Real Estate Market Near the Bottom
The residential real estate market in Northwest Arkansas is approaching the bottom of what local economists say will likely be a two year recovery.
Two factors determining how long recovery will last are consumer confidence on a national level and banker confidence on a local level, said Jeff Collins, economist and partner with Streetsmart Data Services of Springdale.
The latest real estate summary provided by Streetsmart Data indicates resilience among the commercial sectors and mixed vital signs in the residential sector.
He told a group of more than 200 at Streetsmart’s Thursday morning event that the time is nigh for bankers and developers to decide which projects live and which die.
He said there are residential projects that are not right for this market either due to price or location. The sooner bankers and developers pull the plug on the nonviable projects, the sooner the market can return to a healthier state, Collins said.
“The prognosis for a healthy recovery will depend on how quickly the Band-Aids are ripped off,” Collins said.
Potentially hindering recovery are weaker consumer confidence because of wealth destruction from the loss of home equity and lack of banker confidence after being beaten and bruised in recent months, he said.
“We have gone from an aggressive lending environment where every developer could get a loan for a new project to one that will approve almost no one,” Collins said. “Neither of these situations are good for this market.”
Because of the sustained employment growth of approximately 35,000 more jobs in the next five years, Collins said, there are feasible projects that need to be pursued. But he fears that won’t happen unless banks and developers cut their losses and move on.
Some investors believe the darkest days for the residential market in both Washington and Benton counties will occur near the end of first quarter in 2008, according to a research note by Lance Beaty, a Northwest Arkansas developer and real estate veteran.
However, Beaty predicts all of 2008 will remain sluggish due to tighter credit standards. He said this will likely deepen and lengthen the down cycle for banks, builders and developers struggling to hold subdivisions together until the market improves.
The data through the second quarter show that single family homes priced at $100 per square foot are selling, but the total number of homes sold are down. Paul Bynum of Coldwell Banker Faucette Real Estate reports the number of homes sold from January through August is down 12 percent from 2006, and 17 percent from 2005.
Tom Reed, a partner in Streetsmart Data, said 80 percent of homes sold in the region are priced below $250,000. The average days on the market in the second quarter was 136, according to the data.
Collins said the length it time it takes to sell a home will likely put downward pressure on prices because some players in the market have exhausted their financial ability to wait for the market to improve.
He also said many buyers want the most house they can get for the money and are not interested in luxurious amenities. He warns bankers and builders that locations off the beaten path or properties priced above the going rate will continue to languish on the market indefinitely.
Reed said commercial construction was near record levels in the second quarter with roughly 1.4 million square foot of new space. As vacancy rates are rising in professional office space, Reed predicts lower lease rates for tenants.
“We have more square feet of bank office space than restaurant space in the region,” Reed said.
Retail has continued to be a bright spot, particularly in Rogers as the city has absorbed close to one million square feet in the last year with the opening of the Pinnacle Promenade Mall.
“Retail is the one commercial area in the region that was under built prior to 2005,” Collins said.