Home Sales Jump 13 Percent in 2005

Home Sales
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The sky isn’t falling in on the residential real estate market in Northwest Arkansas, but the wrong project could change the horizon.

That’s the picture the November Skyline Report has painted.

Kathy Deck, associate director of the University of Arkansas’ Center for Business and Economic Research, said overall home sales increased 13 percent from June through August when compared to the same reporting period in 2004.

Arvest Bank Group Inc. commissioned the UA to produce the report, which is an analysis of the real estate market in Benton and Washington counties. The Skyline Report was first released to the public in June.

The total number of active subdivisions in the Skyline Report has increased by 46 percent, from 158 in the third quarter of 2004, to 231 in the third quarter 2005. The total number of lots in active subdivisions increased 53 percent from 10,245 in the third quarter 2004 to 15,737 in the third quarter 2005.

The Skyline Report data indicated that from August 2004 to August 2005, 2,865 houses were sold in Washington County and 4,698 houses were sold in Benton County. The average sales price of existing homes increased by about 12 percent.

(Click here for more coverage of the Skyline Report.)

Selling it

When asked what homes are sitting on the market the longest, two real estate firms named those in the $350,000 to $500,000 price range.

“It’s something we’ll work out of,” Bernard Jones, principal broker for Lindsey & Associates Inc.’s Rogers office said.

As of Nov. 10, the Northwest Arkansas Multiple Listing Service had 445 homes in the $350,000 to $500,000 range listed for sale in Benton County and 145 in that same range listed in Washington County.

Doyle Yates, executive vice president at Coldwell Banker Faucette Real Estate in Fayetteville, said the success of a home sale has everything to do with proper planning.

“It is a matter of developers and builders researching the demand for the price range and the area they intend to build,” Yates said.

Yates said there is currently a “fair amount” of inventory in homes priced $350,000 and up.

“What we are seeing is an approaching saturation point for demand in this price range,” Yates said. “In the last few years, we’ve had a steady influx of upper-level management and vendors move in the area, and this $350,000-plus has been their primary price point. You eventually reach a saturation point where vendor offices are full and management staffing is in place.”

Yates said the ebb and flow of demand versus supply is normal in every market.

He said, for example, the $400,000-plus priced “spec” home was rare, and today, as a result of demand, it is commonplace.

Of those listed on the MLS, Yates said Coldwell data suggests 508 homes priced $350,000 and above have sold in 2005 in the two-county area, which is a 39 percent increase over 2004, when 363 homes in that price bracket were sold. That figure has increased 477 percent from 2001, when 88 homes sold in that price range.

“What we sometimes fail to realize is a slower market in Northwest Arkansas would be a hot market in other parts of the country,” Yates said. “However, basic economics says that if you have an increasing supply and slowing demand, the price will decline.”

Yates said the above scenario isn’t playing out in the local upper-end property market, but it’s not impossible.

As of Nov. 10, the Northwest Arkansas Multiple Listing service data indicated a home in the $350,000 to $500,000 range sat on the market for an average of 93 days.

“We see a very strong demand in Northwest Arkansas, but what has happened is we have had a tremendous supply come on the market and at some point there needs to be a reckoning,” Deck said.

Just Do It

In the Northwest Arkansas market, the familiar Nike slogan “Just Do It” might have inspired some builders to do just that — without the right profit margin calculations.

Vance Puttkammer, owner of Vance M. Puttkammer Homes Inc. in Rogers, said his family construction business has built homes in the area for more than 25 years. He said Puttkammer Homes was one of about five area builders that supplied homes to the vendor sect when some of the first offices sprouted to serve Wal-Mart Stores Inc. in the early ’80s.

Puttkammer said it comes down to three things: “Location, amenities and community.”

And, of course, understanding what today’s buyer wants.

Unlike other markets, Puttkammer said this area sees a lot of home sales close at the end of December, the end of the fiscal year for many companies and a time when executives move to the area.

“I try to have inventory that is ready to sell by the end of December,” Puttkammer said.

Puttkammer is one of six exclusive builders in the Shadow Valley subdivision in Rogers, where his homes are priced from $460,000 to $640,000 right now. He said that since 2001, the builders at Shadow Valley have completed about 460 homes in the subdivision for both custom and speculative buyers.

Puttkammer said there is a mixture of custom and speculatively built, or “spec” homes, in Shadow Valley.

He said the sale of one $800,000 “spec” house he built in the subdivision came down to careful planning.

Puttkammer looked at “livable” factors, such as where the sunlight hits certain rooms and if a floor plan is designed to be open and “family friendly.”

He said “novice” builders run into trouble when they don’t factor in their costs properly, or when they don’t factor in how long they will have to “sit on” a house before it sells. Sometimes they panic and sell the house at cost or below.

Sean Morris, real estate agent with Walker & Associates Realtors Inc. in Centerton, said he’s seen new homes sit empty for a year before selling.

Morris said he believes Benton County leads Washington County by a 3-to-1 ratio in available homes priced from $300,000 to $600,000.

He said developers are paying twice the price they did a year ago for the same kind of infrastructure construction.

Morris said some site work contractors have a “here’s my price, take it or leave it” attitude due to the sheer volume of available work in the market.

“We’ve got land out here [in Centerton] to cut up right now, but we are just waiting to see what shakes out,” Morris said.

For eight years, Morris has been selling homes for a sister company, ARC Walker Construction Co., which has built more than 1,500 homes in the area during that time.

Morris said Walker Construction typically builds homes in batches of 20 to avoid “flooding” a subdivision with available homes at one time, he said. The company usually has about 25 percent of its lot batches presold before it begins to purchase building permits.

Puttkammer said interest could eat a builder/developer alive if they don’t anticipate a “downtick,” or downturn, in a sales cycle. He said October, for example, is a historically slower month.

For example, if a developer pays $35,000 per raw residential acre and forgets to factor in the lag time, interest expenses and site work, that developer could end up paying 70 percent in interest while the lot preparation process is going on.

The “novice” builders put a strain on the subcontracting market when they build at a gangbuster pace and people don’t get paid.

Puttkammer said eventually, after the unsuccessful builders are weeded out, the end product will be better because the subcontracting labor market will be less saturated.

Morris said Walker Construction researched its latest subdivision, Persimmon Place in Fayetteville, for a year and a half before deciding at what price point to build. Homes will sell from $190,000 to $220,000, which Morris calls affordable for Fayetteville. He said he has already presold 15 homes ahead of schedule in the subdivision.

Sustainability

The Skyline Report data suggests the current inventory of lots would sustain market demand for 32.4 months.

Deck said a reduction in absorption rate of homes or an increase in the number of active subdivisions could change the inventory estimate.

The absorption rate is calculated by taking the last year’s data in active subdivisions and examining the unoccupied lots in those subdivisions.

From the second to third quarter 2005, 1,075 houses in active subdivisions became occupied.

As of the third quarter 2005, Bentonville and Fayetteville had the most new unoccupied houses with 269 and 239 respectively.

In Bentonville, 160 lots of 2,693 became occupied in active subdivisions by new homeowners. The data suggests that in the number of unoccupied lots in current active subdivisions, the inventory will sustain Bentonville for 52.4 months. In the third quarter 2005, 282 homes were sold versus 210 homes in the same period last year.

In Fayetteville, the number of houses sold in the third quarter 2005 increased to 375 from 329 during the same period last year. Fayetteville had 2,597 lots in 197 active subdivisions in the third quarter 2005 with a current inventory that should last 23.2 months.