Home sales in Arkansas have plunged this year, with most counties reporting drops of more than 20%, as a result of rising mortgage rates and fewer homes for sale.
Arkansas Business reviewed home sales in eight selected counties since 2020 and found that all counties had declines in the first seven months of this year compared with the same period in 2022. The data was provided by Redfin Corp. of Seattle, a national real estate brokerage.
The slow sales are blamed on high mortgage rates, low home inventory and high prices.
“In this environment with the interest rates as high as they are, people who have low-interest mortgages are not willing to put up their home for sale even if they can get their asking price,” said Mervin Jebaraj, the director of the Center for Business & Economic Research at the University of Arkansas’ Walton College of Business. “Because they would have to buy another house, get another mortgage, and that mortgage is going to be often three to four points higher than the mortgage that they have.”
The decline in home sales is expected to continue if more homes aren’t put on the market, Jebaraj said.
He expects the Federal Reserve to keep interest rates high until next year, which will keep mortgage rates higher than they have been in more than two decades.
The high interest rates also are discouraging homebuilders from building new homes, which would add homes for sale, resulting in lower home prices.
If homebuilders had secured financing when interest rates were lower, Jebaraj said they would likely push through and finish the projects. “But I don’t see people running out to get new loans,” he said.
While sales have dropped, home prices have risen. “Regarding home prices, Arkansas is one of the states that continues to experience price gains despite higher mortgage rates in 2023,” Lauren Cozzi, a spokeswoman for the National Association of Realtors, said in an email.
The Federal Housing Finance Agency reported that home prices in Arkansas were up 6.94% for the 12-month period that ended June 30, ranking the state No. 4 for the highest percent change during that period. The five-year change is 59.46%, and since the first quarter of 1991, home prices in Arkansas are up 239.63%, according to FHFA.
“Arkansas remains affordable,” Cozzi said via email. “Households earning $75,000 can afford to buy 43% of the homes currently listed for sale in Arkansas. In contrast, that same household can afford to buy only 18% in most of the states across the country.”
Matty Ross, a real estate agent with the Charlotte John Co. of Little Rock, started selling real estate in 2015, and she recalls being “really busy” in 2021 and into 2022. “And I don’t think anybody expected that to be sustainable,” she said.
Other areas also reported strong sales during 2020 and 2021. All of the eight counties that Arkansas Business reviewed experienced an increase in home sales from the previous year.
With 2,122 homes sold in 2021, Craighead County had the largest year-over-year percentage increase at 12.87%, compared with home sales in 2020.
In a typical year, people would move within the same city or county, “just moving from one house to another,” Jebaraj said.
The increase in home sales attracted people to the real estate selling industry. In 2020, Arkansas had 9,480 Realtors, according to the National Association of Realtors. By the end of 2022, the number was 10,881, up nearly 15% from 2020. And people have continued to flock to the business. At the end of August, Arkansas had 11,184 members, according to the NAR.
“It probably looked like easy money there for a little while,” said Ross, the president-elect of the Little Rock Realtors Association. But when home sales slow, “to where it’s not quite so easy, we’ll probably see a decrease in that field.”
Jebaraj said that the market for those entering the real estate sector is cyclical. When times are good, people get into the business, but when they are bad, they exit the industry.
Strong home sales in Pulaski County continued through May 2022. Starting in June 2022 each month’s sales number was lower than the same month the previous year. That trend continued into July 2023.
In Pulaski County, home sales between January and July totaled 2,998, down 22.4% from the same period in 2022, according to Redfin.
Other Arkansas counties also reported declines in home sales.
Through July, 2,146 homes sold in Washington County, a decline of 7.78% from 2022. In Garland County, 979 homes sold, a decline of 43.4% from the same period a year ago.
Home sales were down across the country as well. Total existing home sales, which include single-family homes, townhomes, condominiums and co-ops, fell 2.2% in July from June, according to a NAR news release. For the 12-month period that ended in July, sales are down 16.6% from July 2022.
Rising mortgage rates lie behind the drop in sales. In April 2022, the average 30-year fixed-rate mortgage hit more than 5% for the first time in more than a decade.
As of Aug. 31, the 30-year fixed-rate mortgage averaged 7.18%, according to Freddie Mac, making it the highest rate since November 2000.
“Recent volatility makes it difficult to forecast where rates will go next, but it might be easier to gauge as the Federal Reserve determines their next steps regarding interest rate hikes in September,” according to Freddie Mac’s website.
Homeowners with a low interest rate mortgage have decided to stay in their homes and not move to a different one with a mortgage at a higher rate.
About 80% of the outstanding mortgages have an interest rate of less than 5%, Jebaraj said. The average mortgage rate is about 3.6%, he said.
Ross said that some of her clients have decided to hold off on buying a home until mortgage rates decrease, but others have bought homes.
The more expensive homes are staying on the market longer, she said, but the lower-priced homes “are still fairly easy to sell quickly.”
She said that mortgage rates today still aren’t as high as they were in the early 1980s when they hovered around 15%. “People were still selling real estate” at that time, said Ross. “So that should not be a hindrance.”
But Jebaraj said that people who bought their homes in the 1980s probably don’t have a mortgage today. “So that rate does not matter to the collective psyche of homebuyers,” he said.
“It doesn’t matter what the interest rate was in the ’80s if somebody’s mortgage today on the house they’re currently in was 3.5% to 4%,” Jebaraj said. “They’re not going to want to move to another similarly priced house.”
He said that if home prices dropped and interest rates remained high, then home sales would improve. But home prices haven’t fallen.
In Washington County, the average residential sale price in July was $381,223, according to the Northwest Arkansas Board of Realtors. The average price in July 2022 was $363,779.
But Benton County’s average residential sales price was $411,031 in July, slipping 2.9% from the same month in 2022.
Ross said that the slowdown in home sales this year hasn’t discouraged her. “I remain an optimistic person,” she said. “I say that people are always going to be getting married, having babies, retiring, wanting to downsize, moving their grandparents, getting new jobs. And so there’s always going to be that opportunity to try to sell real estate.”