Expect 2019 to be another strong year for the Northwest Arkansas real estate market, even though the national home buying picture may be somewhat meager in comparison. Nationally, home buying started strong in 2018 but softened with rising mortgage rates coupled with a shrinking inventory. Across the country, sellers should know the days of competitive bidding wars could be over.
Here in Northwest Arkansas, consistent economic and job growth will likely insulate the region from national trends. With more qualified buyers than ever before in Northwest Arkansas, we will see a strong 2019 even as mortgage rates inch up.
Millennials are entering their peak buying years and represent the largest share of home buyers at 36%. According to information from the National Association of Realtors, 65% of Millennial buyers are first-time home buyers. While Millennials have been postponing purchasing homes, they are now wanting their slice of the American dream. Bankers and real estate agents are also doing a better job of making sure Millennials know financing options are available that do not require a 20% down payment.
With more down-payment flexibility, Millennial home buyers are more likely to make the investment.
NORTHWEST ARKANSAS INVENTORY
Northwest Arkansas’ inventory is improving. While rising interest rates may have slightly slowed home sales nationwide, Arkansas’s excellent inventory and low cost of living encourage a strong market. Though interest rates have risen, they are still at historical lows. According to the University of Arkansas Center for Business and Economic Research, home prices in Northwest Arkansas have increased on average between 28% and 35% over the past five years.
Though housing prices may not rise at that rate, developers continue to have an incentive to construct new single-family dwellings across the region. Expect the construction boom to continue in suburban communities in Northwest Arkansas where real estate parcels are plenty and prices are more appealing to first-time buyers.
MORTGAGE RATE GUESSING GAME
Analysts have predicted for at least the past year that the Federal Reserve would be more aggressive in raising interest rates, which could lead to a possible negative impact on home buying. This, coupled with the struggling stock market, may make it less likely that the Fed will take any drastic action this year.
For homebuyers, that means a little more certainty at a time where interest rates continue to remain appealing.
EMERGING REGIONS SEE GROWTH
Across the country, the high cost of living in metropolitan areas is driving homeowners away from larger cities. California, where the average home price is double that of other states, has seen more than a million people leave over the past decade, many because of home affordability.
That leaves opportunity for smaller metropolitan areas, such as the cities in Northwest Arkansas. Buyers will continue seeking affordable homes at prices that allow for a better standard of living, easier commutes and a sense of community.
SMALLER HOMES MORE APPEALING
With more first-time buyers and Millennials seeking homes, it makes sense they would consider a smaller, “starter” house. Census data bears this out, as the average size of a new home in 2018 was about 5% smaller than in 2015. New entry-level home construction may not bring in as much profit as a larger home, but in a buyer’s market, these types of homes could help sustain the industry during uncertain times.
With a potential economic downturn looming and an interest-rate hike possible, the Arkansas housing picture remains a bit unclear headed into 2019. Fortunately, Northwest Arkansas is largely an outlier because of its steady growth and attractiveness to first-time home buyers.
Tina Sewell is branch manager at Rock Mortgage in Fayetteville. Rock Mortgage is a division of Bank of Little Rock Mortgage. The opinions expressed are those of the author.