The market is strong and houses are appreciating at a healthy rate.

• Author: Thomas, Niel
• Position: Real Estate 2005

Justifiable optimism will be the theme of the 2005 real estate markets in Alaska. Big projects in construction, oil and gas, transportation, medical and mining-current activities and faith in those to come-foretell population and job growth.

Population and jobs drive real estate markets. Historically, the only declines in Alaska real estate were the wind-down of the pipeline in the late 1970s, and the perfect storm of the mid-1980s. That latter event consisted in part of the 1986 Tax Reform Act, which disfavored investment real estate and was a factor in the national savings and loan crisis. Another component was the price of oil dropping below $10 per barrel, which led to personnel cutbacks in the Alaska oil industry. At the same time, the state's capital construction program--"Project '80s" in Anchorage-came to its planned completion. Nobody sees this sort of apocalypse for Alaska now.

PRICES CONSISTENT WITH LOWER 48

By contrast with those dark days, Alaska, since 2000, has seen real estate values playing rapid catch-up with the Lower 48. Newly arriving families voice less sticker shock than 10 or 20 years ago because Anchorage home prices, notwithstanding dramatic appreciation, are still on a par with many comparable cities in the Lower 48.

Through the 1990s, prices appreciated at very modest rates of 2 or 3 percent. More recently, Anchorage homes enjoyed two years in a row of 9 percent appreciation followed by 5.5 percent appreciation in 2003. The year just concluded will match the higher end of this range. Homes costing $300,000 in just these few years have become $400,000 homes. Those who owned more modest homes and condos also built substantial equity, which they upgraded into new homes, or a better resale property.

The pace of Anchorage home sales declined at the end of the year. Housing industry officials were saying "everyone did their deal earlier in the year." The market perception last spring and through the summer was that prices and interest rates would only be higher if one waited. Now, this winter, there's a buying opportunity that can't last long, given the continuing short supply of housing and the lack of substantial land tracts for future residential development.

THE COMMERCIAL MARKET

Expanding businesses, as opposed to pure investor activity, are driving commercial markets. Several real estate businesses, Native corporations and nonprofit organizations built their own buildings. Some of these organizations moved out of...