I was mousing around on the Internet and ran into an interactive chart that shows housing prices in the major metropolitan areas in the lower 48. It's based on data from the S&P/Case-Schiller home-price index and is published by the Wall Street Journal.

While it doesn't have a lot to do with Wasilla real estate, it gives you a different way to view the housing bubble.  It's interesting to compare the base price in 2000 to the current prices in each area.

It gives credence to the old saying "the bigger you are the harder you fall."  Here's a link to the interactive chart.

        

    I recently learned that approximately 25% of homes in the Wasilla real estate market that are tested for radon gas exceed recommended EPA maximums for suggested mitigation.
    Radon is a radioactive gas. It comes from the natural decay of uranium that is found in nearly all soils. It typically moves up through the ground to the air above and into your home through cracks and other holes in the foundation. Your home traps radon inside, where it can build up. Any home may have a radon problem. This means new and old homes, well-sealed and drafty homes, and homes with or without basements

 

    Above is a map showing the areas (in orange) in Alaska that have “moderate potential” for higher levels of radon gas.  As you can see, the Mat-Su Borough is included in that zone.
    Radon leads second-hand smoke a cause of lung cancer.  It is estimated that every year 21,000 people in the US die from lung cancer caused by radon gas. 
    Fixing the problem is usually not all that difficult.  A typical radon mitigation system can cost as litlle as a few hundred dollars or a much as several thousand.  Many new homes are being constructed with mitigation systems roughed in at a very small initial cost.  Others are built as radon-resistant.  I think it's money well spent.... Ray Wood

Here are some places where you can learn more about radon gas:
Alaska radon information sources
Radon publications
Radon in drinking water
How to test for radon
About.com
Do-It-Yourself radon mitigation

        

     If you’re planning on buying or improving a home this year you have a lot of help available from the Government. This is especially true if you will be buying your first home.
    Federal Housing Tax Credit... If you haven’t owned a home during the last three years you may qualify for a tax credit of $8,000 toward closing costs of a new home.  If you’re single you can earn up to $75,000/yr and still get the full $8,000. Married couples can earn as much as $150,000 and still qualify.  Go to Federalhousingtaxcredit.com for the scoop on this one, or just Google up “Home Buyer Tax Credit.”  Although the money is paid to you via a credit when you file your federal income tax, you can get a bridge loan and have the money available at closing.
    There’s also a bill being considered in the Senate that would increase the amount to $15,000 and remove the income limits.  If  passed it would be a real shot in the arm for home sales.
    5-Star Plus New Home Energy Rebate... Buy a new home (or one less than one year old) that has a 5-Star Plus energy rating and get a $7,500 rebate from Alaska Housing Finance Corp.  There are no income limits and, as long as you and the house meet AHFC guidelines, you don’t even have to finance through AHFC.  For information online you can go to ahfc.state.ak.us and take the “Energy/Weatherization” link on the left side of the page.
You can participate in both programs and receive a total of $15,500 in rebates and tax credits for one home purchase!
    Not Buying?.. Even if you don’t plan on buying a home this year you can still cash in on the giveaway programs.  Here’s a rundown on them:
    Home Energy Rebate program... There are no income requirements for this Alaska Housing program. You start out by signing up at www.akrebate.com.  Then you have your home rated by a qualified energy rater.  Then you select and make the appropriate energy-saving improvements and have your home re-tested. Then, depending on the improvement in your energy rating, you can receive a rebate from AHFC ranging from $4,000 to $10,000.
    Weatherization Program... Administered by the Alaska Community Development Corp., this program is available to you if you don’t make too much money. For a 4-person household the maximum gross income is $70,400. See details at www.alaskacdc.org .
    Energy Star Program... The US Department of Energy has programs available to consumers to get tax credits and rebates for steps taken to save energy. They range from energy-saving home improvements to the purchase of appliances and alternative energy solutions.  See www.energystar.gov for information.

        

Here are the sales numbers for the week ending May 8, 2009.

As expected, we are seeing a growth in the number of new listings.  Pending sales are up and closed sales are down which is normal for the first week of the month. However, thirty-one new pending sales ia a healthy number.  If we continue at that pace we should be over a hundred sales a month soon.

City	Active Listings	New Listings	Pend Listings	Sold Listings
Big Lake	41	2	0	0
Houston	11	0	1	0
Palmer	201	13	6	4
Sutton	11	0	0	0
Talkeetna	36	0	0	0
Wasilla	470	43	24	9
Willow	52	3	0	2
Subtotal	822	61	31	15
Last Week	805	58	25	31
Difference	17	3	6	-16

        

This is the fourth article in a series entitled “The Financial Crisis – It’s Not That Complicated.” 

The first article in this series described the size of the subprime mortgage problem and how it could not, by itself, cause the meltdown.  The second article examined the Collateralized Debt Obligation (CDO) and in the last article we looked into the murky world of a financial derivative called a Credit Default Swap, (CDS.)  If you missed those articles you may want to backtrack and read them so you’ll have a handle on the jargon and concepts discussed here. 

Here’s how our Federal Government helped set the stage for the crisis.

On November 12, 1999 congress passed the Financial Services Modernization Act.  This legislation allowed banks to act as insurance companies and insurance companies to act as banks.  It also erased the differences between commercial banks and investment banks.

This paved the way for insurance companies, like AIG, to get into the Credit Default Swap business.  It also allowed commercial banks, like Bank of America, to become sellers of CDSs.  Before the 1999 Financial Services Modernization Act was passed, only investment banks could sell CDSs.

Most insurance that is sold is regulated at the state level.  In order to prevent oversight and regulation, the banks, hedge funds and insurance companies that bought and sold CDSs were careful to call them “swaps” instead of insurance.  The term “swap” in the financial world is applied to the instrument that transfers, (swaps,) the risk of the underlying asset from the buyer to the seller.

In the second article of this series we followed the crisis timeline to the spring of 2008 when Bear Stearns was bought by JP Morgan for $2 a share in a deal backed by the Feds with a $29 billion guarantee.  The demise of Bear Stearns was due in large part to their participation in the sale of Credit Default Swaps (CDS) contracts written on mortgage-backed Collateralized Debt Obligations (CDOs.) 

Between March 16, 2008 when Bear Stearns was purchased by JP Morgan, and September 7, 2008, when Fannie Mae and Freddie Mac were taken over by the Feds, many of the big mega-banks were having major losses.  At the time we were told that most of the problems were due to subprime mortgages defaulting. In fact, the problems were due to the derivatives based on subprime mortgages. All of the banks in difficulty were heavily involved in CDOs and CDSs.  The subprime mortgages going bad were causing big losses in CDOs and big payouts for the sellers of CDSs.

Then, in September, the Feds took over Fannie Mae and Freddie Mac. This in turn triggered the payout of billions of dollars for CDSs written against bonds and mortgage-backed securities sold by Fannie and Freddie. In the meantime many of these mortgage-backed securities had been tossed into CDOs which in turn had become part of mores CDOs. As these derivatives fell like dominoes they triggered even more CDS payouts.

That is how $1 million in mortgages might produce $3 million in CDOs and another $20 million in CDSs.  Remember, most of the CDSs were sold to people that didn’t own the underlying securities. They were just speculating on the failure of the shaky sub-prime mortgage debt. If the $1 million in mortgages defaults it starts a chain reaction all the way up to the Credit Default Swaps. The $1 million problem becomes a $24 million problem overnight.

That’s why Merrill Lynch was sold to Bank of America, Lehman Brothers went bankrupt, AIG was bailed out and Washington Mutual Bank was seized by the FDIC. This all happened between the 7th and the 25th of September 2008.  All of these institutions were heavily involved in mortgage-related CDOs and CDSs.

But how did the smart people on Wall Street allow things to go so bad?  How could they possibly convince themselves that Credit Default Swaps were a good thing?  To understand that you need to know a little bit about what makes Wall Street tick.

The raw material that Wall Street uses to make money is money itself.  It’s not like digging iron ore out of the ground and making steel from it.  Everyone has to use the same raw material and everyone has equal access to it.  To make money in the financial world you can lend money, invest money, sell financial products or sell insurance.  All of these activities involve risk.  If you are better at assessing risk than your competition and you are willing to put money behind that assessment you will beat them.

The problem is that Wall Street relied on a faulty method to asses the risk involved with the derivatives based on subprime mortgages.  Remember David Li’s Gaussian copula function from the article on Collateralized Debt Obligations?  They used that same model to estimate the risk of default for the Credit Default Swaps they were buying and selling.  Even after David Li pointed out the flaws in the theory, they continued to use it.

Wall Street was making a ton of money layering derivative upon derivative.  They could avoid risk by repackaging the junk and passing it off as a safe investment to people that relied on the ratings of Moody’s or Standard & Poor’s.  The rating companies, either by collusion or reliance on faulty risk evaluation standards, made the scam possible.  And companies like AIG, Lehman Brothers and Bear Stearns were making money selling CDSs to holders of the end products and the larger market of speculators betting on the failure of the junk investments.

That’s what led to the events of September 2008.

In the next article of this series we’ll discuss the role Credit Default Swaps play in the ongoing crisis and the affect they are having on the efforts to fix things.  I think you’ll be amazed at what’s going on!
COPYRIGHT 2009 by Ray Wood

        

Here are the single-family home sales numbers for the week ending May 1, 2009.  
     

City	Active Listings	New Listings	Pending Listings	Sold Listings
Big Lake	41	0	1	1
Houston	12	1	0	0
Palmer	195	19	7	10
Sutton	11	0	0	1
Talkeetna	37	1	1	0
Wasilla	459	34	16	18
Willow	50	3	0	1
Subtotal	805	58	25	31
Last Week	792	51	30	10
Difference	13	7	-5	21

As expected the closed sales are up by quite a bit. There's always an end-of-the-month rush to get sales closed and recorded. Sellers like to close at month's end because they don't have to make another house payment, they lose money if they have an FHA loan. Buyers prefer it for reasons ranging from rental agreements expiring to reduction of up-front closing costs in the form of prepaid interest.

        

The first quarter of this year saw home prices in the Mat-Su Valley fall just 4% from the same period last year.  Many markets in the rest of the country had a similar decline.  The big difference between them and us is that we didn’t have the huge drop from 2007 to 2008 that they had.

Cumulative price erosion over that two-year period in the lower 48 is as high as 50% in some markets.  Our prices have dropped only about 5% in the first quarter from 2007 prices.   Our volume of sales, (total homes sold,)  dropped about 20% from 2007 to 2008. The volume decrease outside was much worse. Many markets saw their sales volumes drop by half.

	Sold Volume			Average Sales Price
2008 to 2007 Comparison
Area	Last Year	This Year	% Chg	Last Year	This Year	% Chg
BG - Big Lake	50	43	-14	184,006	206,698	12
CN - Chickaloon/Anthracite Ridge	0	1	100	0	145,000
HO - Houston	28	13	-53	141,600	160,962	13
LL - Lake Louise	1	0	-	55,900	0
MG - Mat Glacier/Glacier View	2	1	-50	116,750	224,000	91
ML - Meadow Lakes	95	72	-24	201,883	189,772	-5
PA - Palmer	329	285	-13	232,911	234,128
PM - Pt McKenzie	2	1	-50	250,425	190,000	-24
PV - Trapper Crk/Petersville	10	5	-50	143,870	68,300	-52
SU - Sutton	4	8	100	95,250	115,662	21
TA - Talkeetna/Montana	31	25	-19	153,923	129,640	-15
TR - Talkeetna Remote	5	0	-	139,500	0	-
WA - Wasilla	883	713	-19	233,264	232,205	0
WI - Willow	46	32	-30	168,485	133,803	-20
Residential Totals:	1495	1204	-19	221,547	221,534	0

So we are in relatively good shape. There is a very good chance that we will recover along with the rest of the country. And our recovery will begin from a much better position than almost any other real estate market in the country.  Alaska and the Mat-Su Valley is a good place to be right now!

        

Here are the single-family home sales numbers for the week ending April 24, 2009.  Active listings are up by just one while all other activity is down. Next week should show more closed listings because it's the end of the month when many people prefer to close.

	City	Active Listings	New Listings	Pending Listings	Sold listings
	Big Lake	42	0	1	1
	Houston	11	0	0	0
	Palmer	187	14	5	2
	Sutton	13	1	1	0
	Talkeetna	36	0	0	0
	Wasilla	450