The latest economic data from the state has mixed news for the Alaska Housing market. High interest rates have made homes less affordable for many – but not necessarily out of reach for families with more than one income. And for sellers, home values have begun to level off, but not decline.
Sitka is right at the top of average home prices in the state, at $484,000. That’s ahead of Anchorage, at $468,000, but behind Juneau which holds the lead at $513,000.
This is a significant jump from pre-pandemic prices in 2019, when the average cost of a home in Juneau, for example, was over $100,000 less.
The phenomenon isn’t unique to Alaska. In the May issue of Trends, published by the State Department of Labor and Economic Development, economists note that many housing markets across the country mirrored Alaska’s experience.
Home prices and affordability are two different things. The state uses an “affordability index” to measure how much an average home costs an average family across the state. In the first part of 2022 when interest rates were still low, the statewide index was 1.13, meaning that a family could afford an average home with just over one average wage-earner. Less than a year later, buying that same home required one full salary – plus another half – to meet the mortgage payments.
Sitkans know that it’s been a long time since one average monthly paycheck could cover the purchase of an average home in the community. The state doesn’t have the specific index number for Sitka, but it does for Ketchikan and Juneau. Back in 2019, even when interest rates were rock bottom, it still took over one-and-a-half salaries to buy an average home in both of those communities. By the end of 2022, the index was just under two salaries to buy a home. That sounds close to the mark for Sitka as well.
The highest affordability index, by the way, is in Bethel, where it takes two-and-one-quarter salaries to buy an average home there.
The authors of Trends caution that the data can’t always be taken at face value. Affordability averages can be thrown off by the type of properties sold, and whether the houses are large, or occupy large properties. In Sitka, for example, there are two side-by-side listings on realtor-dot-com that show a $375,000 house on Back Street next to a 5,200 square foot house on an island that’s selling for $3.4 million. And in Sitka, only 37 homes changed hands in 2022.
State economists don’t believe home prices in Alaska will collapse, or as they put it in Trends, “Alaska’s housing market lacks the conditions that would typically tank house prices.” They note that there was no run-up before 2022 in construction to create a glut, nor a flood of houses put on the market by panicked sellers.
Alaska has experienced these conditions before. Half of all homes in the Mat-Su have been built since 1990, which primed that market for a mini-bust that decade. Rather, economists believe that sales will cool down and prices will level off in the near term, due to demographic shifts, limited construction, and homeowners staying put rather than losing a low rate on their existing mortgage.
And finally, Alaska’s aging population has limited the number of homes for sale. The state reports that this generation is both larger, and remaining in their homes longer, with no motivation to sell.