Slowed down : Homes sales continue to decline, but property values remain high
Posted on Sunday, September 21, 2008
SOURCE: ARKANSAS REALTORS ASSOCIATION
The sales of homes in Northwest Arkansas have dropped significantly compared to the boom days of more than four years ago, but average sales prices remain strong.
Economists and bankers said its too early to tell if the local real estate market has hit bottom. National economic conditions and local job growth must improve before the local real estate market is likely to take off again, officials said.
An analysis of the past 4. 5 years of sales data available from the Arkansas Realtors Association shows that the number of houses sold peaked in 2005 and has fallen off each year since. This data is based on residential property sales by real estate agents and does not include private or foreclosure sales.
The sales of homes in Washington and Benton counties have dropped by about one-third when comparing 2004 to the first six months of 2008.
The decline in residential sales has been much less dramatic in Pulaski County and statewide, where the declines have been 16 percent and 11 percent respectively. The Northwest Arkansas market has fallen more because it's peak was higher than in central Arkansas and the rest of the state.
"Northwest Arkansas behaved more like a hot market: It shot up quicker and fell further," Ethan Nobles, director of media relations for the Arkansas Realtors Association in Little Rock, said.
Strong job growth helped create the brisk demand that pushed the boom in Northwest Arkansas faster than other areas, he said.
He explained that Wal-Mart requested its vendors set up offices in Northwest Arkansas, Tyson bought IMP and J. B. Hunt expanded its operations - all at about the same time.
"All of a sudden you had a lot of people showing up in Northwest Arkansas wanting to buy expensive homes. Once they bought those homes, that boom declined," Nobles said.
Real estate and homes remain a good investment, but buyers need to be realistic and not expect huge gains like during the short periods of time that they saw during the recent boom, he said.
"Generally in Arkansas real estate, you are talking about a long-term investment," he said. "People got used to this unusually good market."
Some of the people buying homes in Northwest Arkansas during the peak were coming from other areas to buy homes, but this has slacked off, too, because the housing market is also slumping in other areas. If these prospective buyers can't sell their houses, they can't buy homes in Northwest Arkansas. Homeowners in other parts of the county are having trouble now selling their homes so it's harder for them to move here and buy houses where prices are more affordable.
Prices, inventory The historical data provided by the Realtors Association shows that the average sales prices in Northwest Arkansas in June 2008 remain higher than during 2004. This is true in Pulaski County and statewide. Sales prices often fall sharply when inventor y swells and / or demand declines. The market appears to have reacted to oversupply with fewer sales rather than lower prices, one economist suggested. "The prices have been holding up because we have been seeing the real hit to the market in quantity (sold )," Kathy Deck, director of the Center for Business and Economic Research at the Sam Walton College of Business at the University of Arkansas, said. She said sales prices of homes have held up better than many people realize. "There's a mentality out there that we have seen housing prices drop precipitously," she said. Deck said home sales are not likely to resume the brisk pace of recent years unless sellers lower their prices significantly. The reduced availability of financing and slower job growth are also important factors holding back sales, she said. Deck prepares Ar vest Bank's Skyline Report, which closely tracks the real estate market in Benton and Washington counties. While inventory levels in Northwest Arkansas remain high by historical standards, they are slowly falling because new construction has slowed to a crawl.
A local bank executive said stimulating local job growth is important for the real estate market. "It appears to me that the increase of new home inventory has slowed dramatically and now we must focus on stimulating the job growth numbers to assist in the sales of both new and existing inventories in Northwest Arkansas," Gary Head, chief executive officer of Signature Bank of Arkansas, said. "Hopefully Northwest Arkansas will continue to outperform the nation with a swift turnaround."
Averages misleading After peaking in 2005, the average sales price of Washington County homes declined in both 2006 and 2007 and then jumped back up this year.
The average sales price of a Washington County home has increased from $ 182, 180 in 2007 to $ 189, 724 during the six-months ending on June 30.
Benton County prices peaked in 2006 and have mostly held steady since then. Pulaski County average prices peaked in 2007, while statewide averages have slowly increased each year since 2004.
An economist with a private firm that studies the Northwest Arkansas real estate market warns that analyzing average sales price may be misleading because it does not take into account the size of the homes that are sold. Jeff Collins, an owner of Streetsmart Data Services, doesn't question the accuracy of the Realtors Association sales data, but he cautioned that averages can be skewed upwards if many larger houses are sold compared to affordable housing. He said his company's database shows the average selling price per square foot has been falling recently in response to weaker demand. Most of the excess inventory glut that has flooded the market is in the larger, more expensive homes, and as these sell, it tends to push the average up, he explained. "The effective price has actually been declining," Collins said. "Rather than average, you need to look at median prices... They are not skewed by the high-dollar houses."
Floor to prices Collins said the reason property values and sales prices of homes have not fallen dramatically during the weak market is because sellers are not willing to slash prices and take huge losses. "Prospective buyers are waiting for a bargain that will not come," Collins said. "There is a floor to prices. People would rather hold (their house ) and wait for the market to recover. "Collins said the banks and mortgage companies that have foreclosed houses are not willing to slash prices and take big losses. These lenders would rather be patient and try to get more money later, he said. Another factor that's helping to prop up prices during the weak market is because many people owe so much money on their homes that they can't sell them and clear the debt. One encouraging sign in the local real estate market is an improvement in employment growth in recent months, he said.
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