Lower Interest Rates Usually Boost Homes

Low interest rates and a booming economy have 2004 new home construction on track to easily break 2003’s record of 7,000 units in Northwest Arkansas. That figure includes both houses and individual apartments, according to the Northwest Arkansas Regional Planning Commission.

The prime interest rate dropped to 4 percent in July and has remained there ever since, prompting developers to borrow money and begin construction.

Although the national economic indicators might not affect Benton and Washington counties like the rest of the state, the prime interest rate has definitely driven demand for housing.

Paul Justus, a Northwest Arkansas’ regional planner, said interest rates dictate the housing market.

“You see where the interest rate goes up and the housing demand goes down,” Justus said. “There is a little bit of lag time there.”

When the prime interest rate hovered around six percent between 1992 and 1994, the planning commission estimates the region saw a housing peak in 1994 with 4,500 units constructed that year. The interest rate then shot up to 9 and 10 percent, forestalling the next housing boom until the prime rate dropped to 5 percent at the end of 2001.

On the Drawing Board

So far in 2004, Bentonville city planners have given preliminary approval to more than 1,000 new single-family housing units. Springdale has more than 459 lots approved or in the process of final approval for 2004. Fayetteville has more than 250 units approved. But Centerton leads the two-county area with more than 3,000 new homes slated for development in 2004.

From April 1, 2000, to the end of 2003, the planning commission estimates that the number of single-family dwellings increased by 18,598 (7.4 percent) from 252,992 to 271,590. From April 1, 2000, to the end of 2002, there were 11,108 units added.

The population of Northwest Arkansas in 2000 was 311,121. The planning commission estimates the two-county area’s population at 2003’s end was 358,556. Those figures are based on the number of housing permit units per year times the average number of people per household, which is 2.61.

“Based on that assumption, on average we have been looking at an average of 10,740 people per year coming into Northwest Arkansas based on building permits,” Justus said. That average is from 1990 through 2003.

Given the preliminary and final plat approvals granted from Bentonville, Fayetteville, Springdale and Centerton, the number of people expected to move here in 2004 would be 12,243.

That number is based on totals from only four cities and in the first three months of the year multiplied by the average number of people per household.

Need Indeed

“We don’t know what the need is,” said Brian Bahr, Bentonville’s city planner. “If we say ‘No you can’t build that because there isn’t a need,’ what if the need develops in two months?”

Finding a saturation point, Bahr said, is impossible.

“This year is smoking last year, development-wise,” Bahr said.

By most accounts, residential development doesn’t seem to be slowing, but the real winners will be the ones who know how to play the game right.

“Pretty soon, there will be big competition here,” said Bart Bauer, a partner in Landquest Communities of Detroit. “If you are not a seasoned developer, you are going to have tough times.”

Bauer came to Bentonville from Detroit three years ago for Landquest. He recently became a partner with Dominic Geric and Gaetano Rizzo.

“I did a lot of research,” Bauer said. “I saw there was a lot of opportunity here.”

Landquest, Bauer said, will have more than 750 lots online in Bentonville by the end of 2004.

He said that interest rates could definitely affect the marketability of a house.

A $250,000 house at a 6 percent interest rate is affordable, Bauer said, but the same buying power will get a $210,000 house if the rate jumps to eight percent.

“People shop payments,” Bauer said.

National indicators, such as economic climate, haven’t had as much affect on the Northwest Arkansas market because of historically lower land prices, Justus said.

“When the price of land goes up, construction will slow,” he said.