NWA?s Future Lot Supply Outpaces Market Demand (Market Forecast)

About 8,621 homes sold in 2005 in Benton and Washington counties, according to the Northwest Arkansas Multiple Listing Service, which was an increase of approximately 13 percent from 2004 and about 26 percent increase from 2003.

This is positive news for an area receiving constant warnings of being overbuilt and overvalued with single-family homes.

Obviously, the population growth from the past few years has helped to keep the housing market strong in Northwest Arkansas. At this time, though, the biggest issue is if the population growth will sustain the amount of proposed housing to be built in both Benton and Washington counties in the next two years.

To understand annual demand for new single-family housing in Northwest Arkansas, Real Estate Market Data examines lot activity. In 2005, there were just more than 2,500 new lots occupied in the area (which means a new home was occupied by an end-user). Although this number increased slightly in 2005, it was a minimal increase.

On the other hand, the number of new vacant and developed lots (meaning the lot has received final plat approval from the city) almost doubled during the same time period. Along with a major increase in lots available for single-family home development, the number of planned lots (or lots in the pipeline) for Northwest Arkansas increased almost 30 percent in 2005.

As of year-end, there were over 18,000 lots planned in both Benton and Washington counties.

Reviewing Washington County independently, the number of single-family home sales increased yet again. According to the MLS, the number of home sales in Washington County was up nearly 5 percent from 2004 to 2005.

The median home price also increased during that time, almost 12 percent. At year-end 2005, the median home price in Washington County was $154,000.

Washington County’s lot activity also increased. There were more than 2,300 lots added to Washington County in 2005, and this number increased by more than 30 percent from 2004.

Another 9,800 lots were also planned as of year-end 2005. With the large amount of planned projects in the pipeline, the number of lots added to Washington County in the next two years will exceed the number of lots occupied.

More than 600 lots sold in Fayetteville in 2005, which did surpass the 514 lots sold in 2004. Developer activity has been strong in recent years, especially in the west Fayetteville area where more than 1,200 lots have been added in the past three years. The western area also accounts for nearly 60 percent of the total lots for Fayetteville in the pipeline. Not surprisingly, the solid Springdale market added more than 700 lots in 2005 and had 415 new lots occupied.

There were, however, over 900 vacant developed lots and another 2,800 lots in the pipeline at year-end in Springdale. A large number of these lots in the pipeline are in one development in the Northwestern part of the city.

Other smaller, bedroom communities surrounding Fayetteville and Springdale are also having a major impact on the Washington County single-family market.

Farmington, one of the most active of these communities, has nearly 2,000 lots in the pipeline. Farmington, located adjacent to the west of the Fayetteville city limits, has a population of just over 4,000. This number would increase significantly if all of the lots currently planned become occupied in the next two years.

The Benton County residential market had a strong year as well with the number of home sales increasing by about 18 percent in 2005. The median sales price also increased. According to the Multiple Listing Service, Benton County’s median sales price for all homes ended the year with a 10 percent increase over 2004 to $149,000.

The number of new lots occupied in 2005 also increased, which proves demand remains strong. Unfortunately, the number of lots vacant and developed increased more than 50 percent.

As of year-end 2005, there were over 7,000 vacant and developed lots in Benton County. This does not include approximately 8,500 lots planned for Benton County.

Demand, conversely, did not increase significantly in Bentonville in 2005 with approximately 325 lots occupied at year-end.

Nevertheless, the number of vacant and developed lots increased considerably. There were over 2,400 lots unoccupied at year-end, which is double the number of vacant lots at year-end 2004. There were also another approximate 2,600 lots in the pipeline for Bentonville. The southwest and western parts of the city remain the hottest areas of development right now, mostly due to the availability of land.

Demand increased slightly in Rogers during 2005, however, supply also increased. There were nearly 2,000 vacant and developed lots in Rogers at year-end, and an estimated additional 1,400 lots planned for this market. The southwest and southeast portions of the city were experiencing the bulk of the development at year-end 2005.

Among the growth of communities near both Bentonville and Rogers, the most notable would be Pea Ridge and Centerton.

Due to their proximity, both of these cities have experienced strong developer interest in the past few years. Although these cities generally offer more affordable housing, the number of unoccupied developed lots has steadily increased in the past two years.

With the recent release of new census data, the 2005 population in Benton and Washington counties increased by more than 56,000 from the 2000 census. This reflects a net monthly increase for the time period between 2000 and 2005 of nearly 936 people.

Using this data to project household demand, the supply of available housing in the area appears to exceed the possible number new home buyers.

Also, the number of lots currently available for single-family home development significantly exceeds the number of homes needed for the immediate future.