An Update On Alaska's Housing Market: Delinquencies and Foreclosures; Sales and Inventory
Editor's note: Whether you are already a homeowner or are trying to purchase your first home, you have likely felt the economic impact of COVID-19. While many families are struggling to keep up with mortgage payments, Alaskan homeowners have proven less likely to face foreclosure than the rest of the country. And with home prices hitting record highs, home sales are still on the rise.
Mark Edwards, EVP — Chief Credit Officer & Bank Economist at Northrim Bank, sheds light on why in his recent article published in the Alaskanomic's Blog. In the excerpt below, he explains the current state of mortgage foreclosure rates in Alaska and the challenges facing first time homebuyers.
Housing Market Soars Amid Economic Challenges
2020 was a challenging year for the global economy as health policies led to significant disruption in normal business activity. It is counter-intuitive to have a year where payroll jobs declined by 8.5% and gross state product fell 5% in Alaska, yet per capita income rose over 3% and housing prices and sales activity increased substantially. This was only possible because billions of dollars in federal stimulus money reached Alaska and helped support businesses and individuals through the most challenging times.
Alaska Homeowners Fare Better Than National Average for Foreclosure
Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation. According to the Mortgage Bankers Association, the percentage of delinquent mortgage loans at the end of 2019 in Alaska was 2.9%. This increased considerably to 6.2% at the end of 2020. In the first quarter of 2021 it has improved to 5.4%. The comparable delinquency rate for the entire country was higher than Alaska at 4.1% at the end of 2019; rising sharply to 7.2% after the effects of job loss impacted the country. The delinquency rate then improved to 6.1% in the first quarter of 2021.
The Mortgage Banker’s survey reported that Alaska’s foreclosure rate improved from 0.63% at the end of 2019 to 0.45% at the end of 2020. In the first quarter of 2021 it improved again slightly to 0.41%. The comparable national average rate was higher than Alaska at 0.78% at the end of 2019, improving to 0.56% at the end of 2020, and 0.54% in the first quarter of 2021. This is somewhat misleading because of the federal moratorium on foreclosure activity on occupied homes led to declining numbers, even though job loss strained the economy and borrower’s ability to pay.
Many people across the country took advantage of mortgage forbearance plans available from lenders to delay payments or pay interest only on their homes. Until they catch up on past due payments these loans will appear delinquent because they are still behind according to the original terms of the mortgage.
Single Family Home Prices On the Rise
According to the Alaska Multiple Listing Services (MLS), the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $397,000. This is following increases of 0.5% and 2.3% in 2019 and 2018, respectively. Average sales prices in the Matanuska Susitna Borough rose 9.9% in 2020, continuing a decade of consecutive price gains. These two markets represent where the vast majority of Northrim’s residential building activity occurs. The average sales price of a single family home in the Kenai Peninsula Borough rose 10.22% in 2020 to $271,474. (1)
The low interest rate environment has been a major factor in rising prices. According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U.S. hit all-time record lows last year. Rates began 2020 at 3.7% in the first week of January and fell one percent to 2.7% by the end of the year. Rates began to rise in the first quarter of 2021 and finished March at 3.2%. However, in April they declined slightly to 3%.
The number of units sold in Anchorage was up significantly in 2020 by 19.5%, climbing from 2,719 homes sold in 2019 to 3,249 last year. The main difference was a record number of sales occurred in the last quarter of the year, when sales activity typically declines in the winter. The Matanuska Susitna Borough also had strong sales activity, up 9.7% in 2020 to 2,135 units sold compared to 1,946 in 2019. The Mat-Su also had stronger than normal sales in the second half of 2020. The Kenai Peninsula Borough saw an 8.24% increase in sales activity in 2020 with 841 units sold compared to 777 in 2019. (1)
Increased Building Costs & Low Turnover Result In Low Inventory
In Alaska, the number of building permits issued for new home construction were 1,680 in 2019. According to the U.S. Census Bureau this fell 15% to 1,420 housing units in 2020. This does not include building in unregulated parts of the state.
Across the country, the prosperous baby boomer population is living longer and often keeping a second cabin or vacation home. This housing inventory is not turning over at the expected rate, as the even larger population of millennials are finally becoming home owners. The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, determined that the nation was undersupplied by about 2.5 million homes pre-COVID. Now that has grown to 3.8 million homes in April of 2021. The high cost of building has constrained construction levels and also made the price of a new home out of the reach of hundreds of thousands of first time homebuyers.
(1) AHFC added MLS data for the Kenai Peninsula Borough to the author's original text.