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State building on the upswing

Home construction trends follow national average

Posted: December 26, 2011 - 8:24pm

ANCHORAGE (AP) — Alaska’s home construction continues to follow national patterns: first up, then down, now maybe up again.

Alaska’s residential construction rose dramatically between 2000 and 2005, when about 3,000 new single-family homes were built annually in the state. Also during this time period, more than 8.5 million homes went up across the country. Alaska’s numbers dropped along with the rest of the nation’s as early as 2006 and reached a low-point in 2009. Now the decline has stopped and even reversed a small bit.

The Alaska Department of Labor and Workforce Development just published a report on these findings in its December issue of Alaska Economic Trends magazine. Department economists Caroline Schultz and Mali Abrahamson found that Alaska’s patterns for new single-family units followed the same overall rises and declines the rest of the country did, only they did so to a lesser extent.

“The biggest difference between Alaska’s residential construction activity was Alaska’s home prices didn’t plummet over the last several years as did the nations and that mortgage delinquencies were low in Alaska,” Abrahamson said.

Vacancy rates and current building activity levels also indicate that Alaska doesn’t have the housing stock surplus that many other states do because many states employed speculative building during the expansion of the U.S. housing bubble. Avoiding such speculation and having more conservative lending practices also led to a more stable foundation going into the recession. Alaska is only second behind North Dakota in terms of having the lowest mortgage delinquency rates.

While the state and the nation both fell and rose at the same time, the differences lie in the scale. Single-family home construction in Alaska experienced negative growth from 2006 through 2009. By the time construction reached its low point in 2009, each year’s new single-family unit decline added up to a total of around of about 74 percent. Abrahamson said the recession temporarily weakened demand for new houses.

The national numbers were even higher. For example, the state and U.S. Census data show that the national home construction percentage fell around 22 percent for the year of 2009 as compared to Alaska’s construction only going down about 8 percent for that year.

Things turned around slightly in 2010 with Alaska seeing a 7 percent growth in this area while the nation experienced only about 2 percent. Abrahamson said Alaska’s housing activity and construction employment is responding to natural demand during this recovery. Population and employment continue to grow, resulting in increased housing demands, among other goods and services.

“Alaska has remained in a relatively good situation and Alaska housing market activity wasn’t driven by speculation,” she said,

Speculation is the practice of building a home without having a buyer lined up at the beginning of construction.

Abrahamson didn’t have any predictions on what the future holds for new homes. She said one important note is that residential construction employment only grew by 43 jobs in 2010.

While construction employment fell between 2006 and 2010, it may actually have led to better average earnings since many such jobs were in the lesser-paying sections of the industry. Construction earnings averages increased by about $8,000 between 2005 and 2010. They even outpaced all other sectors in earnings from 2007 to 2009.

One trend that has remained constant is that the Matanuska-Susitna Borough has held the largest percentage of residential construction since at least 2000, even in years of decline.

Abrahamson said Mat-Su’s high rate echoes its high population growth over the last decade. People have been buying houses in the borough due to more affordable housing in proximity to the Anchorage job market.

Mat-Su’s population grew 30 percent between 2000 and 2006, compared to 7 percent in the state as a whole. By 2005 — the borough’s highest year for single-home construction — 46 percent of new homes were built in the Valley, while the area only grew to 11.2 percent of the state’s population. Even in the 2009 low point, Mat-Su consisted of more than 40 percent of single-family home construction.

The Trends report states that the borough’s boom could be a contributor to Anchorage’s single-family home decline. Single-family homes make up a smaller percentage of the city’s residential construction and have leveled off after a peak in 2001.

Anchorage and Mat-Su remain the state’s biggest players in new home construction.

Newly constructed houses in the Mat-Su Borough don’t cost much more on average than existing homes, according to department data.

New homes in the Mat-Su area cost $269,929 on average during the second quarter of 2011, while existing homes averaged out at $223,411.

The statewide averages during this period were $320,186 for newly constructed homes versus $282,850 for existing ones. These numbers vary between regions across the state.

Average numbers for Anchorage during that period were $425,100 for new homes and $325,446 for existing homes. It was $289,688 for new and $239,861 for existing homes in the Fairbanks North Star Borough. Juneau homes were $379,583 for new and $327,437 for existing.

The biggest pricing discrepancy was on Kodiak Island, with $612,500 for new homes and only $291,550 for existing ones. Abrahamson didn’t know exactly what caused this discrepancy, but said one possible reason is that a few high-priced outliers in small areas like this can bring averages up drastically.

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