Fourth Quarter Reveals Residential Improvements

This article focuses on the residential sector of the real estate market in Northwest Arkansas, and, in particular, new home construction.

Streetsmart NWA staff drive active and inactive residential subdivisions in Benton and Washington counties on a quarterly basis. An active subdivision is classified as a new or newer development where construction activity has occurred or is occurring. An inactive subdivision is classified as a development where, basically, all infrastructure improvements are complete and in place but no construction activity has occurred. In active subdivisions, each lot is classified as either empty, a start (slab poured), under construction (house is going vertical), complete but not occupied dwelling, or complete and occupied dwelling. By this type of on-going inspection, development history of each active subdivision can be monitored.

We are all well aware of the excessive number of empty residential lots in the two-county area. This has been publicized quite frequently over the last three years. Several of the subdivisions containing these lots are likely to not make the market, at least in the near future, due to location, design, etc. It is important to note that we are seeing increasing numbers of lot sales, as well as increased construction activity in the better located and designed projects.

Excluding the duplex units, which Streetsmart tracks separately, the total housing starts of single family residential dwellings, based on our survey, numbered 106 in Benton and Washington counties in the fourth quarter of 2009. This was up from 89 (19.1 percent) in the third quarter and up from 58 (82.8 percent) in the final quarter of 2008. Benton County represented near 57 percent of the fourth quarter total with Washington County at near 43 percent. The number of residential building permits issued in the two-county area also reflected a year-on-year increase between the fourth quarter of 2008 and the fourth quarter of 2009. The total increase was 30 permits, or 13.6 percent. This is the second quarter in a row reflecting a year-on-year increase in total residential building permits issued for the two-county area.

The total supply of complete but unoccupied dwellings continues to slowly be absorbed in Benton and Washington counties. Less than a one-year supply of these newer homes is currently available. This implies, if demand continues at the present pace, that a continued increase in starts is needed or there will be a very limited new-home market in the near future.

With the decrease in residential lot prices and overall construction costs, the new home market currently competes well with the existing home market. In fact, many home owners that bought at the height of the market in early- to mid-2006 are facing the reality that a comparable new home can be purchased at a much lower price than their acquisition cost.

The average lot prices, based on our survey, in Benton and Washington counties, in the fourth quarter of 2009 were $23,022 and $39,422, respectively. This included bulk lot sales and lot sales by financial institutions. Marshall Valuation Service (national cost service) reflects construction cost for Class “D” (wood frame) structures have decreased near 3.8 percent over the past year. It is common to hear reports of new home construction in the $60 to $65 per square foot of living area range on speculative residential building. This is typically for dwellings in the $135,000 to $175,000 price range.

Improvement in residential construction is clearly visible in the two-county area. Realtors are reporting increased demand. Multi-list records support this as the number of new home sales reflect over a 9 percent increase in Benton and Washington counties between the fourth quarter of 2008 and fourth quarter of 2009.

Improvement in job creation numbers is needed to sustain this demand, as this will spur both population and household growth. 

Tom Reed is a partner in Streetsmart NWA which produces reports pertaining to the residential, multi-family, and commercial sectors of the real estate market. Company offices are located at 2804 Main Street, Suite C, Fayetteville, Arkansas. The phone number is 479-575-9100.