A story in Wednesday's paper tells us something anyone who owns or wants to buy a house in Northwest Arkansas already knows. Home prices are climbing. Steeply.
The average price of a home in Benton and Washington counties rose 16.2% through the first six months of 2021. The average price today? A cool $306,000 and change. Just five years ago, the average price in the two counties was a mere $212,323. That's all according to the Skyline Report, a quarterly review of the real estate market produced by Arvest Bank and pored over by business people, real estate agents and government officials.
For someone who already owns a home, that's almost all good news. For those who still owe on a mortgage, the higher value builds equity without swinging a hammer or writing an extra check. For those who own their homes free and clear, it increases the value of the investment. Every few years, the tax man is going to ask for some more money based on the higher valuation and your insurance may go up, but those are the only downsides.
The factors driving those higher prices, the Skyline authors tell us, include extremely low lending rates, rapid population growth and some of the lowest inventory levels they've ever reported. We don't remember much from those college economics classes, but we do recall that high demand coupled with low supply equals higher prices.
So, for some of us, the Skyline Report produced a wave of satisfaction and comfort in these troubled times.
But let's not pretend it's good news for everyone. The same report indicates the vacancy rate for rental residences is down to 3%, one of the lowest ever. Remember that equation about supply and demand? The same principal is driving up rents on the folks who can least afford them. As our paper reported a couple of months back, the higher rents and home prices are driving moderate-income people farther away from the urban centers of the two counties and thereby increasing their transportation costs to work, shop, play, etc. That's a bad combination for the adjusted cost of living, leaving less money for other necessities.
Another factor driving the housing shortage, the Skyliners tell us, is the speed of construction of new residences. Anyone who drives around the core communities in Northwest Arkansas will likely scratch their heads about that. It seems you can't turn a corner without seeing an apartment complex, condo development or subdivision under construction.
But the new supply hasn't kept up with the growing demand -- more than 30 people a day move to the area, experts tell us, even during a global pandemic. Add to that the supply-chain kinks (also thanks to production slow-downs related to covid-19) that makes building materials both harder to get and more expensive. Without materials, builders delay starting new projects, which then has the negative impact of restricting construction jobs. Fewer jobs means fewer people are able to buy houses or pay higher rents, so they have to move farther away, increasing their transportation costs .... Well, you get the idea.
Economies are complicated creatures, and just because the news says that a lot of us are winners in this red-hot housing market doesn't mean there are not losers.
Mervin Jebaraj of the Center for Business and Economic Research at the University of Arkansas' Walton College says the situation raises long-term concerns about affordable housing in the region. He suggests local cities consider wholesale changes in their building, planning and zoning codes to address it. That' s a big ask for communities battling not only housing shortages, but an ongoing pandemic. But it's necessary, nonetheless.
The region takes great pride in the fact that it frequently gets mentioned on various lists of the best places to live, or raise a family, or retire, or ride a bike. Without some changes with the way the region develops housing, Northwest Arkansas may start dropping on those lists, rather than moving up. Under those circumstances, there won't be nearly as many winners.
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WHAT’S THE POINT: The recent news about Northwest Arkansas’ booming housing market comes as good news for most of us, but not all of us.