More than 9,600 residential homes were sold in Washington and Benton counties in 2019, which is the highest number recorded by Arvest Bank's Skyline Report since its founding in 2004.
The report released Tuesday said 4,910 homes were sold in the two most populous counties of northwest Arkansas between July and December 2019, also a high mark since Skyline has been collecting statistics. And the homes ain't going cheap: Skyline reported the average home sale has increased by more than $100,000 in the past five years, a 38.6% increase.
One of the main reasons for that is another Skyline record: the supply of available housing lots has dropped to 23.3 months, a decrease of nearly 61% in five years. Skyline measures the monthly supply time by factoring in the area's absorption of new homes.
"Obviously, if there aren't a whole lot of homes available on the market for sale, whatever fewer homes are available tend to cost a lot more money," said Mervin Jebaraj, director of the University of Arkansas' Center of Business & Economic Research. "Why are home prices going up? It's because the number of available lots to build houses on continue to diminish. There are not a lot of empty lots sitting in active subdivisions in Benton or Washington County, which is why the remaining lots cost a lot of money."
Jebaraj said the research staff at the UA's Walton College of Business personally visits each of the area's 420-plus active residential subdivisions. Students determine the status of the lots of the subdivisions — ranging from empty to completed but unoccupied to completed and occupied.
During the housing bubble of 2007, the number of completed but unoccupied homes was nearly 3,000. Jebaraj said the current number is just a few hundred.
"There is no bubble today," Jebaraj said. "Between the two counties you had close to 3,000 houses sitting complete but unoccupied, which is just insane. We are nowhere near that level despite how fast home prices have grown."
One of the beneficiaries of the housing conditions is the multifamily industry. Northwest Arkansas continues to have a strong population growth as people move to the area for work; if housing is expensive or unavailable, they still need a place to live.
The vacancy rate in the region jumped from 3.5% to 4.9% this year, but Jebaraj said that was because of several large apartment complexes opening. The vacancy rates are highest in Bentonville (8.5%) and Fayetteville (5.6%), but Jebaraj said in a statement that those numbers weren't concerning because of the recent complex openings.
Average monthly rent is $715, which represents a 28% increase over the past five years.
"If you're wondering, 'why do people continue to build new apartment complexes, surely we don't need that much;' Well with a vacancy rate of below 5% on average and rents going up about 5% every year, you're not going to convince anyone to back off," Jebaraj said.
Jebaraj was a featured speaker at a presentation Monday at Arvest Bank in Rogers to celebrate the 16th year of Skyline Reports. The report is a collaboration between Arvest and the CBER that developed during conversations in 2003 between bank officials and Jeff Collins, the then-director of CBER.
In the years before the real estate bubble bursting, bankers had noticed that builders were stockpiling lots. The bankers wanted some way to get better information from what was happening in the market.
"We were talking, conceptually, how do we track the data? How do we drill down and get an in-depth analysis of the real estate market," said Mark Ryan, an executive vice president of Arvest and the loan manager for Benton County. "We called it a 'Gold Rush' mentality. That's what seemed to be in the market."
CBER's research proved invaluable, Ryan said. He said realizing that supply was outstripping demand — and reported by the 3,000 completed but unoccupied homes in Jebaraj's earlier example — allowed Arvest to be more "discerning" in the residential market.
"From a bank standpoint we quickly recognized the imbalance that was in the market, particularly residential," Ryan said. "There was a significant amount of supply and, based on the existing demand, it would take years and years to absorb all the supply already out there.
"Without a doubt [it] saved us thousands if not millions of dollars when the recession hit in potential loan losses. We took some hits but didn't get killed though."