The number of lots available for residential construction declined as home prices rose in the second half of 2017 in Northwest Arkansas, according to a residential real estate report. On Tuesday (Feb. 27), Fayetteville-chartered Arvest Bank released the Skyline Report for the second half of 2017 for Benton and Washington counties.
The number of available lots in active subdivisions in Northwest Arkansas fell 25.2% to a 27.3-month supply at the end of 2017, from a 36.5-month supply at the end of 2016. The 2017 level is also down 53.5% from a 58.7-month supply at the end of 2014.
The decline in available lots is leading to a rise in the price for remaining ones, and combined with construction cost increases, home prices across the region are rising, the report shows. In 2017, average home prices rose 9% to $219,876 in Washington County, from 2016, and over the past three years, the prices have risen 23%. In Benton County, average home prices increased 2.9% to $228,310, and over the past three years, the prices have increased 12.2%.
“The growing scarcity of lots for new home construction, especially in the most desirable areas near amenities, is becoming worrisome,” said Mervin Jebaraj, lead researcher for the Skyline Report and director of the Center for Business and Economic Research (CBER) at the University of Arkansas. “Put simply, we need more available lots added to the pipeline, or we will begin to experience issues with higher home prices affecting housing affordability in the region.”
Construction prices have risen as a result of partially staffed construction crews. Immigrants who previously worked in construction positions left during the Great Recession and haven’t returned, Jebaraj said. A solution to the lot shortage could be to rezone existing commercial property to allow for residential or mixed-use developments, he said. Mixed-use developments with homes in close proximity to shops could help retail as the industry has been struggling.
In the second half of 2017, building permits declined 12.5% to 1,434, from 1,638 in the same period in 2016. In Benton County, building permits fell 22.8% to 804. In Washington County, building permits increased 5.7% to 630. However, compared to the first half of 2017, building permits in Washington County declined 14.7%, from 739.
By the end of 2017, the number of homes under construction in Northwest Arkansas rose 9.7% to 1,030, from the same time in 2016, and over the past three years, it’s risen 53.7%.
“As we enter the traditional home buying season, we are seeing strong interest from many customers to find the right house in the right area at the right price,” said Mark Ryan, executive vice president and loan manager for Arvest Bank. “This report’s focus on affordability, combined with recent rate increases in mortgage loans will likely lead to strong home buying throughout the area. We want our customers to know that we are prepared to help them get a jump on finding the right home loan.”
Ryan explained that typically when rates rise, sales go down. But he’s started to see those who were reluctant to buy a home making home purchases. The recent rate increases, combined with the limited supply, have created a sense of urgency to purchase a home as buyers are expecting rates to continue to rise.
The traditional home buying season is in the spring and summer months, and Ryan expects sales to rise from the second half of 2017.
In the second half of 2017, new home sales declined 4.9% to 1,497, from the same period in 2016. While home sales were down, they’ve still been “very robust,” Ryan said.
The Skyline Report tracks 371 active subdivisions in the two-county area, and within them are 1,030 homes under construction, 211 housing starts, 238 unoccupied homes and 5,571 empty lots.
Additionally, there are 6,906 residential lots that have received preliminary or final approval in Benton and Washington counties. If these lots were added to the lots from active subdivisions, there’s a 54-month supply of remaining lots at the existing rate of lot absorption. This is the lowest level since the Skyline Report started in 2004.
The biannual report looks at the most recent commercial, single-family residential and multi-family residential property in Benton and Washington counties. It is sponsored by Arvest Bank and completed by the CBER, whose researchers use data from area governments, property managers, visual inspections and business media to complete the report.