First Quarter 2008 Skyline Report

The quarterly Skyline Report breakfast, sponsored by Arvest Bank, was held last week for Washington County at the Clarion Inn in Fayetteville. Kathy Deck of the U of A Center for Business and Economic Research presented the highlights.

It’s always tough to get up early for these breakfasts, but the information for a real estate agent like me is invaluable, and I never miss them. We’re really lucky to have such good data, which usually confirms my own anecdotal evidence.

Anyhow, here’s a summary:

NW Arkansas’ supposedly “bullet proof” economy is showing some cracks. Of concern is the fact that new job growth in the area is less than the previous few years. And jobs are what primarily attract new people to the area (aside from retirees and those who move here for “quality of life” reasons).

Principally, there was a decline in new jobs created in the Professional and Business Services sector and in the Trade, Transportation and Utilities sector. These are large sectors of NW Arkansas employment and have a significant effect on job growth in the area.

In the commercial real estate sector things are not too bad, according to Deck, since commercial spaces in existing buildings are being filled and there has been restraint in initiating new commercial projects. At present there are 32.7 million square feet of competitive commercial space in NW Arkansas.

However, the multifamily situation is less positive. Fayetteville has the most healthy multifamily situation with one-bedroom vacancy rates under 10% while two-bedroom vacancy rates are just over 10%. Springdale’s two-bedroom vacancy rate is at almost 20%, as is that of Rogers. Bentonville’s two-bedroom vacancy rate is about 15%. Economists consider 5% as a healthy multi-family vacancy rate.

The average lease rate for an apartment in NW Arkansas in the first quarter of 2008 was $513, down 1.4% from the fourth quarter of 2007. The average price per square foot was $0.62 in the first quarter.

What I have been terming “condomania” in previous blog posts continues to plague NW Arkansas, as new complexes continue to be built and not necessarily sold. The luxury condos on the market have a list price of between $150-$200 per square foot. But only one of these was sold in the first quarter at a price above $200 per square foot, and only two were sold at prices above $150 per square foot (actually they sold at $152 per square foot).

There are also lots of lower priced condos on the market, for example, for the university market in Fayetteville. But condos in other towns are not doing as well. In Bentonville the average price of the 3 condos sold in the first quarter was $134,480 or $99.18 per square foot. In Fayetteville the average price was $136,362 for the 13 units sold in Q1 or $106.79 per square foot. Rogers had the highest average price for the 8 units sold there in Q1 at $244,684 or $134.30 per square foot.

For single family homes the situation continues as it has been for the past quarters—lots of homes for sale. In Q4 of 2007, there were 44.9 months of lot/ house inventory in active subdivisions and building permits were low. Few new subdivisions were getting approval and average prices were flat to declining.

In Q1 of 2008 building permits are significantly down compared to Q1 of 2007 in all of the major NW Arkansas towns. However, in some of the smaller towns, building permits are up slightly. The value of the permits is also down, reflecting a more realistic view by builders and developers of what buyers can actually purchase. There remains a glut of high-end homes on the market in NW Arkansas. The average value for building permits in both Washington and Benton Counties during Q1 of 2008 was approximately $150,000. (This does not include the value of the land).

The number of lots in active subdivisions continues to be high and has grown during the past couple of years. Benton County had 11,688 lots in active subdivisions in Q1 of 2006, 15,290 in Q1 of 2007, and 17,001 in Q1 of 2008. Washington County had 7,518 lots in active subdivisions in Q1 of 2006, 9,751 in Q1 of 2007 and 10,561 in Q1 of 2008.

However, new homes continue to be absorbed and (with the decrease in building permits) the inventory is decreasing little by little. This is a necessary adjustment. Nevertheless, there was still a surfeit of lots/new homes on the market in NW Arkansas in Q1 of 2008. Bentonville increased to 57.1 months’ worth. Centerton increased to 70.9 months. Fayetteville stayed at the same level at 41.5 months. Rogers increased to 31.8 months, and Springdale decreased to 29.8 months. For NW Arkansas as a whole, there is 49.4 months of lots/new homes available.

But at the same time new subdivisions were approved through the preliminary plat process by city entities in NW Arkansas. If all of these subdivisions were to be built, this would increase the inventory in NW Arkansas to 108 months’ worth. However, according to Deck, with the current credit crunch, many of these developers may not be able to get financing and thus this potential increase in inventory may not occur.

In terms of prices of homes, the situation varies from city to city. The average price of a home sold in Fayetteville actually increased in Q1 of 2008 compared to Q4 of 2007. In Springdale there was a slight increase, and in the smaller towns of Washington County there was a significant decrease in average sale price. In Benton County, Bentonville’s average sale price increased, as did that of Centerton. The average sale price in Rogers and Siloam Springs decreased in Q1 of 2008. But what is not shown in these numbers are concessions made to buyers, such as help with closing costs.

My own take: the bottom line, confirmed by this data from the U of A, is that there is still a lot of inventory, so it’s a great time to purchase a home in NW Arkansas. For sellers, it’s a less attractive scenario. They must price their homes competitively (i.e. on the lower end of any price ranges of recently sold similar homes) due to discounts that builders are giving to get out from under their construction loans on “spec” homes.

The Skyline Report normally deals with new construction for the residential market, but the average price figures also include re-sale homes. With so many new homes on the market in all price ranges, re-sale homes are suffering and staying on the market longer.

For sellers the key is to price their home to sell, not to sit on the market. For buyers, with so much to choose from, it may be difficult to make a decision. But these low prices (along with low interest rates and high inventory) may not last forever.

A lot of people are waiting for the market to “hit bottom” before they purchase a home. The problem with this strategy is that we won’t know when the bottom hits until it is past, and then prices will be on the rise again.

After the speculative frenzy of the past few years in NW Arkansas, it’s time for some sanity to enter the equation again. The outside investors looking for a quick buck have largely left NW Arkansas, and the main thing to keep in mind is that purchasing a home is traditionally a long-term investment. It’s a place to live and enjoy, raise a family, not just a paper investment like stocks and bonds. The market has declined here, but real estate is cyclical. What goes up must come down, and eventually our market will start appreciating again.

It IS a great time to buy now in NW Arkansas.

For more information on purchasing a home now:

http://www.buynwanow.com (why it’s a great time to buy now)
http://www.NWArkansasHomeSearch.com (search the NW Arkansas MLS)
http://www.JudyLuna.com (general information about NW Arkansas and the home purchase process)