Home prices continued to rise in northwest Arkansas in the first half of 2018, while the supply of available lots for residential construction stayed low, according to Arvest Bank's Skyline Report.
The average price for homes reached record highs in both Benton and Washington counties. In Washington County, the price was $235,618, up 12 percent from the first half of 2017. In Benton County, it was $238,098, up nearly 5 percent year-over-year.
The average price in Washington and Benton counties has also increased significantly from the first half of 2013, by 35 percent and 28 percent, respectively.
The supply of lots was 29.6 months, up slightly from the 28.9-month supply reported for the same period last year but down significantly from the 94.3-month supply reported for the first half of 2013.
In addition, 4,438 homes were sold in the first half of 2018, up 1 percent year-over-year and up 45 percent from the same period five years ago.
"Affordability is becoming an issue in the residential real estate market in northwest Arkansas as the increase in home prices significantly outpaces both wage growth and inflation," Mervin Jebaraj, lead researcher for the Skyline Report, said in a news release. "With our population expected to continue to grow at a rapid pace, we need to continue building new homes to meet demand, but there are far fewer lots on which to build new homes. This is especially true within the larger cities in the region where many people desire to live."
Jebaraj is the director of the Center for Business & Economic Research at the University of Arkansas' Sam M. Walton College of Business in Fayetteville.
Researchers at the center have begun to look at the "median multiple," a gauge of home affordability that calculates the ratio of median home price to median household income. The optimal median multiple is around 2.5. In the first half of 2018, the median multiple in Washington County was 3.8. In Benton County, it was 3.1.
"What we are seeing in the data is that more and more people are choosing to lease apartments instead of buying homes, because the apartments tend to be closer to the amenities they desire and are considered to be more affordable," Jebaraj said. "This, in turn, is fueling the insatiable growth in the multifamily market, which continues to add new multifamily properties at a rapid pace without any sustained increase in the vacancy rate of those properties."
The multifamily real estate market in northwest Arkansas has grown by nearly 23 percent in square feet over the past five years – from 19.3 million SF in the first half of 2013 to 23.7 million SF in the first half of this year.
But the vacancy rate has remained healthy, according to the report. The rate fell slightly, from 4 percent in the first half of 2013 to 3.9 percent in the same period of 2018.
The average lease price for apartments has increased to $660.89, which is up about 21 percent from the first half of 2013.
In addition, 1,384 newly constructed homes became occupied from Jan. 1 to June 30, the lowest number of new occupants since the first half of 2016.
There were also 1,804 residential building permits issued in the first half of 2018. That count is up by 5.6 percent year-over-year.
"As Northwest Arkansas continues to grow at a steady and healthy pace, we are working with residential and multifamily developers in the region to meet the growing demand for housing. At the same time, our mortgage department continues to see strong demand from consumers," Johneese Adams, senior vice president and mortgage manager with Arvest Bank of Fayetteville, said in the release. "The tighter supply of homes, coupled with this continued strong demand, makes it increasingly important for homebuyers to get pre-qualified for mortgages so they can act quickly. To help facilitate this, we will be introducing some new digital tools in the coming months that should help our mortgage customers be agile buyers, who can react more quickly to opportunities."