Fayetteville Arkansas, University of Arkansas--Old Main Overview

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

Friday, November 24, 2006

Third Quarter Skyline Report Released

A few weeks ago the Skyline Report for the Third Quarter of 2006 was released. I’m a little behind on my blogging, so I didn’t report the results immediately, but (as they say) better late than never.

The Skyline Report is an economic summary of the real estate market in NW Arkansas, prepared for Arvest Bank by the Center for Business and Economic Research of the Sam Walton School of Business at the University of Arkansas.

Dubbed by some the “sky is falling” report, this summary provides a quarterly glimpse of present and future housing activity for Northwest Arkansas. For the past several quarters, the results have revealed a tendency of builders and developers to build too many homes, especially expensive homes, which are now sitting on the market. What this means for buyers is that it is a very good time to purchase a home, since interest rates are still low and there is a lot of housing inventory to choose from, especially if the buyer wants to purchase a new home. For sellers (including builders of new homes) this means that buyers are now calling the shots, so sellers need to price their homes competitively. Conditions are “worse” in Benton County than in Washington County for builders with a lot of new unsold homes.

Some of the statistics of the report summary include:

1. There were 20,791 lots in the 281 active subdivisions in NW Arkansas in the 3rd quarter, up from 19,326 in the previous quarter. Using the most recent annual absorption rate, the supply of remaining lots in those active subdivisions is sufficient for 46.8 months (almost 4 years worth).

2. In the 3rd quarter of 2006, there were 2956 complete but unoccupied houses. Benton County experienced an increase of 229% in available complete inventory from the 3rd quarter of 2005, with a 23% increase in the most recent quarter alone. In comparison, Washington County experienced a 17% inventory increase over the past 12 months.

3. From May 16 to August 15, 2006, there were 2,224 existing houses sold in Benton and Washington Counties. This is a decline of 1.9% from the same time period in 2005.

4. In the 3rd quarter of 2006 in NW Arkansas, the average sales price of existing houses increased from 3rd quarter 2005 levels by 2.3% in Washington County and by 6.1% in Benton County.

5. There were an additional 19,543 residential lots that have been at least preliminarily approved in NW Arkansas. Adding these proposed lots to those in active subdivisions yields a whopping 112.9 months of inventory in NW Arkansas (that’s 9.4 years for those who don’t want to do the math).

6. The volume of new building permits issued in the 3rd quarter declined dramatically year over year from 1405 to 870.

So what does this all mean for buyers and sellers of homes?

If no new subdivisions are approved, even in the ones already approved and underway, there are a lot of homes out there, ready for sale—almost 4 years worth in active subdivisions and almost 10 years worth in additional subdivisions already approved if these are built out. Economists might see the drop in new building permits as a negative factor, but I see it as an indication that builders and developers are finally getting smart and putting on the brakes to conform to the current reality. A further aspect of this data means that many of the approved subdivisions may not get built out quickly, given the supply of already finished homes on the market now.

Home prices as a whole are not going down. There may be some individual sellers who had their homes priced too high (from the recent seller’s market) and have adjusted them to current market conditions (a buyer’s market). But although home values are not increasing at the double digits of the past several years, there is still appreciation taking place. It’s higher in Benton County than in Washington County, but (I will repeat) home prices are not going down significantly.

Anecdotally, what I have observed is that instead of reducing prices, many builders and even sellers of existing homes are offering incentives to buyers—carpet allowances (for example) on existing homes and builder concessions and extras on new homes such as fences, blinds, closing cost help, etc., where in the past buyers would have had to pay extra for these. The prices aren’t going down (the builders had higher land, development and construction costs during the recent “boom” so it’s difficult for them to lower prices), but they are willing to help the buyers. Buyers can get more for their money now than they could last year when it was a seller’s market.

Another thing that is happening is that home sales have slowed a little compared to the last couple of years. But to put this in perspective, the last 2-3 years were the “hottest” in the history of the area and nationwide with record-breaking levels of home sales. Things are getting back to a more normal pace such as existed prior to the last few years of craziness. And a 1.9% decrease in home sales compared to 2005 is very small, which means that home sales continue to be strong in NW Arkansas. The builders and developers just kind of got ahead of the curve somewhat.

And to refer to my blog of a few weeks ago about the Bentonville development seminar, Jeff Collins of the Center for Business and Economic Research indicated that job creation is remaining steady at more than 600 new positions per month, and there are still about 1200 people per month moving to the area. This means that there is still a continuing stream of buyers available to purchase the homes that are on the market.

All in all, the “sky is NOT falling”, and I see the outlook for the NW Arkansas housing market as positive. Contrary to the national media hype, what’s happening in California and elsewhere is not happening here, and buyers seem to realize this. After a brief dip in sales in September and October (which could also be explained by seasonal factors), more home buyers are out on the streets again and seriously looking for homes. But because of the overbuilding as indicated by the Skyline report, some of those high-ticket homes may continue to sit for awhile.

One thing I should mention is that that Skyline Report is a phenomenal undertaking. What the Center for Business and Economic Research does is obtain data from the different cities about subdivision approvals, building permits, etc. Then they send out university students to physically examine what is happening on each lot in active subdivisions. They note whether lots are vacant, under construction, finished but not occupied, or occupied homes. The center also examines data from the NW Arkansas Multiple Listing Service as to home sales data and prices for homes, i.e. average and median prices for different areas

I have been working on a market report, which I (hopefully) will be able to finish within the next couple of weeks. This will provide more specific information about different price ranges, absorption rates, and availability of housing by town in NW Arkansas. Look for this in the near future.

Thursday, November 23, 2006

Washington County Takes Action to Limit Density Near Cities

The Washington County Quorum Court voted November 9, 2006, to implement new zoning requirements near its cities. Because the new ordinance received the nine votes required in order to pass and by invoking the emergency clause, it became effective immediately.

Pros and Cons

Numerous discussions and proposals have been held in past months. As is usual in these matters, citizens held varying opinions on the subject.

Those in favor of limiting density cited lack of infrastructure, particularly fire protection. Rural fire departments have limitations by their very nature and high-density developments pose many problems. Lack of schools and high traffic on country roads were other major limiting factors. A desire to maintain the rural atmosphere also appeared to be a high priority item. Without zoning regulations, there was no way to stop apartment buildings or red-dirt pits from springing up next door to an existing farmhouse.

People against the vote, at least at this time, said more time should have been devoted to public discussion. Some were against zoning restrictions of any type because they don’t like being told what they can do with their land. That is the very reason they chose to live outside city limits. Owners of acreage felt that the new regulations would negatively impact the value of their land. One citizen voiced concern that the regulations were intended to keep less affluent people from being able to buy a starter home in the area.

Regardless, guesswork about when and how the Quorum Court might act have ended. The regulations are now law.

The Bottom Line

Any proposed development that did not have preliminary approval by November 9 is subject to the new ordinance.

The ordinance establishes zoning areas within two miles of larger cities and within one mile of smaller towns. Development in those areas is limited to agricultural uses and single-family homes, which must be situated on at least one acre of land. The larger cities are Fayetteville, Springdale, Farmington, Prairie Grove, West Fork and Lincoln. The smaller cities are Elkins, Elm Springs, Goshen, Johnson, Greenland, and Tontitown.

No action was taken to establish zoning outside the one- and two-mile limits around existing cities.

Certain commercial corridors such as U.S. 412 and sections of U.S. 71, U.S. 62 and Arkansas 16 will be exempt from the ordinance. The exempted area will extend 300 feet from the centerline of the highway.

Only One Other Arkansas County Has Similar Rules

Crittendon County adopted a master use plan in 1974, but it was basically ignored for years until being used again in 2005, according to Crittendon County officials.

It is interesting to note that Benton County was unsuccessful in its efforts to pass zoning ordinances a couple of years ago.

Wiggle Room

The new ordinance also created a Zoning Board of Adjustment, which can approve conditional use permits if the development is deemed compatible with the surrounding area. The Board will require a written application and fee plus notification to neighboring property owners that a variance is under consideration. The Board will determine whether the proposed use is compatible with the area and whether or not it appears to be detrimental to the area or a danger to the public. The proposed use must also not interfere with surrounding property owner's enjoyment of their land.

Currently, a permit is not required to build a single-family home as long as it will be on at least one acre and no land splits are involved. The Quorum Court has a proposal under consideration that would require a permit in the future. The proposal will have its second reading in December and its third and final reading in January 2007.

For more information: