Alaska home prices soften, but housing market holds steady overall

Posted: Monday, November 19, 2007

ANCHORAGE - Residential housing prices are softening in some areas of the state and home building has slowed. But the underlying housing market is sound, according to the head of Alaska Housing Finance Corp.

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Dan Fauske, AHFC's chief executive, told the state's homebuilders' association Nov. 1 that Alaska has one of the strongest housing markets in the nation because the state's economy is good and the factors that plague the industry elsewhere, such as problems with sub-prime mortgages, aren't big in Alaska.

Despite that, Alaskans are worried about the extensive media coverage of housing problems in the Lower 48, and that is undercutting confidence here.

"Folks want to know if Alaska is heading for another market crises like the one we experienced in the mid-1980s. The answer is no," Fauske told the Alaska HomeBuilders Association at the group's annual meeting. "The 1980s crises was an economic crisis, not a housing crises. Today what we have is a cooling off of the overheated housing market from the past several years. The state's economy is doing just fine."

National statistics show that Alaska's mortgage delinquency rate is well below the national average, he said. In the second quarter of 2007 Alaska's residential mortgage delinquency rate was 3.27 percent. Only seven states have delinquency rates better than Alaska's and 42 states have home mortgage delinquency rates worse than Alaska, Fauske said.

In terms of home foreclosures only three states have fewer foreclosures, as a percentage of total home loans, than Alaska.

"Our state's rate of delinquencies and foreclosures remain within historical norms," Fauske said.

This is a far cry from the sharp recession the state experienced in the mid- to late 1980s, when mortgage delinquency rates were at more than 15 percent, compared to 3.2 percent today. Foreclosures then exceeded 10 percent, Fauske said. Today they are less than one-half of 1 percent, he said.

Problems the Lower 48 is experiencing were aggravated by aggressive lending to borrowers who wouldn't qualify for regular mortgages. This became known as the sub-prime market. Many of these loans also had terms that were too easy, like adjustable interest rates and zero down payments. When many sub-prime borrowers were caught by an upswing in interest payments and couldn't make their payments, foreclosures soared.

Fauske said that Alaska has only 11,000 of 92,000 total mortgages that are considered sub-prime and only 2.7 percent of current mortgages have adjustable interest rates. These are much lower percentages than in other states.

Alaska housing markets are still strong and what illustrates this is that overall lending by AHFC, which funds most of the new home mortgages sold in the state, is up about 17 percent in the July through October period compared with this same four months of 2006.

Housing prices in the Matanuska-Susitna Borough have dipped 4 percent to 5 percent, and the growth in Anchorage home prices has slowed to about 5 percent over last year. But those are adjustments to an overheated market over the past two to three years in both areas, Fauske said.

"We're in a normal slowdown that occurs in the fall, and we're also coming off peaks in the market. Until about a year ago, our state's housing market was chugging along extremely well, too well. In many areas of the state it was a seller's market," he said. "Now more housing units are on the market for sale or rent, they're staying on the market a little longer, and depending on how urgently an owner wants to sell, prices are likely to be adjusted downward.

Bankers may have been less diligent than they arguably should be because they wanted to help their customers. New generations of younger bank officers don't remember the 1980s.

"In those days the only new home that a builder could finance was a pre-sold," Fauske said.

The 1980s Alaska crisis stemmed from a sudden collapse of the price of oil at a time when the Alaska economy was overheated by construction spending of billions of dollars of state funds. When oil prices, and state revenues, dropped suddenly, the sudden loss of state construction dollars in the economy caused large-scale job losses in the construction industry. The ripple effects spread widely through the Southcentral and Interior Alaska economy, causing a loss of population, a spike in foreclosures and a sharp dip in home market values.

Today Alaska's economy is larger and more diversified, Fauske said. The state went through oil price shocks in the early and late 1990s with hardly any effect. There are uncertainties for the economy, such as in federal funding, but Alaska's situation, with robust state oil revenues and strong prices for resource commodities, is much stronger than in the 1980s.

"As comforting as this might be, it is not likely that Alaska will escape scot-free from the economic squeeze being felt across the nation. Like in other states, we'll see adverse consequences of the national housing market, which is shaking the confidence of consumers and the mortgage industry," Fauske said.

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