Fewer Northwest Arkansas homeowners underwater amid rising prices

It wasn’t that long ago when a third of Northwest Arkansas homeowners were chained to mortgages valued well above what their homes were worth. But prices have rebounded in Benton and Washington counties in the past two years and there are fewer vacant homes deemed underwater and less overall foreclosures, according to Irvine, Calif.-based RealtyTrac.com.

The local real estate recovery mirrors a national downward trend. RealtyTrac reports there were 20,050 homes across the country vacant with impending foreclosures at the end of the third quarter, falling 27% from the second quarter and 43% lower than a year ago.

In the third quarter, Benton County had 264 vacant homes, 131 of them had open loans, but just 14 of them were valued lower than the mortgages owed. RealtyTrac reports another 4 vacant properties were bank-owned following foreclosure. There were 306 vacant properties in Washington County, roughly 0.5% of the total homes in the county. Only three had open loans and just one was underwater with the mortgage.

Local real estate agents said the foreclosure market is now a tiny fraction of the larger market, a stark difference from recent years following the recession and local housing bust. Prices continue to rise in many neighborhoods across the region which has helped homeowners restore some of their lost equity.

“The overall inventory of homes in the foreclosure process has dropped 36% over the past year so it’s not too surprising to see a similarly dramatic drop in vacant zombie foreclosures,” said Daren Blomquist, vice president at RealtyTrac. “What is surprising is there are so many vacant homes where the homeowners do not appear to be in financial distress — with only 3% in foreclosure or bank owned, and only 6% that are underwater. More than 63% of these vacant homes are not even encumbered by a loan, owned free and clear by the owner.”

The local metro area ranked among those with the lowest percentage of vacant residential properties at 0.4% of the total properties in the Fayetteville, Springdale, Rogers metropolitan statistical area. Only San Jose, Calif., and Fort Collins, Colo., areas had lower percentages, with each at 0.3%, according to RealtyTrac.

Home prices in Benton County, according to average sales prices, peaked at $218,340 in August 2007. Following the recession in 2008 and subsequent real estate bust in Northwest Arkansas average prices hit the trough in February 2010 at $134,394, according to Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas.

The results were similar in Washington County as prices peaked. Peak to trough average home prices fell from $202,605 in July 2007, to a low $139,080 inn May 2011, Deck said. At the market’s weak point Deck said housing was weak, people lost value in their homes and that helped to push foreclosures higher as consumers who owe more than their homes are worth more consumers vacated their homes.

“It’s a self-reinforcing cycle. To top it off the local region had a large inventory imbalance in residential homes relative to demand, which also helped to drive prices down. The local market crawled back slowly but in many subdivisions today properties have achieved their peak levels,” Deck said.

As property values rise, the number of foreclosures should also abate as fewer homeowners find themselves holding underwater mortgages.

As of August, median sales prices in Benton County were $205,590, just under the peak prices of 2007. In Washington County, the median sales price in August was $189,797 also just below the peak 2007 highs. Deck said in June, Washington County’s average sales price outpaced the 2007 peak and given that these are averages it’s safe to say the market has recovered.

“While we do see a fair amount of new construction today … it’s in balance with the population growth and demand for new housing. The local residential real estate market is very strong right now, favoring homeowners. I would give it an ‘A’ rating,” Deck said.