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Can you wrap your mind around a possible housing shortage in the next decade? For the most part all we hear are statements of doom and gloom. You know what I mean: “Foreclosure rate remains high,” or “Another builder has gone bankrupt,” or “Home prices slip again.”
Indeed, the real estate market in general has taken a beating since the economy began to tank a few years ago. When unemployment began to climb, people were forced to change their living arrangements. Many young people continued to live with their parents instead of buying starter homes. Many older folks stayed in homes that no longer had mortgages. Still another group whose homes had been foreclosed were forced into rentals.
With housing inventories at all time highs, many builders stopped building new homes.
Now that the economic picture is getting brighter and interest rates on mortgages are very, very low, the cycle is beginning to turn.
A recent study from Harvard University indicates demand will call for 16 million new homes during the next 10 years. The demand will be fueled by increases in population and immigration, young folks looking for their first home, baby boomers wanting to downsize, and demand for second homes.
Rent prices have increased and if that trend continues, as seems likely, more renters will return to home ownership.
So, the demand for so many homes does seem possible, maybe not right away, but don't discount the possibility.
Click here for more information.
Showing posts with label housing inventory. Show all posts
Showing posts with label housing inventory. Show all posts
Friday, July 01, 2011
Saturday, May 14, 2011
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
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
Sunday, March 14, 2010
NW Arkansas Housing Market--4th Quarter Skyline Report
In the last few weeks the 4th quarter Skyline report was released by the Center for Business and Economic Research at the U of A. At the quarterly Washington County breakfast sponsored by Arvest (also sponsor of the report), Kathy Deck, director of the Center and chief researcher for the Skyline report, talked about the economy as well as the housing market.
The economy—particularly employment—strongly influences the housing market for Northwest Arkansas. If there are no jobs then people will not move to the area. If we don’t have more people moving to the area, there will be no need to construct new homes, establish new businesses (to fill up the vacant commercial and office space we have), improve rental vacancy rates, etc. And if people don’t need homes, the real estate market suffers. It’s that simple.
Nationally it seems that the economy is picking up slightly, and NW Arkansas figures are somewhat better than the national ones. The GDP is up—which means that production is up. Inventories have been depleted so factories are producing more. Some folks who were laid off have been called back to work, a good sign. On the other hand, employers don’t feel confident enough to hire a lot of new people either. Thus in NW Arkansas employment figures are now at about 2006 levels, while nationally they’re at about 2000 levels.
Bottom line is that although there is some positive growth again, it will not be the “go-go” growth of the bubble years. What is needed is good, sustainable growth. According to Deck, “flat is the new up,” when compared to declines during the recent recession.
In the realm of commercial space in Q4 in NW Arkansas, there was near record available space in all sectors. This is one area where NW Arkansas figures are worse than the national figures. For example, office and retail space in all of the NW Arkansas communities is a lot above the national average, although it varies by town. Thus leasing costs have gone down and there are anecdotal reports of greater demands by tenants—leasing incentives such as greater build-out allowances, free rent, and delays in scheduled lease rate increases, for example.
For multifamily, vacancy rates are also above national levels. The national vacancy rate is 8.5% for 1-2 bedroom apartments. NW Arkansas rates approached 15% in Q4, primarily because of a lot of new apartments which were constructed, especially in Fayetteville. Expected population growth didn’t materialize, so the number of vacant units remains high. Springdale is lower, but still over 10%.
In the single family arena, building permits are now very low but the market can sustain this level. The value of permits issued has risen, since many of the residential building permits are for custom homes in Fayetteville and Springdale. In the smaller towns of Washington County most of the new permits issued have been for small, affordable homes.
The inventory is down and the problem of absorption is no longer due to overbuilding, but rather a slow down of demand (i.e. fewer people are to the area). According to Deck, the market can support a low level of construction, in fact we need to have some construction occur. As available units are absorbed, there needs to be replacement or prices will rise significantly as demand outpaces supply.
Prices on single family homes have continued to decline, so that values are now at approximately 2004 levels. In Benton County, the decline was 7.7% compared to the same period last year, and in Washington County there was nearly a 14% decline. There may be continued adjustment due to downward pressure caused by foreclosures and sales of distressed properties as well as by the decreased absorption rate.
Ultimately, low interest rates, lower prices, and the first time home buyer tax credit make this a wonderful time to purchase a home in NW Arkansas. Not a great time for selling, however. The thing buyers need to remember is that purchasing a home is normally considered to be a long-term investment, so that even if prices continue to decline, they will eventually begin to appreciate again.
Predictions are that interest rates will begin to rise, and (with low rates of construction of new homes) absorption of current inventory will also cause prices to begin to rise again.
For more information about real estate in NW Arkansas visit Judy Luna’s main website:
http://www.JudyLuna.com
To search for homes or other property in the NW Arkansas MLS:
http://www.NWArkansasHomeSearch.com
For more information about the Q4 Skyline report:
http://www.arkansasbusiness.com/article.aspx?aID=120778.54928.132923
http://www.arkansasbusiness.com/article.aspx?aID=120604.54928.132745
The economy—particularly employment—strongly influences the housing market for Northwest Arkansas. If there are no jobs then people will not move to the area. If we don’t have more people moving to the area, there will be no need to construct new homes, establish new businesses (to fill up the vacant commercial and office space we have), improve rental vacancy rates, etc. And if people don’t need homes, the real estate market suffers. It’s that simple.
Nationally it seems that the economy is picking up slightly, and NW Arkansas figures are somewhat better than the national ones. The GDP is up—which means that production is up. Inventories have been depleted so factories are producing more. Some folks who were laid off have been called back to work, a good sign. On the other hand, employers don’t feel confident enough to hire a lot of new people either. Thus in NW Arkansas employment figures are now at about 2006 levels, while nationally they’re at about 2000 levels.
Bottom line is that although there is some positive growth again, it will not be the “go-go” growth of the bubble years. What is needed is good, sustainable growth. According to Deck, “flat is the new up,” when compared to declines during the recent recession.
In the realm of commercial space in Q4 in NW Arkansas, there was near record available space in all sectors. This is one area where NW Arkansas figures are worse than the national figures. For example, office and retail space in all of the NW Arkansas communities is a lot above the national average, although it varies by town. Thus leasing costs have gone down and there are anecdotal reports of greater demands by tenants—leasing incentives such as greater build-out allowances, free rent, and delays in scheduled lease rate increases, for example.
For multifamily, vacancy rates are also above national levels. The national vacancy rate is 8.5% for 1-2 bedroom apartments. NW Arkansas rates approached 15% in Q4, primarily because of a lot of new apartments which were constructed, especially in Fayetteville. Expected population growth didn’t materialize, so the number of vacant units remains high. Springdale is lower, but still over 10%.
In the single family arena, building permits are now very low but the market can sustain this level. The value of permits issued has risen, since many of the residential building permits are for custom homes in Fayetteville and Springdale. In the smaller towns of Washington County most of the new permits issued have been for small, affordable homes.
The inventory is down and the problem of absorption is no longer due to overbuilding, but rather a slow down of demand (i.e. fewer people are to the area). According to Deck, the market can support a low level of construction, in fact we need to have some construction occur. As available units are absorbed, there needs to be replacement or prices will rise significantly as demand outpaces supply.
Prices on single family homes have continued to decline, so that values are now at approximately 2004 levels. In Benton County, the decline was 7.7% compared to the same period last year, and in Washington County there was nearly a 14% decline. There may be continued adjustment due to downward pressure caused by foreclosures and sales of distressed properties as well as by the decreased absorption rate.
Ultimately, low interest rates, lower prices, and the first time home buyer tax credit make this a wonderful time to purchase a home in NW Arkansas. Not a great time for selling, however. The thing buyers need to remember is that purchasing a home is normally considered to be a long-term investment, so that even if prices continue to decline, they will eventually begin to appreciate again.
Predictions are that interest rates will begin to rise, and (with low rates of construction of new homes) absorption of current inventory will also cause prices to begin to rise again.
For more information about real estate in NW Arkansas visit Judy Luna’s main website:
http://www.JudyLuna.com
To search for homes or other property in the NW Arkansas MLS:
http://www.NWArkansasHomeSearch.com
For more information about the Q4 Skyline report:
http://www.arkansasbusiness.com/article.aspx?aID=120778.54928.132923
http://www.arkansasbusiness.com/article.aspx?aID=120604.54928.132745
Tuesday, December 15, 2009
Some Positive News for the NW Arkansas Housing Market
There are a couple of events that I try to attend on a regular basis, because I get validation for my “feelings” about the market gleaned from my own business and from anecdotal evidence from other realtors. It’s “my homework” so I can stay apprised of trends in the market (in addition to the data I pull from the NW Arkansas MLS) and the effects of the economy on our area.
One event is the quarterly Skyline breakfast that Arvest bank sponsors for realtors, developers, builders and others in the housing business in NW Arkansas. Kathy Deck from the Center for Business and Economic Research at the U of A provides information about new home construction, absorption, and the economy of NW Arkansas. Mostly the report for Arvest deals with residential real estate, but normally there are also segments on multifamily housing and commercial real estate as well.
A second similar event is the quarterly Streetsmart breakfast coffee hour sponsored by that organization. Streetsmart is a commercial venture which provides similar data for profit to developers, builders and other real estate investors. They tend to focus more on commercial real estate, but they gather all kinds of data on residential and multifamily as well.
The third is the quarterly economic breakfast sponsored by the Center for Business and Economic Research at the U of A. This provides more general information about the economy with only limited information about the housing market itself. But what’s happening in the local (and national) economy influences housing, so it also becomes important for my personal quest for information.
The 3rd quarter Skyline breakfast was held about 3 weeks ago. Kathy Deck, the director of Center for Business and Economic Research at the University of Arkansas, was cautiously optimistic about the residential housing market, but we’re not out of the woods yet because of national economic trends, which also influence us here.
Third quarter 2009 numbers show signs that demand is beginning to lower the number of new homes available (decreased inventory), but the absorption rate has slowed, not because of over-supply such as occurred at the peak of our housing bubble here a few years ago, but rather because there are fewer people moving into the area.
Kathy always starts her talks with unemployment figures, because job growth is what fuels the demand for housing. As long as there is positive job growth in NW Arkansas people will be drawn here and thus purchase homes. However, the number of people moving here is about 1/3 of what it was at the peak several years ago. Nationally there has been a loss of 8 million jobs in every sector except health services and education. The latter are strong sectors here and the only sectors which have shown positive job creation. There have been some job losses here but not on the scale of the nation as a whole.
Nevertheless, sales of new-but-never-occupied homes increased 30% in the third quarter over the second quarter of 2009. Correspondingly, the available inventory of complete but unoccupied homes fell by 27%. But this is partially because building permits are way down.
The average price of homes continued to decline in the third quarter. The average price per square foot of homes sold in Benton County was $80.26 in the third quarter compared to $97.16 in the third quarter of 2006. In Washington County, the average price fell from $103.63 to $86.28 per square foot.
Other factors in the economy nationally have also affected the housing market in NW Arkansas. These include consumer sentiment--people are saving their money instead of spending it in part because they are being forced to (credit is less available now than it was in the past). Loss of employment have also made people cautious, so they are not buying things. Normally this is a good thing, but if everyone does it (as they are now) then the economy suffers. Retailers are putting fewer products on the shelves, “rationalizing SKUs”, and home builders are not building a lot of new spec homes.
The positive numbers regarding home sales have been spurred by income tax credits of up to $8,000 for first-time homebuyers. These credits were due to expire November 30, 2009 but have now been extended into 2010. And now a new credit is available to current homeowners who wish to buy another home. (For more information on either of these credits, read my blog below, “Homebuyer Tax Credit Extended! Hurray!” posted November 15, 2009.
My suspicion that the multifamily and commercial sectors are suffering was borne out at the Streetsmart Coffee Hour held last week. Tom Reed of Streetsmart spoke and presented some additional economic data which basically supported what Kathy Deck had to say. Hotel/motel tax receipts are down, and those for restaurants are the same as for last year in the 3rd quarter. Job creation has declined—non-farm jobs in NW Arkansas are down by 1.4% or about 3000 jobs. This is better than the state and national figures (2.4% state decline in non-farm jobs and 4% national decline) but compared to past years when we had a job growth surplus, the decline is not good news.
For residential housing, building permits are down—there’s been a 23% decline when comparing Q1-3 of 2009 to Q1-3 of 2008. Also home prices have declined by 8.1% when Q3 of this year is compared to Q3 of last year in Benton County and by 6% in Washington County. However, the amount of decline is less than what it has been in previous quarters, leading one to believe that perhaps prices are leveling off. But the number of home sales is up.
An interesting fact mentioned by Reed was that there were a substantial number of home sales recorded in the county records which were not in the Multiple Listing Service. When asked to account for the large number of homes not listed or sold by a realtor, Reed speculated that these were sales by banks. Essentially the number of new home sales in the first three quarters of 2009 (as recorded in the MLS) was doubled when non-MLS sales recorded in the country records were counted: 287 new home sales reported by the MLS of 526 new home sales in active subdivisions recorded in the county records in Benton County and 170 new home sales reported by the MLS of 340 new home sales in active subdivisions recorded in the county records in Washington County.
According to Reed, the bottom line for residential home sales in the 3rd quarter showed new construction activity slow but building permit totals increased during the year. There will need to be some housing starts or the time will come when there are no new homes available. There was a continued reduction in inventory of complete but not occupied dwellings—the number of these decreased by 23.5% from the 2nd quarter. Interest rates remain low and the home buyer credit appears to be having an effect in increased buyer activity. Lot sales were up significantly in Q3.
For multifamily the situation is that there is an oversupply—in Fayetteville the vacancy rate is almost 18% due to a number of new apartment complexes which have come on line recently. Siloam Springs has a 16% vacancy rate, Springdale 14%, Rogers over 12% and Bentonville approximately 11%. Basically it is too high in all markets in NW Arkansas. Lower end homes for sale are competing with multifamily rentals. This could be an effect of the tax credit for first time buyers.
There is also an oversupply of commercial space. Nationally the vacancy rate for class A and B office space is about 15-16%. In NW Arkansas the vacancy rate is about 19-22% (varies by town). According to Reed, if office space to be absorbed, jobs need to be created. Office space is directly tied to job creation. The situation is similar for retail space. The vacancy rate for class A and B retail space nationally is about 11.5-12%. In NW Arkansas it is about 15-16%. And occupancy rates for hotels here is declining due to many new hotels constructed in the past few years.
Of particular concern in the commercial arena, according to Reed, is the amount of maturing commercial debt. Nationally, of $3.5 trillion of outstanding debt in mid-2009, $1.56 trillion of that debt will be coming due within the next 36 months, when loans will be re-set/refinanced. In past recessions, small businesses have been responsible for growth with a loss of only about 9% of jobs. In this recession there has been a 45% job loss in small businesses. Because of the linkage of small business with local community banks, small businesses will be in trouble if community banks cannot give them loans. Ultimately job creation must improve for absorption of vacant commercial space.
Bottom line from these two reports is that the increase I have noticed in residential activity is not a figment of my imagination. I would suspect that the 4th quarter numbers will show some more positive trends. As I mentioned at the beginning, we’re not out of the recession yet but the picture is not all doom and gloom.
For more information:
http://www.arkansasbusiness.com/article.aspx?zone=AB_ENEWS_EarlyLateBreaking&lID=&sID=&ms=&cID=PM&aID=118766.54928.130892
http://www.nwanews.com/news/2009/nov/24/little-progress-noted-housing-20091124/
One event is the quarterly Skyline breakfast that Arvest bank sponsors for realtors, developers, builders and others in the housing business in NW Arkansas. Kathy Deck from the Center for Business and Economic Research at the U of A provides information about new home construction, absorption, and the economy of NW Arkansas. Mostly the report for Arvest deals with residential real estate, but normally there are also segments on multifamily housing and commercial real estate as well.
A second similar event is the quarterly Streetsmart breakfast coffee hour sponsored by that organization. Streetsmart is a commercial venture which provides similar data for profit to developers, builders and other real estate investors. They tend to focus more on commercial real estate, but they gather all kinds of data on residential and multifamily as well.
The third is the quarterly economic breakfast sponsored by the Center for Business and Economic Research at the U of A. This provides more general information about the economy with only limited information about the housing market itself. But what’s happening in the local (and national) economy influences housing, so it also becomes important for my personal quest for information.
The 3rd quarter Skyline breakfast was held about 3 weeks ago. Kathy Deck, the director of Center for Business and Economic Research at the University of Arkansas, was cautiously optimistic about the residential housing market, but we’re not out of the woods yet because of national economic trends, which also influence us here.
Third quarter 2009 numbers show signs that demand is beginning to lower the number of new homes available (decreased inventory), but the absorption rate has slowed, not because of over-supply such as occurred at the peak of our housing bubble here a few years ago, but rather because there are fewer people moving into the area.
Kathy always starts her talks with unemployment figures, because job growth is what fuels the demand for housing. As long as there is positive job growth in NW Arkansas people will be drawn here and thus purchase homes. However, the number of people moving here is about 1/3 of what it was at the peak several years ago. Nationally there has been a loss of 8 million jobs in every sector except health services and education. The latter are strong sectors here and the only sectors which have shown positive job creation. There have been some job losses here but not on the scale of the nation as a whole.
Nevertheless, sales of new-but-never-occupied homes increased 30% in the third quarter over the second quarter of 2009. Correspondingly, the available inventory of complete but unoccupied homes fell by 27%. But this is partially because building permits are way down.
The average price of homes continued to decline in the third quarter. The average price per square foot of homes sold in Benton County was $80.26 in the third quarter compared to $97.16 in the third quarter of 2006. In Washington County, the average price fell from $103.63 to $86.28 per square foot.
Other factors in the economy nationally have also affected the housing market in NW Arkansas. These include consumer sentiment--people are saving their money instead of spending it in part because they are being forced to (credit is less available now than it was in the past). Loss of employment have also made people cautious, so they are not buying things. Normally this is a good thing, but if everyone does it (as they are now) then the economy suffers. Retailers are putting fewer products on the shelves, “rationalizing SKUs”, and home builders are not building a lot of new spec homes.
The positive numbers regarding home sales have been spurred by income tax credits of up to $8,000 for first-time homebuyers. These credits were due to expire November 30, 2009 but have now been extended into 2010. And now a new credit is available to current homeowners who wish to buy another home. (For more information on either of these credits, read my blog below, “Homebuyer Tax Credit Extended! Hurray!” posted November 15, 2009.
My suspicion that the multifamily and commercial sectors are suffering was borne out at the Streetsmart Coffee Hour held last week. Tom Reed of Streetsmart spoke and presented some additional economic data which basically supported what Kathy Deck had to say. Hotel/motel tax receipts are down, and those for restaurants are the same as for last year in the 3rd quarter. Job creation has declined—non-farm jobs in NW Arkansas are down by 1.4% or about 3000 jobs. This is better than the state and national figures (2.4% state decline in non-farm jobs and 4% national decline) but compared to past years when we had a job growth surplus, the decline is not good news.
For residential housing, building permits are down—there’s been a 23% decline when comparing Q1-3 of 2009 to Q1-3 of 2008. Also home prices have declined by 8.1% when Q3 of this year is compared to Q3 of last year in Benton County and by 6% in Washington County. However, the amount of decline is less than what it has been in previous quarters, leading one to believe that perhaps prices are leveling off. But the number of home sales is up.
An interesting fact mentioned by Reed was that there were a substantial number of home sales recorded in the county records which were not in the Multiple Listing Service. When asked to account for the large number of homes not listed or sold by a realtor, Reed speculated that these were sales by banks. Essentially the number of new home sales in the first three quarters of 2009 (as recorded in the MLS) was doubled when non-MLS sales recorded in the country records were counted: 287 new home sales reported by the MLS of 526 new home sales in active subdivisions recorded in the county records in Benton County and 170 new home sales reported by the MLS of 340 new home sales in active subdivisions recorded in the county records in Washington County.
According to Reed, the bottom line for residential home sales in the 3rd quarter showed new construction activity slow but building permit totals increased during the year. There will need to be some housing starts or the time will come when there are no new homes available. There was a continued reduction in inventory of complete but not occupied dwellings—the number of these decreased by 23.5% from the 2nd quarter. Interest rates remain low and the home buyer credit appears to be having an effect in increased buyer activity. Lot sales were up significantly in Q3.
For multifamily the situation is that there is an oversupply—in Fayetteville the vacancy rate is almost 18% due to a number of new apartment complexes which have come on line recently. Siloam Springs has a 16% vacancy rate, Springdale 14%, Rogers over 12% and Bentonville approximately 11%. Basically it is too high in all markets in NW Arkansas. Lower end homes for sale are competing with multifamily rentals. This could be an effect of the tax credit for first time buyers.
There is also an oversupply of commercial space. Nationally the vacancy rate for class A and B office space is about 15-16%. In NW Arkansas the vacancy rate is about 19-22% (varies by town). According to Reed, if office space to be absorbed, jobs need to be created. Office space is directly tied to job creation. The situation is similar for retail space. The vacancy rate for class A and B retail space nationally is about 11.5-12%. In NW Arkansas it is about 15-16%. And occupancy rates for hotels here is declining due to many new hotels constructed in the past few years.
Of particular concern in the commercial arena, according to Reed, is the amount of maturing commercial debt. Nationally, of $3.5 trillion of outstanding debt in mid-2009, $1.56 trillion of that debt will be coming due within the next 36 months, when loans will be re-set/refinanced. In past recessions, small businesses have been responsible for growth with a loss of only about 9% of jobs. In this recession there has been a 45% job loss in small businesses. Because of the linkage of small business with local community banks, small businesses will be in trouble if community banks cannot give them loans. Ultimately job creation must improve for absorption of vacant commercial space.
Bottom line from these two reports is that the increase I have noticed in residential activity is not a figment of my imagination. I would suspect that the 4th quarter numbers will show some more positive trends. As I mentioned at the beginning, we’re not out of the recession yet but the picture is not all doom and gloom.
For more information:
http://www.arkansasbusiness.com/article.aspx?zone=AB_ENEWS_EarlyLateBreaking&lID=&sID=&ms=&cID=PM&aID=118766.54928.130892
http://www.nwanews.com/news/2009/nov/24/little-progress-noted-housing-20091124/
Sunday, May 24, 2009
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
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
Wednesday, November 19, 2008
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.
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.
Thursday, May 08, 2008
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)
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)
Wednesday, November 21, 2007
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
Thursday, March 22, 2007
2006 NW Arkansas Housing Market Report
I have just finished a marketing report for 2006 for NW Arkansas. It gives conditions of the housing market, absorption rate, the number of homes for sale by price range, and much more. The towns covered are Bentonville, Fayetteville, Rogers, Springdale, and Bella Vista. See what home prices have been doing in the past years to help understand what is happening in the market now as the needed "adjustment" is also occurring here. To view this report, visit my main website at http://www.judyluna.com and click on 2006 Market Report under Articles and Links on the left of the home page.
Sunday, August 13, 2006
Existing-Home Sales Flattening, Prices Cooling
It continues to be a buyer’s market. Prices are up only slightly from one year ago and interest rates are still affordable.
Last year sales were at record highs. This year existing home sales (throughout the U.S.) declined 1.3% in June 2006 compared to the previous month. Looking back to June 2005, June sales this year declined 8.9%.
Looking from a different perspective, housing inventory levels nationwide rose 3.8% at the end of June to 3.73 million existing homes available for sale. That represents a 6.8-month supply at the current sales pace. By contrast, in June 2005, there was a tight 4.4-month supply on the market.
It appears to me that the market is stabilizing. I don’t think anyone believed the market could continue sales at the record pace of the past several years.
This is good news for buyers who may have been discouraged by bidding wars during the hot market of the past. Now is a good time for buyers to find the home they want.
When inventories increase, buyers have more choices and more time to comparison shop. Sellers have come to realize they must be more competitive these days.
The above statistical information came from The National Association of Realtors®, report for June 2006.
To read the full report, click on:
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/06JuneEHS
Last year sales were at record highs. This year existing home sales (throughout the U.S.) declined 1.3% in June 2006 compared to the previous month. Looking back to June 2005, June sales this year declined 8.9%.
Looking from a different perspective, housing inventory levels nationwide rose 3.8% at the end of June to 3.73 million existing homes available for sale. That represents a 6.8-month supply at the current sales pace. By contrast, in June 2005, there was a tight 4.4-month supply on the market.
It appears to me that the market is stabilizing. I don’t think anyone believed the market could continue sales at the record pace of the past several years.
This is good news for buyers who may have been discouraged by bidding wars during the hot market of the past. Now is a good time for buyers to find the home they want.
When inventories increase, buyers have more choices and more time to comparison shop. Sellers have come to realize they must be more competitive these days.
The above statistical information came from The National Association of Realtors®, report for June 2006.
To read the full report, click on:
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/06JuneEHS
Wednesday, August 02, 2006
Affordable Housing
Recent studies indicate that the term “affordable housing” is becoming an oxymoron.
The National Association of Realtors® surveyed 1000 people in June 2006. By a 2-1 ratio, respondents believed that high monthly payments were the biggest obstacle to buying a home.
The perception used to be that the down payment and closing costs were the biggest obstacles to home ownership. Now people are worried that monthly income cannot be stretched to meet monthly bills.
In addition to the mortgage payment itself, people worry about the cost of putting gasoline in their car, the ever-increasing price of utilities, rising property taxes, escalating healthcare costs, and higher insurance premiums.
If they have an adjustable rate mortgage, they know that soon that payment will also be higher.
For Middle Americans, home ownership is not only their dream but also the surest way to build wealth. Many feel that dream is no longer reachable.
The hurdles to home ownership are complex. However, Los Angeles Mayor Antonio Villaraigosa succinctly summed up a large part of the problem, “…the fact that wages haven't kept up with the cost of real estate." While average hourly wages have risen about 20% since 2000, the national median home price has soared 55%.
Another large part of the problem is escalating land prices in most of the country, and NW Arkansas is no exception. Even as recently as 3-4 years ago, a few local builders were still building so-called "starter" homes. These were somewhat basic, but usually had about 1000-1200 square feet, 3 bedrooms, 2 baths, and ceramic tile in the wet areas. These were usually available in outlying areas like Elkins and other smaller towns. Even in some of the major towns, there were homes for under $100,000. I can remember some new homes costing even significantly less than that.
Builders are no longer able to build “starter homes.” Because land is so expensive, builders are forced to build a larger home on a smaller lot and charge more for it. The new "affordable" homes start at about $150K to $160K in the major towns of NW Arkansas, although it is possible to purchase a less expensive, smaller home in some of the outlying areas, such as Siloam Springs, Lincoln, and Gravette, etc.
Another reason for higher home prices is the impact fees many communities charge to help pay for everything from roads and sewers to police and fire protection to parks and other municipal facilities. The fees, which amount to several thousands of dollars, are passed on to the homebuyer.
Thus, for people of modest means, increasingly this means they must choose whether to live in their own home farther from their work or pay rent and live closer. But with gas prices so high, living farther away means extra transportation costs and that increases monthly expenses. People who would have purchased a home in the past no longer qualify for these more expensive homes.
In the meantime, the glut of high-end homes continues.
For more information:
http://realtytimes.com/rtmcrcond/Arkansas~Springdale~judyluna
http://www.realtor.org/housopp.nsf/pages/pulsesurvey2006
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/NatlHsgOpPulseSurvey
http://www.usatoday.com/money/economy/housing/2006-06-26-affordable-homes-usat_x.htm
The National Association of Realtors® surveyed 1000 people in June 2006. By a 2-1 ratio, respondents believed that high monthly payments were the biggest obstacle to buying a home.
The perception used to be that the down payment and closing costs were the biggest obstacles to home ownership. Now people are worried that monthly income cannot be stretched to meet monthly bills.
In addition to the mortgage payment itself, people worry about the cost of putting gasoline in their car, the ever-increasing price of utilities, rising property taxes, escalating healthcare costs, and higher insurance premiums.
If they have an adjustable rate mortgage, they know that soon that payment will also be higher.
For Middle Americans, home ownership is not only their dream but also the surest way to build wealth. Many feel that dream is no longer reachable.
The hurdles to home ownership are complex. However, Los Angeles Mayor Antonio Villaraigosa succinctly summed up a large part of the problem, “…the fact that wages haven't kept up with the cost of real estate." While average hourly wages have risen about 20% since 2000, the national median home price has soared 55%.
Another large part of the problem is escalating land prices in most of the country, and NW Arkansas is no exception. Even as recently as 3-4 years ago, a few local builders were still building so-called "starter" homes. These were somewhat basic, but usually had about 1000-1200 square feet, 3 bedrooms, 2 baths, and ceramic tile in the wet areas. These were usually available in outlying areas like Elkins and other smaller towns. Even in some of the major towns, there were homes for under $100,000. I can remember some new homes costing even significantly less than that.
Builders are no longer able to build “starter homes.” Because land is so expensive, builders are forced to build a larger home on a smaller lot and charge more for it. The new "affordable" homes start at about $150K to $160K in the major towns of NW Arkansas, although it is possible to purchase a less expensive, smaller home in some of the outlying areas, such as Siloam Springs, Lincoln, and Gravette, etc.
Another reason for higher home prices is the impact fees many communities charge to help pay for everything from roads and sewers to police and fire protection to parks and other municipal facilities. The fees, which amount to several thousands of dollars, are passed on to the homebuyer.
Thus, for people of modest means, increasingly this means they must choose whether to live in their own home farther from their work or pay rent and live closer. But with gas prices so high, living farther away means extra transportation costs and that increases monthly expenses. People who would have purchased a home in the past no longer qualify for these more expensive homes.
In the meantime, the glut of high-end homes continues.
For more information:
http://realtytimes.com/rtmcrcond/Arkansas~Springdale~judyluna
http://www.realtor.org/housopp.nsf/pages/pulsesurvey2006
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/NatlHsgOpPulseSurvey
http://www.usatoday.com/money/economy/housing/2006-06-26-affordable-homes-usat_x.htm
Monday, June 19, 2006
Looks Like the Adjustment Period is Here Too
It appears an adjustment period in NWA real estate has begun. Home prices are leveling out. There is a large inventory of homes for sale in the $200,000 and up category. I don’t believe prices will go down, but at the very least, I do not think they will rise as rapidly as they have in the past couple of years.
There are more homes to choose from now and buyers are taking their time looking. Even homes under $150K are staying on the market longer, where last year the good ones would have sold within a week or so.
Mortgage rates have been slowly but steadily rising and that affects home prices and home sales. When interest rates were at their lowest, many buyers who wanted to move up to a bigger, better home did so. Those people are now homeowners, not buyers. And for those who didn't buy, many are now staying in their current homes, since higher interest rates mean that they can purchase less house for the same money now.
What all this means to you depends on whether you are buying, selling, or staying put.
For buyers, it means more choices, perhaps a bit more home or extra amenities than they expected, and more time to make a decision.
For sellers, it means pricing the home realistically, perhaps doing a little extra sprucing up, and being patient.
For those staying put, the adjustment has no short-term effects. Home prices have traditionally increased over time and will no doubt continue to do so in the long term.
In a recent article, Parade Magazine stated “The wild housing boom of the past few years is over.” I would have to agree. The unprecedented, unwarranted increases experienced in some parts of the country are now coming down to more realistic numbers. And the high inventory of homes available in NW Arkansas, as well as higher interest rates, are contributing to an "adjustment" here as well.
Home prices in Northwest Arkansas have also risen significantly in the past few years but in more rational amounts than some of the “hot” markets such as San Francisco, Boston, Las Vegas, and Phoenix, where home prices have skyrocketed in just a few short years. A correction in that type of market is inevitable. It is also occurring here but on a smaller scale.
The thing to remember is that what happens in one part of the country doesn’t necessarily have any correlation to another part. In other words, the current adjustment in the real estate market will have many variations throughout the country. The traditional wisdom is that all real estate is "local" and that is certainly true here in NW Arkansas. Reading national headlines and statistics can cause undue concern. This adjustment period was not unexpected. The real estate market has always experienced swings and the current swing favors buyers.
People have not stopped moving to Northwest Arkansas. Good homes that are fairly priced continue to sell. But since there are more houses on the market, competition among sellers is higher, so the key is to price one's home at market value (or less) if a quick sale is needed. For buyers, there's a lot more to choose from.
For more information:
http://www.parade.com/articles/editions/2006/edition_05-21-2006/Buy-Sell
http://www.nwanews.com/adg/Business/155811/
There are more homes to choose from now and buyers are taking their time looking. Even homes under $150K are staying on the market longer, where last year the good ones would have sold within a week or so.
Mortgage rates have been slowly but steadily rising and that affects home prices and home sales. When interest rates were at their lowest, many buyers who wanted to move up to a bigger, better home did so. Those people are now homeowners, not buyers. And for those who didn't buy, many are now staying in their current homes, since higher interest rates mean that they can purchase less house for the same money now.
What all this means to you depends on whether you are buying, selling, or staying put.
For buyers, it means more choices, perhaps a bit more home or extra amenities than they expected, and more time to make a decision.
For sellers, it means pricing the home realistically, perhaps doing a little extra sprucing up, and being patient.
For those staying put, the adjustment has no short-term effects. Home prices have traditionally increased over time and will no doubt continue to do so in the long term.
In a recent article, Parade Magazine stated “The wild housing boom of the past few years is over.” I would have to agree. The unprecedented, unwarranted increases experienced in some parts of the country are now coming down to more realistic numbers. And the high inventory of homes available in NW Arkansas, as well as higher interest rates, are contributing to an "adjustment" here as well.
Home prices in Northwest Arkansas have also risen significantly in the past few years but in more rational amounts than some of the “hot” markets such as San Francisco, Boston, Las Vegas, and Phoenix, where home prices have skyrocketed in just a few short years. A correction in that type of market is inevitable. It is also occurring here but on a smaller scale.
The thing to remember is that what happens in one part of the country doesn’t necessarily have any correlation to another part. In other words, the current adjustment in the real estate market will have many variations throughout the country. The traditional wisdom is that all real estate is "local" and that is certainly true here in NW Arkansas. Reading national headlines and statistics can cause undue concern. This adjustment period was not unexpected. The real estate market has always experienced swings and the current swing favors buyers.
People have not stopped moving to Northwest Arkansas. Good homes that are fairly priced continue to sell. But since there are more houses on the market, competition among sellers is higher, so the key is to price one's home at market value (or less) if a quick sale is needed. For buyers, there's a lot more to choose from.
For more information:
http://www.parade.com/articles/editions/2006/edition_05-21-2006/Buy-Sell
http://www.nwanews.com/adg/Business/155811/
Tuesday, May 16, 2006
Are Home Prices Coming Down? Probably Not, but Future Construction May Be More Affordable
If you are in the market for a big, beautiful home with all the upgrades you can imagine, now is a good time to start some serious shopping. There is a glut of expensive homes available, especially in Bentonville, but also throughout all of Northwest Arkansas.
In the first quarter of 2006, there were 2,084 complete but unoccupied new houses in Benton County. That’s an increase of 160 percent in available complete inventory from the first quarter of 2005, with a 63 percent increase in the most recent quarter alone. Washington County experienced a smaller inventory increase of 71 percent over the past year – still a sizable increase.
Excluding the completed homes, there were 19,206 lots in the 269 active subdivisions in NW Arkansas in the first quarter of 2006. Using the most recent annual absorption rate implies that the supply of remaining lots in NW Arkansas active subdivisions is sufficient for 35.9 months (or 3 years). There were an additional 19,200 residential lots that have been at least preliminarily approved in NW Arkansas communities.
For too long now, builders seemed willing to pay exorbitant prices for land to build new homes, and land speculators did their part to see that prices went consistently up. Hopefully those days are over, at least for the time being.
Builders use a general rule-of-thumb that says the cost of the land should be approximately 20% of the price of the new home. If the builder pays $75,000 for a lot, he will probably build a $350,000 house on it. Thus the asking price will be $425,000. That is a lot of money – far more than the average family can afford.
If the builder can’t sell his new homes in a timely manner, he can easily find himself in financial difficulties. He must continue paying his construction loans whether the homes are selling or not. It doesn’t require a crystal ball to see that the price of lots will have to come down or the homes built on them will stay on the market longer than many builders can tolerate financially. It is also possible that some builders will be forced out of business.
The average homebuyer in this area can easily qualify for a $100,000 home – but there are few available. Even if he qualifies for a $150,000 home, the selection is extremely limited, mostly older re-sale homes. Smaller, more affordable homes sell more quickly. The American dream of owning your own home is not yet dead, but it is seriously ill in NW Arkansas. Builders must cut back on 3,000 sq. ft. homes with every amenity a person can think of and start building what people can afford to buy. And there is some evidence that this trend might be starting.
In looking at the various reports and accompanying statistics that cross my desk every week, I’m beginning to see some signs that cut back may be beginning. One of these indicators is a -1.7% change in building permit values. While economists might see this as a "negative", I see this as a positive thing. With the glut of expensive homes on the market, a negative value here could possibly reflect the necessary adjustment for building more modestly priced homes in the near future.
Another indicator shows that construction employment in the area increased by 1.1%, which might indicate more construction is under way. Taken together, these statistics tell me that construction is increasing, but the value of what is being built is less—not altogether a bad thing from the point of view of affordability.
For more information:
http://www.nwaonline.net/articles/2006/05/07/business/01cleansing.txt
http://www.nwaonline.net/articles/2006/05/09/business/01skylineresidential.txt
In the first quarter of 2006, there were 2,084 complete but unoccupied new houses in Benton County. That’s an increase of 160 percent in available complete inventory from the first quarter of 2005, with a 63 percent increase in the most recent quarter alone. Washington County experienced a smaller inventory increase of 71 percent over the past year – still a sizable increase.
Excluding the completed homes, there were 19,206 lots in the 269 active subdivisions in NW Arkansas in the first quarter of 2006. Using the most recent annual absorption rate implies that the supply of remaining lots in NW Arkansas active subdivisions is sufficient for 35.9 months (or 3 years). There were an additional 19,200 residential lots that have been at least preliminarily approved in NW Arkansas communities.
For too long now, builders seemed willing to pay exorbitant prices for land to build new homes, and land speculators did their part to see that prices went consistently up. Hopefully those days are over, at least for the time being.
Builders use a general rule-of-thumb that says the cost of the land should be approximately 20% of the price of the new home. If the builder pays $75,000 for a lot, he will probably build a $350,000 house on it. Thus the asking price will be $425,000. That is a lot of money – far more than the average family can afford.
If the builder can’t sell his new homes in a timely manner, he can easily find himself in financial difficulties. He must continue paying his construction loans whether the homes are selling or not. It doesn’t require a crystal ball to see that the price of lots will have to come down or the homes built on them will stay on the market longer than many builders can tolerate financially. It is also possible that some builders will be forced out of business.
The average homebuyer in this area can easily qualify for a $100,000 home – but there are few available. Even if he qualifies for a $150,000 home, the selection is extremely limited, mostly older re-sale homes. Smaller, more affordable homes sell more quickly. The American dream of owning your own home is not yet dead, but it is seriously ill in NW Arkansas. Builders must cut back on 3,000 sq. ft. homes with every amenity a person can think of and start building what people can afford to buy. And there is some evidence that this trend might be starting.
In looking at the various reports and accompanying statistics that cross my desk every week, I’m beginning to see some signs that cut back may be beginning. One of these indicators is a -1.7% change in building permit values. While economists might see this as a "negative", I see this as a positive thing. With the glut of expensive homes on the market, a negative value here could possibly reflect the necessary adjustment for building more modestly priced homes in the near future.
Another indicator shows that construction employment in the area increased by 1.1%, which might indicate more construction is under way. Taken together, these statistics tell me that construction is increasing, but the value of what is being built is less—not altogether a bad thing from the point of view of affordability.
For more information:
http://www.nwaonline.net/articles/2006/05/07/business/01cleansing.txt
http://www.nwaonline.net/articles/2006/05/09/business/01skylineresidential.txt
Wednesday, January 18, 2006
Real Estate Market Report for Fayetteville, Dec. 2005
The Fayetteville market slowed considerably during December, mostly due to seasonal factors, but uncertainty in the economy and rising interest rates are also taking their toll.Inventory of homes on the market now is significantly up, even in the lower price ranges under $150,000.
Whether buyers will encounter a buyer's market or a seller's market depends entirely on the price range--the lower end is a seller's market and the high end, a buyer's.The number of sales in the past month was significantly lower in comparison to last year with only 67 homes sold in December compared with 94 in the same period last year according to the Fayetteville/Springdale Metro Area MLS. Under $100,000 there continues to be a shortage of homes for sale and a strong seller's market.
In the last year according to the Multiple Listing Service database, only 76 homes between $75,000 and $100,000 were sold, an average of just over 6 homes per month, due to a shortage of homes available. This is to be compared with 117 homes sold as recently as 2 years ago, while new "starter" homes were still being constructed in the Fayetteville area. Now there are only 18 homes on the market, of which only 2 are under 5 years old. Buyers who wish to purchase a home in Fayetteville under $100,000 must be ready (pre-qualified or pre-approved by a lender) to move quickly and make an offer on "the good ones" as they come on the market.
Between $100,000 and $150,000 these trends also exist. Currently there is a 2-month supply of homes of all ages from new to historical homes, up from 1.5-month's supply last month. In absolute numbers, 355 homes were sold in this price range in the last year, an average of 28 per month. Now there are 60 houses on the market, of which 2 are new and 7 homes less than 5 years old are for sale. Last year, the new homes in this price range have been primarily in the new Salem Meadows, Salem Village, and Sage Meadows subdivisions west of town, but these areas have now become built out. The townhouses for the University student market in an area called Skyler Place, which were plentiful last year, have alsot been sold. There is a new development of townhomes off Hwy. 16W, called Chevaux, listed at approximately $130K.
The situation improves markedly above $150,000 as the supply has jumped greatly with 98 homes currently on the market, about a 3.5-month supply. Almost 1/2 of these (44) are new homes. This is due to continuing development of several subdivisions in this price range, mostly on the west side of town: A new subdivision called Persimmon Place off Hwy 16W and Phase 2 of Fairfield. There are also some new condos near the mall in a subdivision, called Bellafonte Gardens, in this price range.
Between $200,000 and $300,000 there is an even better supply with 223 homes currently on the market, approximately a 10-month supply, a buyer's market. The new homes are in a variety of subdivisions, giving buyers in this price range more choices. For townhomes, there is Benton Ridge in SE Fayetteville as well as Bellafont Gardens on Zion Rd. near the Mall, and for single family homes, there is a new phase of Stonebridge Meadows under construction (24) and a new subdivision called Cross Keys west of I-540 (6). Existing subdivisions west of town also have homes in this price range--Clabber Creek (16), Legacy Pointe (7), and Fairfield (11) .
In the $300,000-$400,000 price range, there is about a 12-month supply, about 3/4 of which are new and newer homes. On homes over $400,000 the supply is also more than ample, about an 11-month supply. In terms of absolute numbers there are 102 homes on the market between $300,000 and $400,000 (62 new and another 18 under 5 years old) and 100 homes over $400,000, of which 46 are new homes and 26 are under 5 years old. In addition, prices have increased; new construction in Covington Park now starts at about $128 per square foot, and, depending on amenities, new homes in some of the gated communities east of town cost about $140 per square foot and up. Another promising area on the high end is the phenomenal new Clear Creek golf course community in Johnson. And in east Fayetteville out Hwy 45, a new subdivision called Waterford now has about 50 one-acre lots for sale at $100K each.
Traditionally the nearby small towns of Farmington and Elkins have provided lower-cost homes than were available in Fayetteville. However, now Farmington is just as expensive as Fayetteville, and homes in Elkins which are closer to Fayetteville are rising in price. On a positive note, with the completion of I-540, other communities are beginning to become options for affordable housing, namely West Fork and Greenland, south of Fayetteville. Prairie Grove, a charming small town west of Farmington about 20 minutes from Fayetteville, is experiencing some new development and presents possibilities for moderately priced houses.
Whether buyers will encounter a buyer's market or a seller's market depends entirely on the price range--the lower end is a seller's market and the high end, a buyer's.The number of sales in the past month was significantly lower in comparison to last year with only 67 homes sold in December compared with 94 in the same period last year according to the Fayetteville/Springdale Metro Area MLS. Under $100,000 there continues to be a shortage of homes for sale and a strong seller's market.
In the last year according to the Multiple Listing Service database, only 76 homes between $75,000 and $100,000 were sold, an average of just over 6 homes per month, due to a shortage of homes available. This is to be compared with 117 homes sold as recently as 2 years ago, while new "starter" homes were still being constructed in the Fayetteville area. Now there are only 18 homes on the market, of which only 2 are under 5 years old. Buyers who wish to purchase a home in Fayetteville under $100,000 must be ready (pre-qualified or pre-approved by a lender) to move quickly and make an offer on "the good ones" as they come on the market.
Between $100,000 and $150,000 these trends also exist. Currently there is a 2-month supply of homes of all ages from new to historical homes, up from 1.5-month's supply last month. In absolute numbers, 355 homes were sold in this price range in the last year, an average of 28 per month. Now there are 60 houses on the market, of which 2 are new and 7 homes less than 5 years old are for sale. Last year, the new homes in this price range have been primarily in the new Salem Meadows, Salem Village, and Sage Meadows subdivisions west of town, but these areas have now become built out. The townhouses for the University student market in an area called Skyler Place, which were plentiful last year, have alsot been sold. There is a new development of townhomes off Hwy. 16W, called Chevaux, listed at approximately $130K.
The situation improves markedly above $150,000 as the supply has jumped greatly with 98 homes currently on the market, about a 3.5-month supply. Almost 1/2 of these (44) are new homes. This is due to continuing development of several subdivisions in this price range, mostly on the west side of town: A new subdivision called Persimmon Place off Hwy 16W and Phase 2 of Fairfield. There are also some new condos near the mall in a subdivision, called Bellafonte Gardens, in this price range.
Between $200,000 and $300,000 there is an even better supply with 223 homes currently on the market, approximately a 10-month supply, a buyer's market. The new homes are in a variety of subdivisions, giving buyers in this price range more choices. For townhomes, there is Benton Ridge in SE Fayetteville as well as Bellafont Gardens on Zion Rd. near the Mall, and for single family homes, there is a new phase of Stonebridge Meadows under construction (24) and a new subdivision called Cross Keys west of I-540 (6). Existing subdivisions west of town also have homes in this price range--Clabber Creek (16), Legacy Pointe (7), and Fairfield (11) .
In the $300,000-$400,000 price range, there is about a 12-month supply, about 3/4 of which are new and newer homes. On homes over $400,000 the supply is also more than ample, about an 11-month supply. In terms of absolute numbers there are 102 homes on the market between $300,000 and $400,000 (62 new and another 18 under 5 years old) and 100 homes over $400,000, of which 46 are new homes and 26 are under 5 years old. In addition, prices have increased; new construction in Covington Park now starts at about $128 per square foot, and, depending on amenities, new homes in some of the gated communities east of town cost about $140 per square foot and up. Another promising area on the high end is the phenomenal new Clear Creek golf course community in Johnson. And in east Fayetteville out Hwy 45, a new subdivision called Waterford now has about 50 one-acre lots for sale at $100K each.
Traditionally the nearby small towns of Farmington and Elkins have provided lower-cost homes than were available in Fayetteville. However, now Farmington is just as expensive as Fayetteville, and homes in Elkins which are closer to Fayetteville are rising in price. On a positive note, with the completion of I-540, other communities are beginning to become options for affordable housing, namely West Fork and Greenland, south of Fayetteville. Prairie Grove, a charming small town west of Farmington about 20 minutes from Fayetteville, is experiencing some new development and presents possibilities for moderately priced houses.
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