Home prices continue to rise in Northwest Arkansas as land availability shrinks, a residential real estate report shows.
For the first half of 2019, there were 4,747 houses sold, 7% more than results from a year ago. That is the third-highest total since Arvest Bank debuted its Skyline report, a look at Washington and Benton County real estate activity.
Tuesday's report covered single- and multifamily residential property markets for the six months that ended June 30.
Average house prices rose and reached new heights in both counties for the period. In Benton County, the average sale price was $250,608, a 5% gain from last year. In Washington County, the average sale price was $235,893, a less than 1% gain from the first half of 2018.
More than 27% of all houses sold during the period were newly constructed, according to the report.
In the past five years, the average price of houses sold has risen more than 33% in Benton County and more than 28% in Washington County. That raises affordability concerns for many, said Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas, Fayetteville.
"Ideally, we don't want to keep along this path," he said. One of Northwest Arkansas' selling points is its low cost of living, and a part of that is low housing prices, Jebaraj said.
"This is threatening to take that away," he said.
On a cost-per-square-foot basis, prices rose more than 5% to $116.64 during the first half of the year in both counties.
The biggest reason why houses are more expensive tends to be the land available to build them on, "and the amount of available land is shrinking," Jebaraj said about the region. Other factors such as higher land prices and higher construction prices -- a result of a migrant labor shortage -- have also pushed house prices up, he said.
Using the absorption rate from the past 12 months, there was a 25.6-month supply of remaining lots in active subdivisions at the end of the first half of 2019, implying a possible shortage of lots.
Absorption rates measure how many homes are sold in any given market over time. The inventory peaked at a 281-month supply in the first half of 2011, according to the report.
To help stem the tide, Jebaraj said more land needs to be made available. The way to do that would be to rezone underused land or continue developing denser areas near amenities, he said.
To clarify, there's plenty of land, Jebaraj said, but there is no solid infrastructure going to most of it. Wastewater woes are a common side effect of inferior infrastructure, which has been an issue in the cities of Bethel Heights, West Fork and Centerton, to name a few.
Elizabeth Small, a real estate professor at the University of Arkansas at Little Rock, agreed with Jebaraj that cities ought to put their efforts into bolstering existing infrastructure.
"A lot of people are moving further in rather than further out," she said about first-time homeowners, and newer infrastructure is needed to support that.
However, the report also shows significant growth, in terms of building permits issued, for smaller cities. Small said places like Siloam Springs, Farmington and Gentry had significant permit growth year over year, indicating recent industry or infrastructure development.
So far this year, 1,946 construction permits have been issued in Northwest Arkansas, the highest total since 2006. Most of them came from Benton County, while 40% came from Washington County. Economists often measure the health of a city by the number of building permits issued.
In the report, Fayetteville saw the most permits issued at 338, a 9% drop from a year ago. Next highest was Bentonville with 277, Rogers with 222, Centerton with 173, Bella Vista with 129 and Springdale and Prairie Grove each with 101.
Highfill, home to Northwest Arkansas Regional Airport, had 69 building permits issued during the first half of 2019, up from zero this time last year.
Arvest Bank first sponsored the Skyline report in 2005. Researchers at UA's Center for Business and Economic Research compile data for each report.
Business on 08/28/2019