High interest rates led home sales to fall in Northwest Arkansas as apartment vacancy remained tight in the first half of 2023, according to new Skyline Reports. Still, home prices and rent continued to rise.
Arvest Bank released Tuesday (Sept. 12) the Skyline Reports for residential and multifamily real estate in Northwest Arkansas for the first half of 2023. The biannual reports are completed by the Center for Business and Economic Research (CBER) at the Sam M. Walton College of Business at the University of Arkansas.
According to the reports, fewer area homeowners are moving as they know they’ll be trading lower interest rate mortgages for ones with higher rates. Home sales declined by 8.8% to 4,422 homes in the first half of the year from 4,848 in the same period last year. Over the same period, the apartment vacancy rate decreased to 2.2% from 2.3%, even as 16 new developments comprising a combined total of 1,661 apartments opened in the past year.
CBER Director Mervin Jebaraj said CBER economists had wondered when the area would feel the effects of high interest rates because while other areas in the country were being affected, Northwest Arkansas was not.
“The Northwest Arkansas residential real estate market has been so red hot over the past decade as steady and increased demand for housing has created almost a perpetual seller’s market with the average price of purchased homes more than doubling in the past decade,” Jebaraj said. “Now the interest rate increases have slowed the pace of price increases to single digits, and the number of home sales has declined as both buyers and sellers are worried about the impact of high interest rates and still-high home prices.”
The average home price in Benton County rose by 5.1% to $422,564 in the first half of 2023 from the second half of 2022. Over the same period, the average home price in Washington County increased by 4.3% to $392,306. Over the past five years, the prices have increased by 77.1% in Benton County and 67% in Washington County.
In the first half of this year, 1,707 newly constructed homes were sold and accounted for 38.6% of home sales, the highest percentage since the Skyline Report started. The previous sales record for newly constructed homes was 32.6% in the first half of 2019. The percentage has risen from 26.5% in the second half of 2021.
The period with the most home sales since the Skyline Report started was in the second half of 2021, with a record 6,030 homes sold. Compared to that period, home sales declined by 26.7% in the first half of 2023.
The reports also show the higher interest rates contributed to an increase in home inventories. The number of listings in the MLS database rose by 172% to 1,591 in the first half of 2023 from 584 in the second half of 2021. However, listings were down slightly from the second half of 2022, when 1,618 homes were listed on the MLS database.
The number of home building permits issued in Northwest Arkansas increased to 2,309 in the first half of 2023 from 2,117 in the second half of 2022 and was the highest since 2,892 in the first half of 2022. The average value of the permits rose narrowly to $322,576 in the first half of 2023 from $322,344 in the second half of 2022.
“While not as robust as in the recent past, we are still helping many customers purchase homes as new people move into the region and as growing families move into larger homes,” said Chris Thornton, executive vice president and loan manager at Arvest Bank in Springdale. “We also continue to provide financing for multifamily complexes, which is such an important part of the overall housing mix in the area.”
In the first half of this year, 136 multifamily building permits were issued for 20 apartment complexes. The total value of multifamily building permits issued declined by 21% to $263.11 million in the first half of 2023 from $333.18 million in the second half of 2022. The Plaza at Pinnacle Apartments had the highest-valued permit in Rogers at $63.26 million. The Retreat had the highest combined permit value in Fayetteville, with two sets of permits totaling $44.4 million. Lumen had the highest-valued permit in Bentonville at $42.22 million.
The apartment vacancy rate in Northwest Arkansas rose from 1.6% in the second half of 2022. But, as noted in the previous Skyline Report, Jebaraj said the vacancy rate remains “functionally zero.”
“Of the 972 new units that became leasable during the first half of the year, only 322 had not been leased by the end of the reporting period,” he added. “And the average price for an apartment home continues to rise – increasing double digits year-over-year to over $950 per month.”
The average monthly rent in Northwest Arkansas has increased by 10.6% to $952.17 in the first half of 2023 from $860.97 in the same period last year. The rent rose by 2.8% from $926.55 in the second half of 2022.
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