Alaska Recession: How Bad?

Question

A good friend of mine and I were having a very interesting discussion on the real estate market here in Alaska. His premise is that the recession up here is going to cause such a contraction in prices on multifamily property that pricing is going to drop 15-25% in the next two years. Personally I am a little more optimistic and I would be surprised if prices drop more than 10%. I also just bought a 4 plex because of my optimism and he thinks that was a foolish move and he is waiting until the market hits the bottom before buying.

Anyway, what is everybody's prediction of our market? How low is it going to go before rebounding?

Jamie Rose · Answer

15-25% drops? I don't think so. IF there was going to be any big moves, they'd have already started. Rents are off their all time highs (as vacancy is off it's all time low) - but things have stabilized. Read this: http://labor.alaska.gov/trends/jan18.pdf

If an LNG pipeline is going to get funded and built, anybody holding property today will be extra glad for it in the next few years.

That all said - I hope you bought right (already at a discount to retail). I didn't do that first time we bought commercial - and I regret it - but you learn as you go sometimes!

And Youdo Thirakul is correct - so much old stuff out there! But... the cost of building a 4 plex new is like 500k+ land or more in this town... so getting a beat up one for 200-300k plus land is perhaps about right?

Youdo Thirakul · Answer

It shouldn't drop more than 10%. I think most of the house in Alaska are outdated but asking price is still high, maybe that's why the market looks like its dropping.  I looked at 52 MFR and I can honestly say 80% were overpriced because they were out-dated.  A lot of landlords in Alaska are out of state.  As long you keep your 4-plex or SFR nice and clean, they should still sell good

Connor Dunham · Answer

@Nik Moushon We've been in recession since 2015. Quite the opposite from the lower 48 since then. Finally starting to grow rather than lose jobs, but we aren't back to the 2015 high. When 2008 hit the lower 48, we saw the largest influx of people since the oil boom. We are lower growth overall (1-2%) but the market tends to act counter to most large metros.

Ronald Laurion · Answer

My father is a financial advisor and this is the first year he has been optimistic since 2015. Most of that is due to the price of oil currently but even in 2015 he wasn’t going to sell any of his rentals he just wasn’t going to buy any new ones. We both believe the worst has past unless something happens completely out of anyone’s control.

I think the biggest thing right now is rising interest rates, would be nice to lock up another property or two before rates go back to historic levels.

Gabe N. · Answer

Yeah it definitely seems like optimism is back up and multi family inventory is back down although it seems like prices are still somewhat depressed. At the same time rents are still down which is hurting at least in Wasilla. In hindsight Anchorage is a much more stable market and even though prices are high so are rents. My “good deal” in Wasilla is, while not terrible, pretty much break even since rents are low in the valley. Once I have some equity built on this deal I may opt to sell and buy something in Anchorage.

But yeah your assessment overall is spot on. As usual it takes buying in the right spot and finding or making the deals, not hoping for a screaming deal on the MLS.

Thanks for checking in, let’s stay in contact as I expect that I may need a good agent in about a years time on the next deal!

Jim C. · Answer

Down here in Soldotna/Kenai area people are heading south like rats from a sinking ship, well maybe not quite that bad but they are leaving. I don't know if we are at the bottom or if its just beginning to get bad. The king and sockeye fishing closures killed the local economy at all levels.

What will it look like in the future is anyones guess.

What I do know is

- no risk, no reward

- diversify your investments

I plan on buying at least one multifamily rental just to get back in the game and my biggest worry is getting bogged down with analysis paralysis

Greg Scully · Answer

Rising property taxes may also come into play now with the latest proposed state budget.  All of my investments are outside of Alaska.  The barrier to entry is high in Alaska relative to the returns (unless you're able to buy at steep discounts) and the market fundamentals are not very good.

My prediction for the market is continued pressure for owners for the foreseeable future.

Anthony L Lee · Answer

I think we may be in for a bit of an extended slump with oil prices not particularly going up. That being said hopefully you bought a four plex that cash flows rather than one requiring an appreciation in the market. If not I would highly recommend looking at ways to make it cashflow. Are there electric loads that can be transferred to the units? Can additional amenities be added that produce income? (storage units maybe) Can you add blow in insulation to your attic to reduce expenses?

James Cash · Answer

I would be shocked if prices fell in MF by that much...or even 10% from where they are now.

Usually the rental market dictates what prices are for MF...how high rent currently is, and the vacancy rate overall.

In my opinion, the only real danger we are in if interest rates sky rocket, and the oil economy takes a major hit.

Anything is possible, but I've been hearing doomsday sayers in the RE market since late 2015, and we're still alive and doing well.

The important thing is to position yourself well, and never bank on an appreciating market...rather methodical moves to manage and grow your money.

Nik Moushon · Answer

Not from Alaska but if I remember right it weathered the last recession better than most the other states. Not saying it did well just not as bad. So I doubt there will be a 25% drop in prices. Maybe a 15% if its a really harsh correction but I would say, like others, a 10% drop everywhere is probably going to be the most. But you never can know and its probably a worse gamble to try and play the market like that than just to do it right from the beginning.

Alaska Recession: How Bad?

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