A welcome sign that Northwest Arkansas is doing fine is the number of building permits issued last year -- 3,338, the highest annual total since 2006, a recent real estate report shows. But concerns of rising housing prices are knocking at the door.
Approximately 1,534 residential building permits were issued in the six months that ended Dec. 31, according to Arvest Bank's latest Skyline Report, a biannual bird's-eye view of the housing market in Benton and Washington counties.
Average home sales prices also rose in the region during the period compared to year-before prices, more so in Benton County than in Washington County.
Most of the building permits, 923, came from Benton County during the period. The rest, 611, came from Washington County. Real estate data for the first six months of 2018 were detailed in another report, published in October.
Economists tend to interpret the number of building permits issued by cities as a proxy for the region's health, but when the permits surpass demand, it can lead to a housing abundance.
The number of unoccupied houses in the area more than doubled to 524 in this period over the previous one, according to the report. That's a concern for real estate agents if more homes languish unoccupied.
But Mervin Jebaraj -- director of the Center for Business and Economic Research at the University of Arkansas, Fayetteville -- is confident it's not a problem.
"The pace of construction, that's what's pushing the number up," Jebaraj said about the unoccupied housing increase. He and his team of researchers saw it more as a timing glitch than a downturn in demand for new homes or overbuilding.
In terms of building permits issued throughout the region, Fayetteville saw the most growth, followed by Siloam Springs and Bentonville. The number of permits issued rose 41.8 percent to 285 in Fayetteville, and rose 24.8 percent to 252 in Bentonville, according to the report. Siloam Springs saw more growth, 32 percent, than Bentonville, but with fewer permits, 66.
Some places such as Little Flock or Decatur saw little to no building permit growth year over year. Those two have a combined population of less than 5,000.
Other places shrunk. Of the reported declines during the period, Springdale saw the largest drop. The city issued 75 permits, a 54 percent decline from the year-ago period. Declines were also reported in Farmington, Cave Springs, Goshen, Pea Ridge and Rogers.
Average home sales prices rose in both counties this period over last, the report shows. Benton County's rose 7.1 percent to $244,478, an increase of $16,168. Washington County's rose 4 percent to $228,681, an increase of $8,805.
Looking ahead, Jebaraj said newly constructed residences will likely be bought as regional population growth and low unemployment continues, despite rising prices and interest rates.
"We raised this as a concern in the past and it continues to be a concern, in part, because nothing is being done about it," he said about rising housing costs. One way to lower prices is to unlock more land for development, but in certain cases, there isn't enough sewage infrastructure to handle demand.
In the case of Springdale or Cave Springs, where there is plenty of land but pipes are needed in places, "does the city cover the costs or the developer?" he asked. If the developer fronts the bill, "that's what makes the homes expensive."
University researchers plan to keep watching the region's affordability factor, a gauge that compares home prices to incomes, to see if the issue persists. Jebaraj said a healthy median multiple is about 2.5.
According to the report, the current median multiples are 3.1 for Benton County and 3.9 for Washington County. Jebaraj provided median multiples for the region's more populous cities, including Fayetteville (4), Springdale (3.5), Rogers (4.4), and Bentonville (3.2). Residents under the age of 25 were excluded from Fayetteville's calculation due to the university's student population, Jebaraj said -- "otherwise it makes it really low."
One side effect of higher housing prices is that more people in Northwest Arkansas are choosing to live in multifamily properties instead of single-family residences. According to the report, the average vacancy rate for multifamily real estate in both counties declined to 3.5 during the second half of 2018, from 3.9 in the first half of 2018. It was 4.5 in the second half of 2017.
In the second half of 2018, the average price per month for multifamily properties increased to $674.65 per month. Studio apartments ran for $475 per month, while four-bedroom homes ran for $1,356 per month. Approximately 276 multifamily building permits valued at $372.9 million were issued during the period, more than double the permits issued a year ago.
Arvest Bank first sponsored the Skyline report in 2004. Researchers at UA's Center for Business and Economic Research conduct and compile data for each report.
Business on 03/06/2019