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.
• 
  
•  ·     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.
• 
  
• ·       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.
• 
  
• ·      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.
• 
  
• ·       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 

Skyline Report for the First Half of 2012

In local and state publications, the official announcement of the most recent Skyline report happened last week. Actually, the Washington County preview for real estate agents and others was a couple of weeks ago at the now-biannual (used-to-be-quarterly) breakfast in Fayetteville. I was there; I just didn’t get my blog post written before the official announcement.


Anyhow, things are looking up in the NW Arkansas housing market, according to economist Kathy Deck, director of the Center of Business and Economic Research at the U of A, which is in charge of preparing the report for Arvest Bank.

In her presentation, she contrasted the positive economic outlook in NW Arkansas to that in the country as a whole, which she described as “slow, slogging steady growth.” She said that employment in NW Arkansas in June was at an all-time record high of 211,100 jobs, which equals what it was during the peak of the housing boom about 5 years ago. The importance of good employment opportunities is a constant theme in Deck’s presentations, since jobs are what draw people to the area and thus stimulates the housing market here.

Another positive highlight from the report was the lowering of multifamily vacancy rates in the area, which now generally are near 5%. Just a few yours ago in the 4th quarter of 2009 these hovered between 15% and 20%. In Fayetteville particularly, these positive numbers have resulted from the increase in enrollment at the University of Arkansas, which now has about 25,000 students. Recent university announcements have set the new goal for projected growth at 28,000 students. Although there are a number of projects in the pipeline, based on building permit applications, there is some room for expansion of multifamily dwellings.

As to residential building permits, there has been a small increase, but this is warranted as the existing inventory of single family homes is absorbed (that means that people are finally out there buying houses). Another factor is that more expensive homes are being built. Nevertheless, the number of so-called “spec” homes is still relatively low, unlike the boom years when too many homes, especially expensive homes, were being built.

The bottom line is that home prices in NW Arkansas appear to have bottomed out in many price ranges. It also varies according to town. In Bentonville, for example, absorption is up compared to Washington County, where it has remained somewhat flat.

Deck also suggested that interest rates will probably remain low for the foreseeable future, as the Federal Reserve tries to stimulate the economy. With continuing low interest rates and with continued absorption of inventory, prices may continue to rise—a definite turnaround from recent years.

For some of the more detailed data in the report, articles in the NW Arkansas Business Journal and the Arkansas Business Journal have some specifics.

I am a big fan of the Skyline report, and I think we NW Arkansas real estate agents are very fortunate to have such a wonderful resource at our disposal. Basically, it gives me facts and figures to support what I’m seeing on an anecdotal basis in my daily business of selling homes. Most realtors I talk to are in agreement that the market has picked up significantly this year, starting last spring. The new Skyline Report supports that perception.

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.

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)

Good News and Bad News--NW Arkansas Housing Market

The good news is that now is a great time to purchase a home in NW Arkansas. With continuing low interest rates and a rising inventory of homes on the market, there is a lot to choose from for buyers. Prices have come down slightly, but the market in NW Arkansas has resisted this trend (which has devastated home values in other parts of the country), largely because of a robust economy.

The fear that prices may decline after they purchase a home is not necessarily one that buyers should be concerned about, depending on how long the buyer intends to live in the home purchased. The thing to remember is that traditionally a home purchase has been considered a long-term investment, not a short-term investment with double-digit returns. The housing market is not the stock market.

Home sellers in NW Arkansas have gotten spoiled in the past several years as appreciation rates soared. That drew investors from all over the country in a speculative frenzy, competing with buyers who actually wanted to live in the homes they purchased, driving up prices even further and faster. The peak was approximately in the 4th quarter of 2005, after which prices did decline.

But prices rose too far too fast and a correction was inevitable. The real estate market, after all, is cyclical. Now the investors and speculators have gone on to seek greener pastures elsewhere, so the absorption rate has slowed. Demand has fallen with fewer buyers on the streets (there is a seasonal factor at play here—winter and bad weather DO influence the real estate market in NW Arkansas). Homes are on the market longer, even in lower price ranges.

The result is lots of choices for buyers, many of whom are looking for a great deal. There are some very good buys now, but not every home can be gotten for a “steal.” Many buyers are still sitting on the fence, waiting for prices to go down. This may happen, but activity after the first of the year has increased, and when the weather improves and more buyers enter the market, those great deals will disappear quickly. That home that a buyer may have been “thinking about” may be sold, and the leisurely pace of looking for a home will disappear.

My advice to buyers is twofold: 1) if you find a home you really like, which meets your family’s needs, make an offer before it is sold to someone else; and 2) enlist the services of a reputable realtor to serve as your buyer agent, someone who is knowledgeable about the current (constantly changing) market, who will do a market analysis on the home you are about to purchase and guide you as to a fair price to offer while assuring that you don’t pay too much.

These comments are supported by the numbers. This past Thursday morning the Skyline Report was released at the regular quarterly breakfast in Fayetteville at the Clarion Inn. Kathy Deck, director of the Center for Business and Economic Research of the University of Arkansas, summarized the real estate market for residential, multifamily and commercial properties. She was guardedly positive as she presented housing market data for the 4th quarter of 2007.

Although there has been a decrease in the number of people moving to the area due to a decrease in the number of jobs created, the current level is still respectable. The five-year average of new jobs created in NW Arkansas has been 550 new jobs per month. At one point, during the peak, there were over 650 jobs created each month in NW Arkansas. This led to about 1200 people per month moving into the area. In 2007 just over 400 new jobs were created each month, and although Deck does not have new census figures yet, she estimated the number of people currently moving to the area each month to about 900.

For commercial space and multifamily units, vacancy rates are up. Some of this is due to over-building, and a decrease in new building permits may actually be a positive thing. In Q4 new commercial building permits in Rogers, for example, approached zero, while in Fayetteville there are continuing new projects in the pipeline. The situation in each town is different.

Multifamily vacancy rates are also up. According to Deck, the “ideal” vacancy rate (according to economists) for multifamily is between 5-7%, while rates under 10% are considered OK. Fayetteville’s multifamily vacancy rate for Q4 of 2007 was still under 10% but was higher than it was in Q3 of 2007 for 1 bedroom and 2 bedroom units. However for Springdale, Bentonville and Rogers, multifamily vacancy rates were over 10% and in some cases over 15%.

For residential properties, the Skyline Report looks mostly at activity in new construction in active subdivisions. In Q4 of 2007 the available inventory of new homes (including lots and homes under construction) represented a 44.9-month supply, up from a 42-month supply in Q3 of 2007. Building permit levels for new home starts continued to be low and there were few new subdivisions getting approval from city entities. This continued a trend begun in Q3 of 2006. The only NW Arkansas town with an increase in building permits issued in Q4 of 2007 when compared to Q3 was Rogers with a slight increase. Fayetteville observed only a slight decrease, while the other major towns experienced a larger decrease when compared to Q4 of 2006.

Other statistics showed more negative numbers, which in some cases is actually a positive thing as the housing market corrects itself. For example, in Q4 of 2007, there were 2,210 complete but unoccupied new homes in active subdivisions, a decline from 2,276 in Q3. Benton County experienced a decline of 3.6% in available complete inventory from Q3 of 2007 and a decline of 29% from Q4 of 2006. Washington County experienced a 2% decline from Q3 of 2007 and a 17% decline from Q4 of 2006. This means that more new homes have been purchased and are now being lived in—a good thing.

In other cases, the negative numbers actually reflect negative factors. From August 16, 2007 to November 15, 2007, there were 1357 existing homes (as opposed to new construction) sold in Benton and Washington Counties. This is a decline of 23.9% from the same period in 2006. This means that there were fewer re-sale homes sold in this time period of 2007, compared to 2006.

Similarly in Q4 of 2007 in NW Arkansas, the average sale price of existing houses declined from Q4 of 2006 by 2.2% in Benton County but it increased by 4.6% in Washington County.

In related news (drawing on data from the Arkansas Realtor Association and other sources), the two local newspapers report that NW Arkansas is better off than other parts of the country. A Morning News article cited data indicating that home prices in Benton County actually increased in 2007 by 1% compared to 2006, while in Washington County prices remained flat. The bad news is that there was a substantial decrease in the number of home sales in Washington and Benton Counties, and homes stayed on the market longer. In 2007, according to the Morning News, the number of home sales decreased by almost 20% in Benton County and by just under 11% in Washington County compared to 2006. Nevertheless, 2007 was the 3rd best year in history for home sales in the two counties.

Another article in the Arkansas Democrat Gazette confirms that statewide the number of homes sold dropped by 8.9%, but that was only about 10% below 2005 home sales, which was the best year in history. Home prices statewide did not decline but remained steady in 2007, unlike other parts of the country.

In my opinion, the continuing high inventory may put some downward pressure on home prices. But this is a necessary correction. In past Skyline Reports, Deck has indicated that the expected decline did not occur in 2007, and the newspaper reports indicate that prices remained steady in ’07 (good news for sellers). Even now, although there has been a decline in the number of homes sold and homes are staying on the market longer, buyers shouldn’t necessarily expect to be able to have so-called “low-ball” offers automatically accepted.

It IS a great time to purchase a home, but buyers in NW Arkansas must also be realistic. Real estate is essentially local, and NW Arkansas trends are generally better than what is reported in the national media. We have a healthy market in which construction and development has slowed in order to get the current high number of new homes sold. A correction is occurring, but it’s not anything close to the “doom and gloom” that is reported nationally.

The key to making a smart home purchase in any market is an experienced real estate agent who knows the market. And even if the agent doesn’t know as much as he or she should, buyers should ask him/her to do a market analysis on the home they decide to purchase. There are still some overpriced homes out there, but most sellers--who listen to their agents—have started to price their homes competitively.

And for sellers, there is usually a range of prices at which a home can be listed. Sellers should price their homes at the lower end of that range in order to be competitive now. It doesn’t matter what a seller has in the home, the market ultimately determines the value. And if an offer comes in that is less than ideal, accept it anyhow. There are so many homes for sale that buyers may just move on to their second choice home, and sellers may end up waiting for months more to get another (probably lower) offer.

I’m still working on my own market report for 2007, so for now I need to depend on statistics from other sources. I’ll have more analysis when I get my own report done in the near future.

For more information:

http://www.nwaonline.com/articles/2008/02/14/business/021508stablehomeprice.txt
http://www.nwanews.com/adg/Business/216877

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

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

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.