Q2 Skyline Report a Mixed Bag—the Good, the Bad and the Ugly

I try to attend as many events as possible, sponsored or promoted by the Center for Business and Economic Research of the Sam Walton School of Business at the University of Arkansas. The information given often gives validation to my own anecdotal observations about the economy and the housing market in NW Arkansas.

Last Friday Arvest Bank (for whom the report is prepared) sponsored a breakfast for Realtors® and affiliates in Washington County to outline the contents of the 2nd quarter Skyline Report prepared by the CBER. The Skyline Report looks at Residential, Commercial and Multi-Family real estate in Northwest Arkansas. However, Kathy Deck, Director of the Center, usually puts this information into a larger economic context in her presentations.

According to Deck, the key to the real estate market in NW Arkansas now is employment opportunities. Although our unemployment rate is significantly lower than the national rate, it is still higher than in past years. And without new job creation, new people will not be drawn to the area to buy or rent houses or apartments or to lease or purchase commercial space.

Another factor is that although most national economic measures show a recovery, consumer confidence is still very low. Thus despite the lowest interest rates in years and incentives such as the tax credit, most people are not feeling like the economy has improved and are acting accordingly—saving more and spending less, especially on credit. Plus nationally, large private sector employers are not hiring new people (which one would normally expect in an improved economy), despite increased profitability.

In NW Arkansas, there was a 0% net increase in non-farm employment growth between June of this year and June of 2009. There was increase in education and health services, government, professional and business services, but the other sectors lost jobs. These included the leisure and hospitality sectors, financial activities, trade and transportation, and construction.

In the commercial real estate sector, there were 70,805 square feet of positive absorption in Fayetteville in office and retail space, and there were 127,787 square feet of positive absorption in Springdale, primarily in warehouse space. Nevertheless, in all categories of space, there was more available than one year ago, a dangerous situation since the absorption was weak compared to the amount of space available. There were also anecdotal reports of so-called “aggressive tenant demands” and free rent, greater build-out allowances, delay of scheduled lease rate increases at renewal, and the removal of long-term termination clauses. Commercial vacancy rates in all of the NW Arkansas communities are higher than the national average of 8%.

In the multi-family sector, there are variations between Fayetteville and Springdale, due primarily to the fact that rental units associated with the University of Arkansas comprise a large part of the rental market. However, in Fayetteville the vacancy rate for 1 and 2-bedroom apartments is high, primarily since in the past few years there were a number of large complexes built to accommodate a proposed increase in the number of students at the U of A. Enrollment did increase, but the university also built some new dorms, so with the new apartment complexes this created a glut of rental housing in the university sector in Fayetteville.

The Q2 Skyline Report distinguishes between units newer than 2008 and those which are older. The vacancy rate for the 11,256 older units in Fayetteville was 15.4%, while that for 1885 units constructed in 2008 or later was 31.2%. New apartments have also been constructed in Springdale, where the vacancy rate for 5,732 older units was higher in Q2, 12.9%, while for 312 newer units built after 2008 was 6.7%. In NW Arkansas as a whole the vacancy rate for 25,476 units constructed before 2008 was 14.0% and for units built in 2008 or after was 34.8%. Many of the units constructed in 2008 are still vacant.

With regard to condominiums, Fayetteville has the largest quantity of these. In Q2, there were only 9 sold in Fayetteville with an average sales price of $120 per square foot. However, one did sell for over $300 per square foot, 2 more sold for over $100 per square foot, and the remaining 6 sold for less than $100 per square foot. From my own experience, the Fayetteville condos are of three different types at different price points—the pricey central Fayetteville units as compared to those elsewhere in the city and the least expensive condos for the university market.

Finally, in the residential sector building permits are back at 2008 levels, a reasonable balance between the net increase in population vs. the number of new houses being built to serve those families. Gone are the days of overbuilding with a huge inventory of new homes. Now the oversupply is in existing housing. Currently there are over 5000 homes listed in the NW Arkansas MLS. Prices are more stable and have declined less in Q2 than in past quarters: 2.9% in Washington County and 2.3% in Benton County.

Altogether, we have to wait and see what will happen with the housing market. Despite incentives in the government stimulus measures passed by Congress, it has not improved markedly, and in NW Arkansas, prices are still generally declining. It’s a great time to purchase a home since interest rates are at record lows, but with consumer confidence also low, the task will be to convince potential home buyers to take the plunge. Even though the first-time home buyer credit has ended, the low interest rates--coupled with the large selection of homes on the market at modest prices--make this an ideal time to buy a home.

No Matter How You Look at it, NW Arkansas is a Great Place to Live!

As the days start getting a little cooler and we move into fall, one of my favorite times of year,
I thought I’d mention that NW Arkansas has been selected yet again as being in the top-ten best places to live, raise a family, work, and retire. Kiplinger Magazine recently published two articles highlighting Fayetteville and the surrounding area.

Of course, Kiplinger isn’t the only authority on the subject. U.S. News & World Report, Sperling’s Best Places, Forbes and others have all placed NW Arkansas in the top ten of their recent surveys. My family and I moved here 15 years ago and we continue to be glad we did.

NW Arkansas has a great reputation, and rightfully so.

Housing is very affordable. Cost of living is low compared to most places. On a scale where 100 is considered ‘average’ for the country, NW Arkansas comes in at a very respectable 90.

Air is clear and clean. The natural beauty of the Ozarks is everywhere. There’s a big push to go ‘green.’ The area is attracting businesses and industries that are not only non-polluting but that also are in the sustainability business. (Think consulting, water purification, packaging, electronics and lighting.)

The climate is moderate during all four seasons. Springtime is gorgeous with flowering dogwoods and redbuds everywhere. Summer is not bad by most standards. As I write this (in mid-August) my windows are open and a gentle breeze is coming in. Autumn is more beautiful here than outsiders imagine. Gold and red leaves color the rolling hillsides, some years more spectacular than others. Winters are generally mild - some snow that usually doesn’t hang around more than a few days. I grew up in northern Minnesota where temperatures of minus 30 degrees are common so I think it’s positively balmy here. I have friends who moved here in 2004 and they have yet to pick up a snow shovel. Of course there are days in summer that I wish were cooler and winter days I wish were warmer, but I’ve said that no matter where I lived.)

Even in these tough times, the economy continues to expand. Unemployment is low, falling one half a percentage point to 4.5% in Arkansas for July 2008. That’s the lowest level since April 2001, according to the U. S. Bureau of Labor Statistics.

Health care availability is excellent and quality is high.

People are friendly and polite.

The University of Arkansas in Fayetteville offers all types of sporting events and free classes to people over age 65.

Sports and recreational activities abound. There’s Beaver Lake with more than 400 miles of shoreline for swimming, boating, and fishing. There are festivals such as Bikes, Blues and BBQ, farmers’ markets, world-class golf, polo, minor-league baseball and many more activities every weekend.

Broadway shows and major stars appear regularly at the Walton Arts Center in Fayetteville.

But mainly it’s the beauty of the Ozarks coupled with affordable housing that makes NW Arkansas so appealing.

Prices have come down in the past year making housing even more affordable. At the present time, you can buy a brand new 3 bedroom, 2 bath, brick home for less than $150,000. There are previously owned homes for less. Just about anything you’ve dreamed about is available at great prices.

Go to my website http://www.judyluna.com/ and click on “Search for Homes” to do your own search. As always, if I can be of help, don’t hesitate to call me at (479) 966-0435.

Two notes worth mentioning:
The Chamber of Commerce did not ask me to write this article !
The population figure of 419,455 mentioned at http://www.kiplinger.com/features/archives/2008/05/2008-best-cities-fayetteville.html includes all of Washington, Benton, and Carroll counties in NW Arkansas plus McDonald County in SW Missouri. The actual population of the City of Fayetteville is approximately 68,000.

For more information:

http://www.judyluna.com/

http://www.kiplinger.com/features/archives/2008/07/real-estate-prices-in-our-best-cities-2008.html?kipad_id=47 (where you can compare housing costs in different price ranges)

http://www.kiplinger.com/features/archives/2008/05/2008-best-cities-fayetteville.html

http://www.arkansas.com/city-listings/city_detail.aspx?city=War+Eagle

Fayetteville MSA Receives Another #1 Rating

Our best-kept secret has been announced to the world by Bert Sperling of Sperling’s Best Places fame. Sperling has previously researched and written books about a variety of issues such as the best places to raise a family and cities with the lowest crime rates.

This time Sperling looked at quality of life, affordable housing, high percentage of home ownership, low unemployment and fast rate of job growth. He discovered the Fayetteville Metropolitan Statistical Area (MSA) and ranked it number one in the country. (Fayetteville MSA includes Fayetteville, Springdale, Rogers, Bentonville and stretches into extreme southwest Missouri.)

The area boasts five-year-job growth of 26.1% and a low unemployment rate of 3.5%. In addition to the headquarters for Wal-Mart, Tyson and J.B. Hunt Trucking, many other Fortune 500 companies have offices here.

Living costs are low. According to the book, the median home price in the Fayetteville-Springdale-Rogers area averages $212,300 for a 3-4 bedroom home with approximately 2,000 sq. ft. of living area.

We have the University of Arkansas-Fayetteville with all their sports and cultural activities, several museums plus a world-class museum scheduled to open in 2009, a large performing arts center, excellent medical facilities, and our own regional airport with non-stop service to Chicago, Houston, Detroit, Minneapolis and additional cities.

Add all that to the clean air and natural beauty of the Ozarks, many lakes including Beaver Lake with its 449 miles of shoreline, and a very livable four-season climate and you can easily understand why Sperling found this area so attractive.

For the past several years, some 1000-1100 people have been moving here each month. I guess Bert Sperling isn’t the only person to recognize a good thing when he sees it.

For more information:

http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=3863709
http://www.nwanews.com/nwat/news/51179

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/

Expanded Region Slips to 8th Place in Milken Rating

Northwest Arkansas’ slip from No. 7 to No. 8 in the Milken Institute’s rating of the nation’s most vibrant economies for 2005 is a cause for celebration rather than concern, state economists say.
In the rankings released February 22, the Fayetteville-Springdale-Rogers Metropolitan Statistical Area (MSA), which includes Bentonville, ranked in the top 10 of the largest 200 cities for the third year in a row. The area made the No. 1 spot in 2003, then dropped to No. 7 in 2004. In 2002, the MSA ranked 23 rd in the top cities list.

The nonprofit Santa Monica, Calif.-based think tank ranks the nation’s metropolitan statistical areas for the best overall economies each year. Researchers base the rankings on several criteria, including job and wage and salary growth over the past five years. The institute helps business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity, according to its Web site.

Lorna Wallace, a Milken Institute research fellow and senior staff member, attributed the drop to No. 8 to the U. S. Census Bureau’s addition of Madison County and McDonald County, Mo., to the MSA. The two counties were not considered in the Milken study last year. The Milken Institute relies on the Census Bureau’s definition of metropolitan statistical areas for its study groupings.

“The Fayetteville-Springdale-Rogers MSA has a robust economy that outshines the rest of the state and most of the country,” Wallace said. “Its job growth rate by far exceeds the national pace.”

Wallace cited Bentonville-based Wal-Mart Stores Inc. ’s heavy influence on the regional economy for both positive and possible future negative factors. She also cited the presence of other national-level employers such as J. B. Hunt Transport Services Inc. and Tyson Foods Inc. and the University of Arkansas, a strong research university, as positives for the area.
The next-highest ranked larger metropolitan area in Arkansas was Little Rock-North Little Rock, ranked No. 94 overall and up from No. 106 in 2004. The city’s lowest sector ranking was in job growth, at No. 168 with 0. 24 percent. Fort Smith also ranked higher this year, moving up to No. 154 from No. 155 in 2004.

Three Arkansas MSAs were included in the Milken listing of the best 179 small cities. Hot Springs was ranked at No. 69. It was not ranked in 2004. Jonesboro ranked No. 99, down from No. 64 in 2004. Pine Bluff was ranked at No. 144, down from No. 94 in 2004.
Mitch Chandler, director of communications for the Arkansas Department of Economic Development, said Northwest Arkansas ’ ranking for the third year shows that the area’s growth is a proven trend. “This shows the phenomenal and consistent growth of the area.” he said.

Job and wage growth are the strongest contributors to the listing, said Jeff Collins, director of the Center for Business and Economic Research at the Sam M. Walton College of Business.
The Walton College is part of the University of Arkansas at Fayetteville. “Job and wage growth is a 15- to 20-year trend, not a one- to two-year trend,” Collins said. “Given that this measures the entire country on the same data, it gives a lot of validation to be listed in the top 10 from year to year.” He predicts that the region will continue to do well with those growth drivers in place. The region scored its highest ranking in the five-year wage and salary growth category, taking the No. 3 spot. It was ranked 14th in one-year wage and salary growth. The five-year job growth ranking was 7th and the one-year job growth was ranked 23 rd.

WEAKEST LINK:
The region’s lowest ranking — No. 154 — was in the area of technology output growth. Collins said the high-tech industry is one in which the state traditionally performs poorly. “Employment opportunities for Arkansas seem to be overly weighted to the lower educated and lower-paying jobs,” he said. And added that even the University of Arkansas ’ efforts to push technology-based business is not enough to push the state out of the lowest levels of technology development. “We still don’t attract a lot of research and development activity, which is the precursor to higher-wage industries,” Collins said. “The UA is still too small in this area. Larger universities can get concentrations of engineers and scientists who can cooperate and collaborate on research.”

HOUSING CONCERNS:
Milken’s Wallace also cited the increased housing values as a growth factor in the region, a positive indicator of the present economy but a possible future concern. “Housing rates and values are near the national level,” she said. “That may pose a risk going forward.” Unless other economic indexes also rise to the national level, increased interest rates or a slowing of the construction rate will influence the affordability of housing in the region. Collins said the housing component is a relatively small sector in the Milken Institute’s ranking data. “But there is some disconnect between supply and demand in housing,” he said. “While I have some concerns about segments in the market, there is still opportunity for growth and profit in housing after careful planning and consideration.” He said the national housing values really don’t contribute much to the local housing market. “The people who are moving in here and buying houses are already paying the national rates,” he said. “This doesn’t affect them.”

Condensed from: NWA News, Arkansas Democrat Gazette, February 23, 2006

Recent Study of Home Prices in NW Arkansas

The Fayetteville-Springdale-Rogers metropolitan statistical area tied with seven other MSAs as the nation’s 144th most overvalued residential housing market, according to a CNN Money report on Jan. 3.

The report cited a third-quarter Housing Market Analysis by National City Corp., a financial holding company, in conjunction with Global Insight, a financial information provider.
The study said the Fayetteville market — which includes Benton, Washington and Madison counties in Northwest Arkansas as well as McDonald County, Mo. — is overvalued by 11 percent. In all, 65 of the nation’s 299 biggest real estate markets are “severely overpriced and subject to possible price corrections,” the CNN report stated.

Other Arkansas cities were deemed undervalued. Little Rock was undervalued by 6 percent. Fort Smith was undervalued by 8 percent. The Memphis area — which includes parts of Arkansas, Tennessee and Mississippi — was undervalued by 8 percent, according to the study.
The most overpriced market is Naples, Fla., the study said, where a single-family, median-priced home sells for $329,970, about 84 percent more than what it should cost.

Reprinted from NW Arkansas Business Journal, January 9, 2006