New Skyline Report on the NW Arkansas Real Estate Market

The newest Skyline Report is out. I always like to attend the special breakfast that Arvest holds to present the newest findings as they affect the housing market in NW Arkansas. They usually confirm my anecdotal perceptions, only with facts and figures. Kathy Deck of the Center for Business and Economic Research at the U of A, which prepares the report for Arvest, usually presents the highlights.

Some of the findings for the NW Arkansas residential market:

•  ·      Occupancy rates of new homes in NW Arkansas took an impressive jump during the last six months of 2013, increasing 60.7%, compared to the first six months of the year.
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•  ·     From July through December 2013, 1,279 new houses in active subdivisions in Washington and Benton counties became occupied. The January-through-June-2013-number of new homes occupied was 796.
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• ·       A look at the number of residential building permits indicates a reasonable amount of new construction taking place rather than the overabundance NWA experienced in the past, especially during the housing bubble. Benton County accounted for 725 of the residential building permits over the last six months of 2013, while Washington County accounted for 369.
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• ·      The average price for all homes sold in Benton County from July 1 to December 31, 2013 was $183,983. That’s a insignificant decrease of less than 1% from the January 1-June 30 sales of $185,500. Price per square foot also decreased 0.2% from $82.43 to $82.29.
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• ·       Meanwhile in Washington County, the average price of existing homes sold was $186,493 in last half of 2013. That’s a 7.2% increase over average price of $173,493 during the first half of 2013. Average price per square foot increased accordingly from $83.94 to $87.87, a 4.7% increase.

For multifamily housing, the vacancy rate remained low during the final 6 months of 2013 at 5.8%, although this represented an increase from the same period in 2012, which was 4.3%. There was a significant increase of units built and absorbed during this period. However, there are another 4000 units scheduled to come on line, which will be slower to be absorbed.

And for commercial real estate, some of the space has been there for awhile and is still there—it’s the wrong kind of space in the wrong place. New spaces are being more quickly occupied as they meet current demands. Nevertheless, there was a net positive absorption of 385,607 square feet in the NW Arkansas market and an overall vacancy rate of 13.6%, down from 14.6% in the first half of 2013.

Altogether, an important factor for all sectors of the real estate market is jobs. Without employment growth, there is no impetus for improvements in the housing market. More people moving into the area because of employment opportunities fuels the housing market. In the last 6 months of 2013, unemployment decreased in the area and job growth increased. There is a high degree of employment by people 55 years and older.

For more information: Residential Summary 

Housing Sector Still Struggles, But Some Bright Spots Appear

On Friday I went to the Quarterly Business Analysis Breakfast sponsored by the U of A Center for Business and Economic Research. I like to go to these events because usually Kathy Deck, the director of the Center, gives incisive and informative economic data about Arkansas as a whole and NW Arkansas in particular. This usually confirms and explains what I see on a day-to-day basis as a real estate agent in the trenches.

Her presentation on Friday was basically positive, compared with previous meetings. The economy is getting better, according to the indicators she talked about--measures like GDP growth, Consumer Sentiment, Inflation, Unemployment, Job Growth, and the like.

The key to the real estate market in NW Arkansas is employment, and it appears that we're ahead of the curve compared to the rest of the state and to the US as a whole. If we don't have jobs, people will not want to move here. And if we don't have jobs, even people already here won't be able to buy a house. Increased employment will bring more home sales in the short term, as will seasonal factors.

But the construction sector will not lead economic growth in the near future according to Deck, rather it will follow it. And the tax credit of last year is long-since past. In addition, there is a large inventory of homes on the market, not to mention a full pipeline of foreclosures. These will continue to put downward pressure on prices.

The housing situation may be a bit brighter for some. It depends largely on an individual’s financial status, goals, and whether he is buying or selling. Home affordability in NW Arkansas, as well as nationwide is higher than it has been for a long time. And interest rates remain very low.

Nationwide the glut of unsold houses on the market is shrinking and absorption is occurring. No matter who you are, that is good news. But the glut (including foreclosures) has to be sold off before prices can stabilize. Prices will not begin to rise again until that glut is substantially gone.

Unfortunately, foreclosures are still occurring at a fairly high rate and for a time may even increase once mortgage holders work through the investigations into their sloppy foreclosure practices of the past.

Recent national statistical measures indicate sales are increasing when compared month over preceding month. However, year over year sales are down because sales in the early months of 2010 were artificially higher due to the homebuyer’s credit, which expired last June.

In some markets, prices seem to be at or near the bottom and investors are snapping up homes to rent out while they wait for the inevitable price increases.

Meanwhile, renters are feeling the impact from many sides. Owners who lost their homes through foreclosures were forced into the rental market. Builders stopped building new apartments when the economy turned sour. Some older apartment buildings have been torn down while other apartment complexes were turned into condos. More people wanting to rent fewer apartments means higher rents. The sad part is many lower income families are paying as much as 50% of their income on rent and utilities.

The March 2011 interest rate on a 30-year fixed rate mortgage was 4.84% - an excellent rate. But banks and mortgage companies are requiring higher credit ratings and higher ratio of income to monthly mortgage payment. I’m sure this is their response to the ridiculously low standards they used in the past – the standards that caused the whole housing debacle in the first place.

If lenders would return to the ratios that were in place for years before the debacle, more credit worthy borrowers would qualify to buy a home.

As the economy continues to improve, buyers will become more confident about the positive aspects of home ownership. There are already more buyers out looking, and as the spring progresses and the economy continues to improve, this will increase.

The housing sector will probably continue to struggle for awhile yet, but there are bright spots and I am seeing glimpses of more to come.

For more information:

Arkansas Business Journal
RISMEDIA
National Association of Realtors
Washington Post 1
Washington Post 2

Real Estate News in NW Arkansas

Now that I’m reading the local newspaper on line again, I can use it to help my readers find information on news and issues of importance for the area.

With regard to real estate there are a few things.

First, an article Saturday in the new NW Arkansas paper provided good information about the housing market in NW Arkansas in relation to property taxes collected and delinquent taxes. It seems that the sum of delinquent taxes declined last year, but that doesn’t necessarily mean that the housing market is improving.

Second, last Friday was the annual Economic Forecast Luncheon at the Hammons Center in Rogers, sponsored by the Center for Business and Economic Research at the U of A Sam Walton School of Business.

We learned about recent occurrences in the world, national and local economy and postulations about what’s coming in the near future. Actually the outlook was more positive than I would have imagined and I hope the crystal balls of the speakers are not cracked or broken. We need some positive economic news to get buyers out into the streets again, purchasing homes.

The economic stimulus measures of the federal government have helped, particularly the first time home buyer tax credit, which was expanded and extended into this year. Now if only the weather would improve… ;-)

The other event which I just found out about at the Metro Board of Realtor Luncheon on Thursday was the imminent merger between two of the large local real estate companies of NW Arkansas, Harris McHaney and Coldwell Banker Faucette Realty. This will make the largest real estate company in the NW Arkansas area.

This comes on the heels of the merger under the Weichert umbrella of the Griffin Company and Weichert Clark Long and Associates in December just before Christmas.

The real estate business in NW Arkansas is a changin’. Small boutique firms (and even larger firms like Griffin and Harris McHaney) are having a tougher time. The housing market has suffered with the recession, and may continue to do so. The recent announcement by Walmart of laying off 300 people here in NW Arkansas may have a chilling effect on the economy and housing market just as Walmart’s layoff of 800 people last year did.

Foreclosures are high and there are a lot of short sales. With some of our major corporate employers also cutting back, growth in the area is bound to be curtailed, compared to the peak a few years ago. This (in turn) will lead to fewer new homes being built and sold at a time when we are still trying to absorb the inflated inventory of homes from our mini housing bubble.

I certainly don’t have a crystal ball, but I’m still optimistic.

For more info on the housing market and property taxes:
http://www.nwaonline.com/news/2010/feb/06/unpaid-real-estate-taxes-dip-20100206/

For more info on the Economic Forecast Luncheon and the economy:
http://www.nwaonline.com/news/2010/feb/06/green-jobs-sustainability-could-boost-area-economy/
http://tinyurl.com/ygyzk98
http://tinyurl.com/yzqehch

For more info on the merger of Coldwell Banker and Harris McHaney:
http://www.arkansasbusiness.com/article.aspx?aID=120146.54928.132287

For more info about Fayetteville and NW Arkansas and purchasing or selling a home there:
http://www.JudyLuna.com

And for searching the NW Arkansas MLS:
http://www.NWArkansasHomeSearch.com

Good Economic News in NW Arkansas

Some thoughts from the Arkansas Economic Issues Breakfast meeting I attended a few weeks ago on September 30…

First, at little background: This was the first in a semi-annual series bringing together Arkansas’s business, community, education and government leaders via video conferencing. There were people gathered in 7 locations, and speakers at three of them. In Fayetteville, the gathering was held at the Sam Walton School of Business at the U of A. The series is sponsored by Arkansas Business to promote economic development by disseminating high-quality information and analyses.

Governor Mike Beebe in Little Rock kicked off the event with good news: "We've added 22,000 new manufacturing jobs in the last 20 months.” Beebe also said we are on the brink of several non-U.S. companies coming to Arkansas.

The general consensus is that Arkansas has endured the recession considerably better than many states. Unemployment rates here never came close to double digits and the housing market did not suffer the huge declines seen elsewhere.

Kathy Deck, director of the University of Arkansas (Fayetteville) Center for Business and Economic Research, stated the recession is technically over, while at the same time acknowledging that the average consumer may not yet be ready to agree. People are still worried about the future in general and continue to be concerned about possibility of unemployment and the decline in value of homes and 401(k) retirement accounts.

On a scale of 1 to 5, with 1 being much better and 5 being much worse, the Fayetteville area's economic condition was ranked 2, which is better than all other areas in the state.

To summarize, NW Arkansas appears to have come through the recession better than the rest of the state and Arkansas, better than many other states.

However, there is always room for improvement. Highway construction, transportation, education, improving job skills, and business investment and expansion are at the top of everyone’s list. Other concerns include the overbuilt real estate market and health care.

For more information:

http://www.arkansasbusiness.com/printable.asp?aid=117380

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.

For more information, see also:

http://www.nwanews.com/adg/Business/260081

3rd Quarter Skyline Report

Last Friday was the Fayetteville breakfast sponsored by Arvest Bank to release the 3rd quarter Skyline report for Washington County and Northwest Arkansas. As usual Kathy Deck, director of the U of A Center for Business and Economic Research, presented the highlights of the report, but also present was Tim Yeager, professor of finance at the Sam Walton College of Business, to talk about the $700 billion “bailout” which has received much attention in the national media.

Of interest to me was his take on the Secretary of the Treasury’s redirection of funds in the TARP (Troubled Asset Relief Program—which is the official name of the bill that Congress passed) from purchasing bad assets to a capital purchase plan. Yeager is in favor of the new plan, which he says is a better use of the funds.

The original plan to purchase bad assets was a bad situation because of the difficulty of pricing the assets, according to Yeager. If the assets were priced at the current deflated values, this would represent a permanent loss on those assets. The other alternative is to wait until the assets have appreciated again.

The new plan is to purchase preferred shares of healthy banks as well as large sick banks. There would be a dividend of 5% in the first 5 years.

Yeager also presented a suggestion that Congress should prepare a new fiscal stimulus plan—“just in case.” We don’t need it now, but if such legislation were in place for the future, it would be better for assuring the financial stability of the US economic system.

Kathy Deck prefaced her remarks about the housing market in NW Arkansas with some observations about the economy. Of importance in this regard is the fact that the unemployment rate here is 4% compared to the 6.5% national employment rate. Employment opportunities are what fuel growth to the area and thus housing growth.

Employment growth here did flatten in 2006. Thus new job creation is not terrific compared with years past (e.g. 6% employment growth at the peak in July if 2005), but in comparison to the negative employment growth in the rest of the country, we’re doing OK. Current job growth in NW Arkansas is about 1% whereas jobs are being lost in the rest of the country.

I’m not much interested in commercial real estate, so I’ll focus on what’s happening in the residential and multifamily sectors.

For multifamily, the vacancy rates for 1 and 2 bedroom apartments is still very high, over 10% for the 3rd quarter of this year. The actual rate was 12.2%, the same as the rate for the 3rd quarter of 2007. According to Deck, a healthy vacancy rate is 5% or less. The rates vary by town with Bentonville the highest with a 15.7% aggregate vacancy rate (down from 17.4% in the 2nd quarter). The rate for Fayetteville was 10.9% in the 3rd quarter, and that for Springdale was 11.6%. Rogers had a decrease to 14.1%, and the lowest aggregate vacancy rate for the 3rd quarter was in Siloam Springs—10.2%.

For residential real estate the Skyline Report primarily looks at new construction. The Center for Business and Economic Research consults with planning departments of NW Arkansas communities to determine new subdivisions which have been approved and building permits which have been issued. They obtain plats and send out students to determine what’s happening on each lot in the active subdivisions. An “active” subdivision is one where construction is currently occurring or has occurred during the past year.

They classify each lot into one of 5 categories: vacant (nothing going on), housing start (slab or foundation), under construction, complete but unoccupied, and occupied.

In both Washington and Benton Counties, the number of lots in active subdivisions has increased, but the number of homes under construction has decreased. In Benton County in Q3 of 2006, there were 12,454 lots, in Q3 of 2007 there were 16,313 lots, and in Q3 of 2008 there were 16,684 lots. In Washington County, there were 8337 lots in Q3 of 2006. In Q3 of 2007 there were 10,450 lots and in Q3 of 2008 there were 10,920 lots in active subdivisions.

There were approximately 100 homes under construction in Fayetteville in Q3, and approximately 240 complete but unoccupied homes. In Springdale there were approximately 50 homes under construction and about 120 complete but unoccupied homes. The absorption rate has been down from past quarters. This means that fewer homes are being sold.

Altogether current inventory of new homes was up in all towns of NW Arkansas with 55.8 months inventory for the 3rd quarter. What this means is that at the current rate of sales, it will take 55.8 months to sell all of the new homes on the market (almost 6 years), assuming that no additional homes are built. This does not take into account existing homes which are also on the market.

One factor of importance is the existence of a lot of foreclosure properties, which are causing a continuing downward pressure on prices. According to Deck, there are 747 bank-owned properties in Benton County, up from 502 six months ago. In Washington County there are 475 bank-owned properties up from 276 six months ago.

Altogether the price of homes sold has continued to decrease in Washington County, but in Benton County, prices have shown less inclination to decline. In Benton County in the 3rd quarter of 2008 the average sales price of existing homes declined by 1.6% and in Washington County by 4.1%.

Of more concern is the fact that from May 16, 2008 to August 15, 2008, there were 1662 existing homes sold in Benton and Washington Counties. This is a decline of 17.5% from the same time period last year.

From my point of view this is a great time to purchase a home. Prices have declined significantly and there are a lot of homes on the market, both new and resale. There are a lot of great deals now.

And for those folks who are waiting for the bottom of the market, we won’t really know when the bottom occurs until after it happens. And then prices will be on their way up again.

The important factor is that real estate investment is not like the stock market. Real estate is a long term investment, not short term. If you want to purchase a home now, plan on holding it at least 5 years to realize any appreciation. So if the market goes down a little more—bottom line is that it doesn’t matter. By the time 5 years have passed, prices will be on the way up again. Real estate is cyclical.

Housing Market Trends in NW Arkansas—Part 2

As I mentioned in Part 1 of this Housing Market Trends Report, real estate is local.

And two reports out last week point to encouraging trends in the real estate market in Benton and Washington Counties. The 3rd quarter Skyline Report and the 3rd quarter report on the economy were both released by the Center for Business and Economic Research at the University of Arkansas.

The numbers show a continued decrease in new residential building permits and improving absorption rates, both of which indicate positive movement for the Northwest Arkansas housing market.

One of the reasons for the current buyer’s market is that there is a very high number of homes on the market. In real estate terms, this is called “high inventory”. To get back to a somewhat balanced market it is necessary to decrease the number of homes on the market compared to the number of buyers.

Everyone has heard of the law of “supply and demand.” Low supply and high demand drives up prices. This was the situation of the past several years, where in order to meet the high demand, builders and developers created many new neighborhoods and built a lot of new homes. Unfortunately now, there is a huge supply (high inventory) and fewer buyers, which drives prices down. But trends in NW Arkansas as indicated by 3rd quarter data do show some positive trends.

For 3rd quarter (July through September 2007), Benton and Washington Counties saw a 5.6% drop in the number of complete-but-unoccupied homes from 2nd quarter of 2007. That’s good news in itself, but even better is that the 3rd quarter 2007 saw a 23% drop from the same period of 2006.

Put another way, in the 3rd quarter 2007, 2,276 complete-but-unoccupied houses in Benton and Washington Counties were available compared to 2,411 unoccupied homes in the 2nd quarter of 2007. This represents a decline of 8.8% in available complete inventory from the 2nd quarter to the 3rd quarter of 2007 in Benton County and a decline of 31.7% from the 3rd quarter of 2006. For Washington County, there was actually a 2.3% increase in inventory over the past quarter and a cumulative increase of 7.7% over the past year. For NW Arkansas as a whole, comparing 3rd quarter 2007 to the same quarter of 2006, the number of complete-but-unoccupied new homes dropped from 2,956 to 2,276.

The absorption rate was better in Benton County than Washington County, which is not too surprising when one considers the dynamic growth that Benton County has experienced. Washington County is a more mature market and while there’s no doubt it too has exploded in recent years, the demand has not been quite as intense as Benton County.

This probably also explains why Washington County home prices have dipped a bit in the past months while Benton County house prices have increased slightly. The average selling price of a home in Benton County increased 1.54% to $192,132. In Washington County the average price decreased 1.83% to $181,796 from $185,130.

Building permits issued in the two counties declined 33% in the 3rd quarter 2007 from the 3rd quarter 2006. A total of 653 residential building permits were issued in the two-county area during the third quarter of 2007, while the average value of new residential building permits remained unchanged at slightly under $165K.

All this points to a general improvement in NW Arkansas. Steady demand for new and existing homes coupled with a decrease in new building permits will help decrease inventory and aid in normalizing the market.

The local situation therefore is not as bleak as the national media would have us believe. It’s actually a very good time to purchase a home here.

1. Prices have decreased, while inventory is still high enough to afford buyers a good selection of homes.

2. The number of new jobs in NW Arkansas continues to increase by about 5,000 annually (3%). But Arkansas as a whole had a disheartening job growth rate of only ½ of 1%.

3. Mortgage rates have dropped somewhat and that will help people qualify to buy more home for the same monthly payment.

4. Less expensive homes are moving at a much better rate than homes costing more than $250,000.

It is also interesting to note that vacancy rates in multifamily housing are increasing throughout the area. Vacancy rates in this type of housing are very cyclical and will undoubtedly improve as the overall market improves.

Many new retail, office, commercial and industrial projects have come on board in the past year so it isn’t surprising that vacancy rates are also increasing in this sector. As buildings sit empty, downward pressure is exerted on rent prices, which may be very tough on developers who completed buildings at record high construction and land costs.

For more information:

http://www.nwanews.com/adg/Business/207770/

http://www.nwanews.com:80/adg/Business/207673

http://www.nwanews.com/adg/Business_Matters/207447

http://www.nwanews.com/adg/Business/207581

http://www.arkansasbusiness.com/article.aspx?aid=100929.54928.113057

http://www.nwaonline.net/articles/2007/11/12/news/111307azskyline.txt

http://www.nwaonline.net/articles/2007/11/13/business/111407homesale.txt

What is the Economic Impact of Hispanic-Owned Businesses in NW Arkansas?

Seeing signs recently in Fayetteville about a Korean restaurant preparing to open triggered thoughts of the many small businesses in NW Arkansas owned and operated by immigrants.

Minority-owned businesses are nothing new, of course. They have been the backbone of America since immigrants first came to America. As the immigrant population grows throughout the U.S., so does the number of businesses owned by minorities.

According to a new study by the Center for an Urban Future, a New York City think tank, immigrants have been more likely to be self-employed than native-born residents in every U.S. census since 1880. Further, immigrant entrepreneurs have been an overlooked and little-understood piece of cities' economies. The research shows that more businesses are being started by foreign-born vs. native-born entrepreneurs in major cities, driving growth in sectors from food manufacturing to health care.

NW Arkansas mirrors the nationwide trend.

Benton County’s overall population grew by 22% in the five-year period 2000 to 2005. At the same time, the Hispanic population grew 78%, from slightly over 13,000 to nearly 24,000. Hispanic population in Washington County showed a slightly smaller percentage of increase, 73%, while the overall population increase in Washington County was 14%. Translating that to numbers means the Hispanic population grew from approximately 13,000 to more than 22,000. Certainly no other ethnic group comes close to such an increase in our area.

So, it’s no surprise to see to see more and more signs in Spanish while traveling in the two counties. There are restaurants, grocery stores, auto sales and repair shops, clothing stores, daycare centers, real estate agents, notaries public, Spanish-speaking radio stations and newspapers, and more.

For many immigrants, entrepreneurship is the best way to rise above a menial, low-paying. Immigrants are known for their willingness to work hard to obtain a brighter future for themselves and their children.

However, they face many significant roadblocks, notably the language barrier and lack of available business loans. Another problem stems from the perception of banks and chambers of commerce the immigrants brought with them from their native lands.

It sometimes takes years for immigrants to feel secure enough to divulge business and personal information to banks. Many immigrants do not comprehend what a banker means when asked about their “business plan.” Their plan is to join with family members and work long, hard hours.

There is no doubt that minority-owned businesses contribute greatly to our local economy but the amount of the impact is difficult to determine. No one in NW Arkansas has made a thorough study. Some area chambers of commerce are reaching out to the Hispanic community, as are some banks. However, a comprehensive study is lacking.

The cost of such a study is the biggest obstacle. The Skyline Report, an economic summary of the real estate market in NW Arkansas which I frequently mention in my blog, is prepared for Arvest Bank by the Center for Business and Economic Research of the Sam Walton School of Business at the University of Arkansas. I’ve read estimates that the Skyline Report costs $250,000 annually. While certainly expensive, this comprehensive analysis is extremely useful for measuring the real estate market.

I believe the economic impact of Hispanic-owned businesses is being overlooked at best and ignored at worst. It is time for a thorough study of their importance in NW Arkansas.

The Hispanic population is the largest minority group in NW Arkansas and the U.S. There is no sense in burying our heads in the sand any longer; Hispanics, as well as other ethnic groups, are here to stay.

Perhaps one of the banks could see the benefits of such a study or area chambers of commerce could join together to fund an analysis. It needs to be done.

For more information:

http://www.nwanews.com/story.php?paper=adg§ion=Special&storyid=180945

http://www.hispanicbusiness.com/news/newsbyid.asp?id=55217

http://www.boston.com/news/local/massachusetts/articles/2006/09/17/
immigrant_businesses_transform_us_neighborhoods/?rss_id=Boston.com
+--+Massachusetts+news (copy and paste this entire link to read the article)

4th Quarter Skyline Report Released on NW Arkansas Housing Market

This past week the Skyline Report for the 4th Quarter of 2006 was released. Announced at a breakfast sponsored by Arvest Bank for Realtors®, developers, and others on Tuesday, February 13, Kathy Deck (Interim Director for the Center for Business and Economic Research) summarized the trends as presented by the data for the 4th quarter of 2006.

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. As Realtors®, we are very fortunate to have this kind of statistical analysis available to us, since it provides scientifically prepared data which confirms our sometimes-anecdotal experience of the real estate market.

The 4th quarter summary provided some interesting statistics. For the past several years, 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. However, this report showed some changes in this behavior, which I would interpret as positive indicators for the NW Arkansas housing market. But there was bad news as well as good news, depending on whether one lives or does business in Washington or Benton County.

According to Kathy Deck, the number of building permits drawn in Benton County has “fallen off a cliff,” particularly in Rogers. They were significantly down in the 4th quarter of 2006. For the housing market as a whole, this was a very necessary step because of the extreme oversupply of homes available in Benton County. The result has been that the number of complete but unoccupied homes in Benton County fell for the first time in many quarters, while the annual absorption rate continued to grow. This means that homes on the market are being purchased by people continuing to move into the area. There are still homes being built but at a slower pace, and employment growth continues at over 600 new jobs per month, which bodes well for continued absorption of homes. Another positive factor is that the price point of the permits pulled indicates a recognition of the need for more affordable housing. In Benton County this was for homes between $100,000 and $150,000 (not including the value of the land).

The data for Washington County, on the other hand, posed some warning signals. Although the number of building permits for Washington County was also down, and the number of homes under construction in active subdivisions was also down, the number of complete but unoccupied homes in Washington County continued to rise, while the absorption rate fell slightly. This means that homes currently on the market will take somewhat longer to sell, compared to Benton County. And with regard to the price point of permits pulled, the price point during the 4th quarter of 2006 was between $150,000 to $200,000 (not including land), which means that more expensive homes are still being built, despite a somewhat inflated supply already available in Washington County.

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 still “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 21,037 lots in the 301 active subdivisions in NW Arkansas in the 4th quarter, up from the previous quarter. Using the most recent annual absorption rate, the supply of remaining lots in those active subdivisions is sufficient for 47.0 months (almost 4 years worth).

2. In the 4th quarter of 2006, there were 2551 complete but unoccupied houses, compared to 2956 in the 3rd quarter. Benton County experienced a decline of 25.5% in available complete inventory from the 3rd quarter of 2006, but an increase of 92.4% in available complete inventory from the 4th quarter of 2005. This is to be compared with the 3rd quarter increase if 229% increase in inventory between the 3rd quarter of 2005 and 2006. In comparison, Washington County experienced a 28.1% inventory increase over the past quarter and a cumulative increase of 33.4% over the past year.

3. From August 16 to November 15, 2006, there were 1784 existing houses sold in Benton and Washington Counties. This is a decline of 21.1% from the same time period in 2005. Even as recently as the 3rd quarter, the decline (compared to the 3rd quarter of 2005) was only 3.1%. What that means is that home sales during the 3rd quarter of 2006 continued relatively stable, while in the 4th quarter the number of home sales declined significantly.

4. In the 4th quarter of 2006 in NW Arkansas, the average sales price of existing houses declined from 4th quarter 2005 levels by 4.5% in Washington County (compared to a continued increase of 2.3% in the 3rd quarter). In Benton County the average sales price continued to climb by 8.0%. .

5. There were an additional 19,811 residential lots that have been at least preliminarily approved in NW Arkansas. Adding these proposed lots to those in active subdivisions yields a whopping 114.8 months of inventory in NW Arkansas (that’s 9.6 years for those who don’t want to do the math).

6. Surprisingly, although construction is down, in terms of employment in NW Arkansas the Construction sector continued to have the highest growth rate. Manufacturing lost jobs, while all other sectors increased. The 2nd highest sector was Professional and Business services, while 3rd was Health and Educational services. Other sectors grew more slowly.

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

As with my analysis of the previous, 3rd quarter 2006 report, the same trends apply. 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—over 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, at least in Benton County. 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. In Washington County, however, home prices have come down. What this means for buyers still sitting on the fence is that a significant adjustment has already taken place. It may continue into the present quarter, but I would foresee that by the time the good weather hits during the 2nd quarter of this year, prices will begin to go up again as more buyers hit the streets.

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. Anecdotally, business has been picking up despite the bad weather, and because inventory is still high, buyers have a lot to choose from. 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, started (i.e. a slab), 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

Economic Forecast for Northwest Arkansas

I attended the Business Forecast 2007 luncheon January 26th, which is presented annually by the Center for Business and Economic Research at the U of A Sam M. Walton College of Business. Once again, NW Arkansas outshines the rest of the state in almost every aspect one might consider.

Three top economic forecasters presented their vision of the world, national, and state/ regional economies.

Here is a summary of the NW Arkansas information I took away from the meeting:

Arkansas in general conforms closely to the national economy, but NW Arkansas far surpasses the rest of the state.

The key point of Arkansas Bankers Association Chairman and UA Associate Professor of Finance Timothy J. Yeager is that NW Arkansas has been the main economic driver for the entire state and this will continue into the foreseeable future.

Arkansas has three main economies – Little Rock/North Little Rock Metropolitan Statistical Area, the Fort Smith MSA and the Fayetteville-Springdale-Rogers MSA, which includes Bentonville plus McDonald County, Missouri.

Although a loss of manufacturing jobs slowed the state’s overall economy in 2006, the state is expected to closely echo the economic growth of the country during 2007 with some variations in regional performance.

NW Arkansas created 62,400 new jobs in 2006, or 61% of all the new jobs created in the state. Little Rock created 36,500 jobs, or 35% of the total. The rest of the state saw only 4,000 jobs created, or 4% of the total.

The Fort Smith area is suffering greatly due to the loss of manufacturing jobs, which are being out-sourced to other countries.

The main negative in NW Arkansas is the oversupply of new homes available. However, NW Arkansas remains recession-proof despite the housing slowdown. People are still moving here at the rate of some 1,100 people per month which means the homes will be absorbed--it will just take a year or possibly longer. “Housing will not take Northwest Arkansas off track” said Yeager.

All in all, an excellent forecast for NW Arkansas.

For more information:

http://www.nwanews.com/adg/Business/180090/

NW Arkansas Population Growth

The Center for Business and Economic Research at the University of Arkansas has done a series of studies of the economy, not only of Arkansas and the nation, but also specifically measuring economic factors in NW Arkansas. Some of their results are very interesting. In terms of population, using data from the Census Bureau, the Center estimates that the population of NW Arkansas will increase 60% by the year 2025, using 2002 as a baseline year. The 2002 population of the area was 780,541. The estimated population in 2025 (according to the Center) will be 1,253,234, which will be almost 1/3 of the population of the entire state of Arkansas in that year. Other parts of the state will also gain in population but at a lesser rate, and the SE part of Arkansas is actually losing population.

Source: U of A Center for Business and Economic Research