Real Estate Shopping in Homer, Part 1

We recently purchased some land in Homer. Real estate shopping here was a learning experience, to say the least. For anyone out there contemplating a move to Alaska, here are some of our observations. Take these for whatever they’re worth to you. No warranty is expressed or implied.

First and foremost, land in Alaska is expensive. “What?” you say, “How could that be? Alaska is huge! Don’t you all live on 100 acre parcels with magnificent views from log homes you built by hand?” Alaska most certainly is huge. It encompasses over 570k square miles of land, which is roughly 16% of the total land mass of the United States or approximately 19% of the land in the contiguous “Lower 48”. It has more land than Minnesota, North Dakota, South Dakota, Nebraska, Kansas, Missouri, and Iowa combined. Alaska’s percentages are even larger when considering waters of the United States.

"Alaska area compared to conterminous US" by Eric Gaba (Sting - fr:Sting) - Own work. Data:NGDC World Coast Line (public domain) NGDC World Data Bank II (public domain). Licensed under CC BY-SA 3.0 via Commons - https://commons.wikimedia.org/wiki/File:Alaska_area_compared_to_conterminous_US.svg#/media/File:Alaska_area_compared_to_conterminous_US.svg
“Alaska area compared to conterminous US” by Eric Gaba (Sting – fr:Sting) – Licensed under CC BY-SA 3.0 via Commons

How that land is distributed is equally remarkable. Traditional private ownership accounts for less than 1% of total land in Alaska.The other 99%+ is owned by the federal government (60%), the state government (~28%), and native corporations (~12%). The latter are technically private lands, but are not readily for sale like land in traditional private ownership. That’s a pretty striking allocation. It’s less than (only about 90% of) the size of the 13-county greater Minneapolis/Saint Paul greater metropolitan area, but spread over an area 6.5x the size of Minnesota. All of the rest is off limits to private buyers. The state does periodically sell portions of its land, but the scope of those sales is very limited.

Alaska’s population density is the lowest in the nation and the cost of living is one of the highest. These facts both describe an infrastructure that’s very expensive to build. The Alaska state government spends, per capita, significantly more than any other state. $16,103 per citizen to Minnesota’s $6,102. Long story short, roads are expensive to build and there aren’t nearly as many people to shoulder the burden. Naturally, that means there are fewer roads. That slice of Alaskan land available for purchase just got a whole lot smaller if you value being able to drive to/from your home. You’re now looking at a fraction of 1%.

Homesteading was fairly common up here. The Homestead Act, which remained in place until 1986 for Alaska, granted 160 acres to anyone willing to live on the land for 5 years, build a house on it, and develop it for agricultural use. Today, many of these original homesteaders have passed on and their heirs divide up the land.

Generally speaking, large parcels aren’t nearly as common as you’d imagine. Roads, sewer/water pipes, and power lines are expensive to build. And the cost of living is high so people don’t have all kinds of extra money to throw at building a road to their property. Considering the development costs, it’s far more desirable for individuals and investors to sell two 1-2 acre parcels, than to sell one 2-3 acre parcel.  Or twenty 1-2 acre parcels instead of one 20-40 acre parcel. This is particularly true in places like Homer where spectacular mountain, glacier, and bay/inlet views can be had from many, but not all, properties. View properties, as with everywhere else on the planet, command more money than non view properties.

If it’s not already painfully clear where this is headed… Alaska is expensive, and Homer’s more expensive than a lot of other places on the road system. Its marvelous views, temperate weather, eclectic culture, and relatively large distance from Anchorage all contribute to this. Your first reaction to what you get for what you pay might resemble Kevin McCallister from Home Alone.

culkin-shocked-face

Speaking of price, it’s also interesting that Homer’s market seems to have been pretty insulated from that of the greater US. It doesn’t ebb and flow as much. There wasn’t nearly the boom in the early 2000’s or the bust in the latter part of that decade. There’s a fairly steady number of people who want to (or have to) live here, and the housing market reflects this fact. Anecdotally, it seems some people might be trying to ride the wave of current reality TV interest in Alaska to higher real estate sales. I’m not sure that interest has actually inspired anyone to move here.

Buying in Homer is a commitment. A long commitment. I say this because real estate here does not move quickly (on the whole – certainly some properties sell quickly). Of course, it always comes down to money. If you price something aggressively enough, it’ll sell in short order. What we’ve found is that most sellers have no interest in this approach. In the Minneapolis market, if something sat on the market for a month a price drop was in order. Rinse, repeat until it sells. In Homer, things sit. They sit on the market, and the price stays the same. Or a 0.5% price drop comes, 3 months in, followed by another 9 months after that. There are several properties that I viewed in my original search 2.5 years ago that are still for sale today, at the same price. Best I can tell, this is due to sellers in one of two situations. They might be house rich and cash poor. They have X into a house and absolutely must get Y out of it if they’re able to afford moving. So they wait, and wait, and wait until they either get Y or their personal economic situation changes. The other option is that they’re at the other end of the wealth spectrum and they don’t need the money. Perhaps it’s a second home, or it’s a vacation rental property owned by a couple that would like to retire. If they get an offer for Y, great; they’ll sell. If they don’t, no worries; they’ll just wait for a buyer who can offer Y. They don’t need the cash or likely have a need to sell.  Finding unmotivated sellers here is, as far as we can tell, common.

There’s much, much more to share about the market in Homer, but this post is already getting rather long and you’re likely sick of reading it. Check back in a few days for Part 2.

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