Within any crisis exists opportunity. The COVID-19 outbreak and lower oil prices have generated a lot of uncertainty in the Anchorage economy, and finding positive news sometimes can be difficult. However, a recent Barron’s article pointed out some byproducts to world events: cheaper gas prices and reduced costs to purchase or refinance real estate.
Real estate is the major beneficiary, since a typical homeowner spends five times more annually on housing than on gasoline. The article noted that the real estate windfall could be worth $600 billion to consumers.
Here are two positives that point to why Anchorage’s real estate market should be able to weather this world crisis. The first is that the supply of homes for sale — inventory — remains low throughout most of Anchorage’s real estate market price ranges. We use the following to gauge the market status of inventory for sale: A seller’s market has less than four months of inventory; a balanced market has four to six months of inventory; and buyer’s market exceeds six months of inventory.
According to an Anchorage MLS Supply and Demand report for March 11, the price ranges between $100,000-$350,000 had an average of 1.56-months supply, and $350,000-$549,999 had an average 2.34-month supply.
The $550,000 to $699,999 range had an average of 3.36-months supply. The $700,000-$799,999 price range tips slightly into a balanced market with 4.9-months of inventory, while the $800,000 - $899,999 range had a 2.46-month supply.
However, inventory status doesn’t solely determine the strength of the real estate market. The $900,000-$999,999 price range had a 5.88-month average sale with only 5 homes for sale. The million-plus price range is the only price range with almost a year’s supply (buyer’s market), yet only 19 homes are available for a buyer to choose. Compare this with March 2009, nearing the end of the financial crisis, when the million-plus range had 29 homes for sale, a 13-month average of 1.08 homes, and a 26.93 supply of inventory.
The second positive is the already low interest rates. According to Freddie Mac Primary Mortgage Market Survey, as of March 4 the 30-year fixed rate mortgage had already dropped 1.12% from a year ago and the 15-year fixed rate was down 1.04%. While your mortgage interest rate won’t be zero, now is the time to take advantage of this historic opportunity!
A 1% reduction in interest rates increases buying power by 10%, which benefits everyone. This allows a buyer the possibility of qualifying for a larger or newer home. Sellers will likely purchase another home when their current home sells; homeowners and landlords may be able to refinance or extract equity at a lower rate; and renters may be able to take part in the American dream of homeownership. Without this crisis, lower interest rates would usually have pushed property values up and out of reach for some.
If refinancing, check into “no cost” refinancing. The interest rate is slightly higher, but you could start saving money immediately without taking money out of savings. If paying closing costs, determine the break-even point this way: divide the loan costs by the monthly savings. This figure is the number of months required to recoup the up-front cost.
Whether buying, refinancing, or extracting equity, take advantage of this short-term opportunity. Contact your local lender and submit the required documents as soon as possible. Depending on the lender, they may charge a minor fee for a credit report, but generally there is no charge. Also, if you have a loan application in place, you don’t have to complete the process if you decide not to, but you are ready to grab the opportunity if you do!