Coming off a strong 2019, expect momentum to continue into 2020 for the Northwest Arkansas real estate market. Low rates, high demand and limited supply drove a strong 2019 housing market both nationally and in Northwest Arkansas.
While mortgage rates are predicted to inch up, demand for entry-level homes remains. Affordable homebuyers across the country may be faced with competitive bidding wars in 2020.
In Northwest Arkansas, economic and job growth will create more qualified buyers than ever before. Focus of the market will shift from building luxury homes to meeting the demand for entry-level homes.
Millennials are projected to be half of all homebuyers next year, outnumbering Generation X and Baby Boomers, according to a recent report issued by Realtor.com. Millennials are entering their prime buying years. As rents rise and they begin their families, Millennials are ready to invest in their first home and a different lifestyle.
While Boomers are not expected to make any moves, Millennials are ready to buy, most likely from Gen X-ers upgrading homes. However, inventory remains constrained. According to Realtor.com, “inventory could reach a historic low as a steady flow of demand, especially for entry-level homes, and declining seller sentiment combine to keep a lid on sale transactions.”
NORTHWEST ARKANSAS’ INVENTORY
Northwest Arkansas is uniquely primed to meet national trends as Millennials mature, start families and shift priorities. Residents of urban cores with high housing prices like New York, Los Angeles and San Francisco are migrating to more affordable mid-sized cities. Northwest Arkansas offers a great alternative to folks changing their lifestyle. However, our home prices are rising.
AFFORDABLE HOME INVENTORY
While Realtor.com predicts home price growth will flatten in 2020, Northwest Arkansas’ prices may continue to rise in 2020, fueled by steady economic and job growth. 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. To meet demand, our market will need to develop more entry-level housing and the infrastructure to support it.
Recently, the Federal Housing Finance Agency announced it is increasing conventional loan limits in 2020. Home prices rose 5.38% on average between the third quarters of 2018 and 2019. The FHFA raised the limit to accommodate these higher home prices. Now, buyers will be able to get loans of greater value to accommodate higher home prices. This will help, but not solve, our shortage of affordable homes.
EMERGING MARKET GROWTH
As high cost of living drives folks out of metropolitan areas, communities in Northwest Arkansas offer a better standard of living, easier commutes and a sense of community. Some may find that moving from New York to Bentonville is the game-changer their life needed, but even for locals, moving out of the urban cores of Northwest Arkansas could deliver the Millennial homebuyer with their best option.
Several Northwest Arkansas communities have low barriers to entry, so many buyers may look at different markets to find their dream home. Communities like Siloam Springs, Farmington and Gentry are seeing an increase in new construction and could be the place where folks escaping rising prices in Northwest Arkansas’ urban cores find their dream home.
Heading into an election year, the economy is expected to remain strong. However, the Arkansas housing picture remains a bit unclear for 2020. Fortunately, Northwest Arkansas is largely an outlier because of its economic strength, growth and attractiveness to first-time homebuyers.
The region remains an ideal location to make a long-term, beneficial investment in an affordable home.
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.