Rising mortgage rates seemed to finally have slowed house sales in Northwest Arkansas, but house prices continue to rise, according to the most recent Skyline Report.
The number of house sales in Benton, Madison and Washington counties during the first half of 2023 stood at 4,422, down nearly 9% from 4,848 for the same period a year ago. Of those sales, 1,707 or nearly 39%, were new houses, in the January through June period.
The sale prices for houses were down across the three county area while inventory remained relatively flat.
In the multifamily market the vacancy rate remained effectively zero, while rents increased despite some new apartments coming on line during the period.
The average sale price for house in Benton County for the first half of the year was $422,564, up 4.6% when compared to $403,829 for the same period in 2022. In Washington County, the average sale price was $392,306, up 8.1% when compared to $362,924 for the first half of 2022. Madison County house prices saw the largest increase by percentage with the average sale price of $267,665 for the period, up 12.2% compared to $238,463 a year ago.
In an interview, Mervin Jebaraj, director of the Center for Business and Economic Research at the Sam M. Walton College of Business at the University of Arkansas, said the Northwest Arkansas housing market has eventually cooled because of higher mortgage rates -- now in the low 7% range.
"Now, it's finally here," Jebaraj said.
The Federal Reserve has raised its benchmark interest rate 11 times since early 2022 in an effort to keep up with inflation. Mortgage rates declined last week to 7.12% for a 30-year loan but still remain more than twice as high as they were two years ago when they stood at 2.8%. According to reporting by the Associated Press, national sales of previously owned houses are down 22% for the first seven months of the year compared to the same period a year ago.
Jebaraj noted the higher rates have homeowners in Northwest Arkansas reluctant to move, even though their houses have gained in value, because most are unwilling to trade a low interest rate for a much higher one. Sales are still being made though, as people moving to the area are buying, while some of those newcomers are also opting to rent and hope for a return to lower mortgage rates.
Of the houses sold in the first half of the year, 39% or 1,707, were new construction, up from 27% for the same period a year ago. Jebaraj said that makes sense, as new houses are the ones that are primarily available in today's market as homeowners seem to be willing to wait on the sidelines for now.
There number of houses for sale based on the multiple listing service database for the period were 1,591, nearly unchanged the previous six months, but up 33% from the same period a year ago and a 168% increase from 584 in the second half of 2021.
Tara Limbird, principal broker and co-owner of Rogers-based Limbird Real Estate Group, said in an interview that homeowners are staying put and aren't willing to trade in their low mortgage rates unless they're forced to move for a job or a similar life-changing circumstance.
"Sellers would be buyers if the mortgage rate was right," she said.
Limbird said she suspects if mortgage rates move down in the 5% range again, perhaps in 2024, the market will see a lot of movement because of pent-up demand.
The three county area's multifamily vacancy rate for the first half of 2023 was up at 2.25%, when compared to 1.6% the previous quarter. The gain is credited to five new projects coming online in Bentonville, Rogers and Springdale, adding 812 units to the market along with seasonal changes in the Fayetteville market which include students moving out of the "by the bed" market.
Jebaraj said while there was a slight increase in the vacancy rate, it was effectively zero in the region.
Vacancy rates range from 1.2% in Fayetteville to 4.5% in Siloam Springs. All the cities surveyed saw their vacancy rates increase for the period except for Siloam Springs, which saw its rate decrease from 5% for the pervious six month period.
The average rent was up 2.8% to $952 for the first half of the year, and increase from $926.55 for the previous six months. Rates are up 10.6% from the same period last year.
A median two bedroom apartment for three county areas stood at 912 square feet and rented at a rate of 89 cents a square foot, the lowest rate for the period. The median "by the bed" apartment's rate for the period was $1.78 per square foot for 408 square feet, the highest rate, according to the report.
The Skyline Report examines the residential, commercial and multifamily real estate market in Benton, Washington and Madison counties. Researchers at the University of Arkansas' Center for Business and Economic Research compile data for the report. Arvest Bank first sponsored the Skyline Report in 2005.