Eyes on NWA: 2023 home prices to rise at least 5% in top markets, NAR says

The National Association of Realtors (NAR) recently named Northwest Arkansas, or the Fayetteville-Springdale-Rogers metro, as a top real estate market to watch in 2023. According to NAR, Atlanta shows the most growth potential this year, but Northwest Arkansas wasn’t far behind, ranking No. 4 among 10 U.S. metros.

On a list dominated by southern metros, Raleigh, N.C., and Dallas were No. 2 and 3, respectively. Greenville, S.C.; Charleston, S.C.; Huntsville, Ala.; Jacksonville, Fla.; San Antonio, Texas; and Knoxville, Tenn., rounded out the list.

“The demand for housing continues to outpace supply,” said NAR Chief Economist Lawrence Yun. “The economic conditions in place in the top 10 U.S. markets —  all of which are located in the South —  provide the support for home prices to climb by at least 5% in 2023.”

The NAR identified the top 10 markets by comparing the following factors in each region to national levels:

• Housing affordability
• Renters who can afford a median-priced home
• Job growth
• Migration gains and population growth
• Increase in active housing inventory
• Less severe housing shortages

Northwest Arkansas led the group on the share of renters who can afford to buy the typical home at 34%. It was tied for first with Raleigh on 2% population growth from 2020 to 2021.

Northwest Arkansas’ information jobs growth from October 2021 to October 2022 was 10%, second only to Atlanta’s 11.2% growth. However, Northwest Arkansas lags in the information industry, comprising 1.5% of its GDP. The national average is 6.1%, and Atlanta’s share is 11%.

Excluding Huntsville, Northwest Arkansas led on housing affordability. NAR data shows that families who live in the two metros and Atlanta and earn the median income have more than enough to qualify for a mortgage on a median-priced home with a 20% down payment.

Again excluding Huntsville, Northwest Arkansas led on adequate housing supply. According to NAR’s Housing Shortage Tracker, Huntsville and Northwest Arkansas have sufficient supply, with one new single-family home permit issued for every two new jobs.

Asked what makes Northwest Arkansas a market to watch, Chance Schubert, board chair of the Northwest Arkansas Board of Realtors (NABOR), cited home affordability compared to the rest of the country and the area’s strong job growth, especially in information technology.

Schubert, who owns NextHome NWA Pro Realty in Bentonville, also noted the area’s population rise over the past several years.

“We also have a rather high number of renters in our area who can afford to buy a home,” he said. “They just have not bought one yet.”

Jennifer Welch, the president-elect of the Arkansas Realtors Association and executive broker of Crye-Leike Realtors in Gentry, pointed to large corporations, such as Walmart, Tyson Foods and Simmons Foods, that have supported job growth and helped the region make the NAR list. Welch, also a NABOR director and board president in 2019, added that the region’s low unemployment rate and cost of living have also helped.

According to the U.S. Bureau of Labor Statistics, Northwest Arkansas’ jobless rate was 2% in December, ranking 19th lowest in a 12-way tie among U.S. metros. The U.S. unemployment rate is 3.4%, the lowest in 54 years. Arkansas’ 3.3% unemployment rate for 2022 was the lowest in 46 years.

Heather Keenen, NABOR president-elect and vice president of real estate sales and executive broker for Team Ag Real Estate & Appraisals in Lincoln, highlighted that Northwest Arkansas’ IT jobs rose twice as fast as they did nationwide.

“That’s super exciting,” she said. “When you combine that with the fact that we have three of the top Fortune 500 companies within 20 miles of each other, that creates this amazing place we call home.”

SECRET’S ‘FINALLY OUT’
Northwest Arkansas natives have watched the growth “bring fantastic healthcare and education,” Keenen said. “We’ve got this world-class arts and culture that have come out of that. When that demand first began to outpace the supply during the pandemic, we knew our secret was finally out this time.”

Welch said the COVID-19 pandemic led big-city residents to look at where they could go to be outdoors. She explained that the region’s outdoor amenities, including trails, lakes and streams, have attracted people.

“All of these emerging markets are in the South, and I think that people are flocking to places that have strong markets, affordability and where there’s that extra elbow room,” Keenen said. “We have fantastic food and hospitable culture that everybody wants and loves.

“But there’s no place like the Ozarks outdoors,” she added. “I think that sets us far apart on the list. You get to experience all four seasons … and it’s a magical thing that comes together in this region that sets us apart.”

Schubert and other Realtors agreed about what makes our region unique, including the home for three Fortune 500 companies, art museums, and investments into outdoor amenities that have made the area a biking destination.

“I’m now seeing second homes for people wanting to be here more and more for our bike trails,” he added. “It’s not even up-and-coming. I think we are up already — just a cool, hip place that people want to be.”

GROWING PAINS
Still, the region faces challenges. Welch said the infrastructure, including roads, needs to catch up with population growth.

“They estimate anywhere between 30 to 50 people are moving into Northwest Arkansas per day,” she said. “That’s a lot coming in that we don’t have enough housing for. Even though our inventory has gone up a bit, we are still so far under where we should be for the number of people moving into our area.”

Schubert said the area has a “less severe shortage of inventory than the rest of the nation.” But it’s still struggling with inventory, though it has leveled out over the past six months.

Keenen said housing affordability is a growing challenge, especially for those who don’t have executive-level jobs. She noted that the Northwest Arkansas Council is working on initiatives to address the problem.

“While affordability draws people here, affordability hinders some of the long-time residents from making purchases,” she added. “We need more diverse housing options.”

Asked whether the area is insulated from the broader economic issues, Keenen said it has been because of the large corporations based here and the jobs they provide. Schubert agreed about the area being insulated and noted that large West Coast cities are expected to see home prices fall this year, but here they’re expected to continue to rise, possibly up 9%.

Welch also agreed about the region being insulated and said she doesn’t expect the number of foreclosures that other parts of the nation might see. She attributed this to the high number of people moving into the area. And home sellers likely won’t struggle because of the number of people, or prospective buyers, moving here.

BUYERS STILL BUYING
In January, the Fannie Mae Home Purchase Sentiment Index rose for the third consecutive month, but only 17% of consumers say it’s a good time to buy. Fannie Mae attributed the sentiment to ongoing affordability challenges resulting from higher mortgage rates and home prices.

Still, pending home sales rose in January and December, according to NAR’s Pending Home Sales Index. The index increased by 8.1% in January from December. Pending sales were down 24.1% from January 2022. Yun attributed the recent rise to “better affordability from falling mortgage rates in December and January.”

By region, pending home sales in the South increased by 8.3% in January from December. Yun attributed the rise to stronger job growth in the area.

NAR expects 30-year fixed mortgage rates to fall to an average of 6.1% in 2023 and 5.4% in 2024 as the U.S. economy continues to add jobs.

Meanwhile, Yun expects existing home sales to decline by 11.1% to 4.47 million in 2023 before rising by 17.7% to 5.26 million in 2024. Over the same period, new home sales are projected to fall by 3.7% before rising by 19.4%.

“Home sales activity looks to be bottoming out in the first quarter of this year before incremental improvements will occur,” Yun said. “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”

Nationwide, median existing home prices are expected to fall by 1.6% to $380,100 in 2023 before rising by 3.1% to $391,800 in 2024. Median new home prices are expected to grow by 1.3% to $461,000 in 2023 and increase by 2.8% to $474,000 in 2024 because of higher costs of land and construction materials.