No bubble seen in area housing inventory increase

The consensus among at least three people with a hand in the real estate market is that an almost 16% annual increase in the number of homes for sale in the area does not necessarily indicate a housing bubble for the region.

According to the January Weichert Realtors-King Realty Group Real Estate Report, the inventory of homes for sale in Crawford and Sebastian counties during January was 1,420, up 15.9% compared to January 2010, and up 4.6% compared to December 2010.

One of the factors increasing the number of homes on the market is the increase in new home permits issued in the area — especially in Fort Smith.

New home construction permit values between May and December 2010 totaled $26.52 million, up 53% over the $17.325 million during the same period in 2009. The January permits included 15 new residential permits with a combined value of $3.246 million, up 90.3% compared to the value of residential permits in January 2010.

Sam T. Sicard, executive vice president at First National Bank of Fort Smith, said January permits are often strong because builders want to have houses ready to sell when the weather improves. As to a bubble, Sicard said more time and evidence is required.

“Home sales have been depressed partly due to the expiration of the tax credit last year. As we move further away from the tax credit expiration, we will get a good picture of the normalized absorption rate in the Fort Smith market,” Sicard said.

Dave Hughes, executive director of the Greater Fort Smith Association of Home Builders, doesn’t see a bubble brewing.

“We’re seeing interest rates beginning to up tick the past 60 days, which can spur buyers sitting on the fence to make a buying decision before rates escalate further,” Hughes explained. “That’s normal logic for normal times, so I don’t know if we’ll see a significant increase in offers/sales in the next 60 days, but adding to the optimism is the after effect of our just completed Home Show, spring buying season, and a good supply of housing. These factors could, I say could, overcome the prevailing market negativism and hesitancy we’ve been experiencing.”

The danger in the regional housing market is not inventory, it’s foreclosures, according to Hughes. He said the number of foreclosed homes and the reduced prices for those homes are making it difficult to establish “a real value” for the housing market.

Foreclosure actions on properties in the Fort Smith region were up more than 16% in 2010, continuing a troubling trend that has seen regional foreclosure actions increase more than 164% between 2010 and 2007, according to figures from RealtyTrac.

Sebastian County foreclosure actions totaled 773 in 2010, up 20.9% from the 639 in 2009. There were 454 Crawford County foreclosure actions in 2010, up 30% compared to 2009. Leflore County foreclosure actions fell 37.3% in 2010, from 260 in 2009 to 163 in 2010.

“If I could point to the largest single factor holding back the real estate market it would be the abundance of foreclosures being offered. … When this slows to a normal level, I believe you’ll see real estate once again finding its realistic price point,” Hughes said.

Ernie Schimmelman, a Realtor with Weichert Realtors-King Realty Group and author of the group’s real estate report, doesn’t see a bubble but said the increase in homes on the market creates a “very strong buyer’s market.”

“There is a great competition for buyers right now. And they have a lot of leverage. … They can almost set the price they are willing to pay,” Schimmelman explained.

He said Realtors are now having to work harder to “recruit” buyers to “take advantage of the great deals” now available in the market.

“Essentially what you are doing is a lot of cold calling. You may not be cold calling in a sense that you already know them. … But you just start calling and ask them if they are considering buying a new home, or whatever their situation is, that now is an excellent time to buy,” he said.

Another reason Schimmelman doesn’t see a bubble is because the inventory represents a range from new homes to much older properties.

“The question is not if we have too much inventory, but what type of inventory. Some people, you know, they want to buy only new homes. Others are willing to buy homes that aren’t too old,” Schimmelman said.