Fayetteville Arkansas, University of Arkansas--Old Main Overview

Fayetteville Arkansas, University of Arkansas--Old Main Overview
Overview of Fayetteville, AR

Sunday, May 24, 2009

1st Quarter 2009 Skyline Report

On Friday, May 15, I attended the breakfast meeting at the Holiday Inn Convention Center in Springdale where the first quarter 2009 Skyline Report highlights were presented. Kathy Deck, Director of the U of A Center for Business and Economic Research, talked about the NW Arkansas housing market—especially conditions in Washington County, and Scott Phillips, Senior Fixed Income Portfolio Manager for Arvest, talked about some trends in the national economy which give a ray of hope that the current recession may be starting a recovery.

According to Phillips, to date there have been $1.4 trillion in losses at global financial firms. The current estimate is that such losses will go to $3.4 trillion before the recession ends. Consumer confidence is still declining nationally, and as people save more, that’s actually bad for the economy, since they aren’t spending money. On a positive note, however, consumer debt and bank lending corrections are decreasing, but unemployment rates are still high and are expected to go higher.

In response to a question from the audience, Phillips noted that for people who have lost a lot of money in the stock market, the estimate is that it will take anywhere from 3.5 to 8 years to recoup those losses. He indicated that the lowest the stock market fell was on March 9 of this year and has been rising slowly since then. Normally, he said, stock prices bottom out before earnings.

He also indicated that although the economy remains in recession, credit conditions are slowly improving. It’s a good time to purchase stocks while they are still “slightly cheap.”

For the housing market segment, Kathy Deck began where she usually does, with employment numbers, since positive job growth is what normally attracts people to NW Arkansas. Those people, in turn, purchase homes and generally determine the condition of the real estate market, including residential, multifamily and commercial sales and rentals.

Whereas in the past, NW Arkansas seemed to be immune from the type of job loss that was occurring in other parts of the country, the first quarter of this year saw the destruction of about 1300 jobs here, a decline of approximately 1% in non-farm employment. The only sectors in which there was positive job growth were Education and Health, Professional and Business Services, and in the Leisure and Hospitality sector. All other types of employment experienced job loss. Government remained steady.

The commercial sector in NW Arkansas saw very little in the way of building permits in the first quarter, and the amount of available square footage rose in Fayetteville and Springdale, as well as in NW Arkansas as a whole.

For multifamily, the vacancy rates have risen. In Fayetteville this is because of new spaces being added, in the form of new apartment complexes being built. For Springdale, it is because of population movement away from the city.

In the residential sector, the number of building permits issued for Fayetteville is the lowest it has been for many years, less than 50 for the whole first quarter, compared to over 200 during each of the peak 2nd and 3rd quarters of 2005. For Springdale only about 25 residential building permits were issued during Q1, and in West Washington County (which includes communities such as West Fork, Prairie Grove, Lincoln, etc.) new building permits were essentially at zero for the quarter. Nevertheless, the value of the average building permit in NW Arkansas has been rising in Washington County to approximately $190,000.

Needless to say, the number of houses under construction in active subdivisions has also declined, as has the absorption rate. The number of available lots in active subdivisions also showed a small decline compared with Q1 of last year, a positive step. Also showing declines were the number of homes sold in Washington County during Q1 and the average price per house sold.

Unlike in the past, according to Deck, declines in absorption are now because people are not purchasing enough homes. In the past it was because of over-building. Because of the low number of building permits pulled in the first quarter, that is no longer the case.

Affecting the housing market, of course, is the large number of foreclosures (see my post of May 16). This is a major factor driving down home prices.

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