements to deliver LNG to the Asia-Pacific region. This will energize the economy throughout the various construction phases.
2. Since the fall of oil prices in late 2014, oil prices appear to be stabilizing at more than $60 per barrel, with a bonus of potentially greater North Slope oil production than first anticipated.
3. Potential exploration in the Arctic National Wildlife Refuge.
4. Military improvements with an anticipated cost of more than $10 billion over five years at Fort Greely.
5. A boost in state tourism, as international safety concerns make national locales more appealing.
All these factors would affect the housing market by helping reverse job losses of recent years. Vacancy rates for rental properties may decrease as buyers lease while waiting for more properties to come on the market.
Low interest rates will also help. Buyers on the fence of whether or not to purchase will be watching the interest rates closely. For every 1 percent increase in a buyer's proposed mortgage interest rate, the buyer loses 10 percent borrowing power to maintain the same mortgage payment quoted at the lower interest rate.
So as we start into 2018, the prospects look promising – and perception is improving – from where we were in 2017.