Demand Down, Rent Prices Down, New Buildings Going Up in Fayetteville

Construction projects underway in Fayetteville, Arkansas, will add nearly 1500 rental units in the near future. That’s a rather astonishing number for a city the size of Fayetteville.

Demand for apartments in NW Arkansas has already softened and that creates pressure to lower prices. The vacancy rate is just under 10% in Fayetteville. Rogers and Springdale have vacancy rates of 10%-15%, depending on the size of the apartment.

And the new units haven’t even come on board yet.

Consumers are understandably happy when prices drop but property owners have a tough time holding their heads above water when vacancy rates increase. Added pressure is coming from homeowners who decide to rent rather than sell their homes while they wait for the market to rebound.

So, at first glance, the situation seems contradictory. But, we need to remember several factors affecting NW Arkansas in general and Fayetteville in particular.

While most of the country is suffering through a recession, NW Arkansas continues to see new people move here. Job growth is positive here. As new people arrive and go to work, they rent apartments and buy homes. Gradually (though slower than in recent years) the excess inventory of homes is shrinking.

The other thing to remember is Fayetteville is home to the University of Arkansas with its thousands and thousands of students and faculty, all of whom need places to live. I haven’t seen any recent studies of the effect of “trickle down economics” from the university’s presence but believe me when I say it is huge by anyone’s standards.

Nevertheless, for potential investors, I don’t recommend purchasing for the University market right now. The conventional wisdom says that rental properties in university towns are a good investment.

But in addition to all of the new apartments being built, there is also another factor to consider. The U of A just built 2 new dormitories in the past few years, which are absorbing a lot of upper classmen who might normally want to live off campus. The result is that many of the normal rentals near the University stand vacant.

On the other hand, for parents who want to purchase a condo or other unit for their student son or daughter to live in for the next few years, it’s a great time to purchase. Prices are down and there are a lot of properties to choose from. By the time you want to sell, the situation will have probably changed.

For other towns in NW Arkansas, there is more of a "normal" rental market, geared toward families, young professionals, and others. In that segment of the market for investors, there are some phenomenal deals, especially on foreclosed multi-family dwellings.

Of course, I don’t have my crystal ball handy, but keep in mind that real estate is cyclical. It IS a great time to buy….

For more information:

http://nwanews.com:80/nwat/News/72251/

Baby Boomers Dominate 2nd Home Market

When I hear the phrase “baby boomers,” a picture forms in my mind’s eye – a picture of large numbers of well-educated people who are nearing retirement age. The number of people born between 1946 and 1964 now comprises the largest generation in U.S. history. They have affected everything from women’s lib and civil rights to glass ceilings and just about everything in between.

I am a baby boomer and a Realtor® so I was not surprised when I recently became aware of some studies by NAR as to the effect baby boomers are having on the housing market, not only nationally but also here in NW Arkansas.

A recent study by National Association of Realtors® (NAR) shows that 80% of baby boomers own their primary residence. The overall rate of home ownership is the United States is only 69%. According to the U.S. Census Bureau, there are 74.6 million owner-occupied homes. That means boomers own almost 60 million of them.

In addition, there are 6.8 million vacation/seasonal/second homes in the U.S. and boomers own 57% of them. Many boomers own more than one. Bella Vista anyone?

Not all boomers plan to make their vacation home their primary residence when they retire, but for those who do, the income tax advantages are very generous. Internal Revenue Service rules state that married homeowners who have lived in their primary residence for at least 2 out of the 5 years ending on the date of sale can exclude up to $500,000 of gain. Unmarried taxpayers can exclude up to $250,000 of gain.

After selling their primary residence, if they then move into their vacation home and make that their primary residence, the same rules apply: live in it for at least 2 out of the 5 years ending on the date of sale and another sizable capital gain can be excluded from taxable income. There is no limit on the number of times this provision of the tax code can be used.

Interest and property taxes on a second home are deductible each year. Add to that the advantage of tax-free capital gains and it’s easy to understand why many boomers will move from home to home. Having such favorable tax advantages can help build a comfortable retirement.

According to National Association of Realtors® study,”Leisure activities of interest to vacation-home owners include beach, lake or water sports, 57 percent; boating, 38 percent; hunting or fishing, 32 percent; golf, 21 percent; biking, hiking or horseback riding, 20 percent; ski or winter recreation, 17 percent; and tennis, 9 percent.” It’s no wonder Northwest Arkansas is so popular!

Boomers are in the midst of their highest-earning years. They realize the benefits property ownership provides. Not only do boomers understand the value of owning property, they understand the value of diversifying their assets.

More than half of all rental property in the United States is currently owned by boomers. Some own only one rental, but a considerable number own five or more properties. And NW Arkansas, despite the recent rise in multi-family prices, still provides good opportunities for investment.

Boomers have also branched out to ownership of commercial property and undeveloped land.

If I can help you find property that may help with your overall plans for home ownership now or in your retirement, please call me. I can help you find investment properties or land as well as a nice retirement home. And if you want to purchase a second home elsewhere, I communicate regularly with agents from all over the country who may be able to help.

For more information:

http://www.irs.gov/publications/p523/ar02.html#d0e1931

http://www.realtor.org/PublicAffairsWeb.nsf/Pages/BabyBoomerStudy06?OpenDocument

http://www.realtor.org/PublicAffairsWeb.nsf/Pages/2ndHomeSurvey06?OpenDocument