Supply may be gaining a little ground on demand in the residential real estate industry. But across Arkansas, a seller’s market endures.
One west Little Rock homeowner, who wished to remain anonymous with a mid-June closing date looming, received an offer above asking price within eight hours of listing his house.
“We accepted that offer and then received a backup offer the next day, which we also accepted,” he said.
Many such stories are being shared across the state — consumers scrambling to find a new house or make other living arrangements after their home is sold within hours of being listed. Factors enticing buyers into the market include a need for more space to accommodate home offices, historic 30-year fixed mortgage rates under 3 percent and a pent-up economy poised to fully rebound, according to Brandy Harp, principal broker with Jon Underhill Real Estate of Little Rock.
Harp said the emerging post-pandemic market continues to perform aggressively across all price points, and she expects it to do so for the remainder of 2021 and even throughout 2022 as consumers find they can spend more on their homes.
With inventory currently 46 percent lower than normal in the Little Rock market, including a significant shortage of homes under $300,000, Harp calls the times “unprecedented” for residential real estate.
“Beginning in May, we started seeing slow increases in inventory, which we believe will continue. An additional factor is high demand. The pandemic has helped real estate; it has forced people to concentrate on their homes and examine how they want to live.”
Harp said she’s seeing three specific trends in the residential market.
“Empty nesters are downsizing to smaller, more efficient and lower maintenance homes. Younger families are upsizing to larger homes. And young professionals out of college entering the workforce are purchasing a home.”
With demand so high, inventory is down, and average selling prices are up across the state, according to data from the Arkansas Realtors Association. From March 2020 to March of this year, inventory dropped by 16.02 percent. And the average selling price for a new or existing home was up 12.26 percent to $100,042 across the board, including the following counties:
• Benton — 11.82 percent to $311,524.
• Craighead — 16.7 percent to $219,119.
• Faulkner — 14.06 percent to $224,287.
• Garland— 30.89 percent to $262,355.
• Lonoke — 2.95 percent to $184,338.
• Pulaski — 17.15 percent to $254,931.
• Saline — 24.27 percent to $260,317.
• Sebastian — 39.26 percent to $196,665.
• Union — 20.29 percent to $168,823.
• Washington — 23.56 percent to $297,535.
Roughly 1,200 homes were sold in Benton and Washington counties in June of 2020. As of the last week of May, just 550 homes were on the market, according to Suzett Sparks, a managing broker with Lindsey & Associates in Rogers.
It’s a seller’s market, all right. But Dale Carlton, an attorney and the principal broker with Carlton Realty of Fayetteville, told Arkansas Money & Politics it’s not often that the industry experiences a market this robust favoring the seller in so many ways.
“Sellers in today’s market are realizing that buyers have few options, which allows sellers the ability to negotiate all of the terms of a contract, not just focus on the price,” he said. “In many price ranges, the number of buyers exceeds the available housing by enough to result in multiple offers within 48 hours of a home being listed.
“As a result, buyers attempt to make their offer stand out against other offers by offering such things as negotiable closing dates, committing cash to cover any shortage in the appraisal for loans, waiving inspections, offering nonrefundable deposits, and many other creative means to provide the best opportunity to have the seller choose their offer.”
Like Harp, Carlton believes several scenarios coalesced to result in the current buying frenzy including record low rates and the desire for more space as homes begin to double as offices. But he also noted that less aggressive infrastructure growth in many cities has limited new subdivision development and thus new construction. This makes lenders more conservative when it comes to financing new subdivisions, which in turn results in rising costs for lumber, materials and labor.
And that makes new construction a more expensive prospect. Even with fewer new homes available, Carlton noted that the “American dream of home ownership remains alive and well with new buyers entering the market every day.” All of which helps elevate existing home prices, he said.
Sparks said listing agents in NWA are presenting sellers with up to 40 offers.
“Typically to win in multiple offer scenarios, buyers are guaranteeing to pay the difference for an amount over appraisal or saying the offer is not subject to appraising for the purchase price. In addition, it is not uncommon for a buyer to say they will not ask the seller to make repairs in their offer.”
And with the region still attracting new residents at a healthy clip, she doesn’t think the market will correct itself anytime soon.
“For buyers who don’t have a large amount of cash to pay the difference in price versus appraisal, the market is particularly challenging,” she said.
The present-day perception of “home” was altered by the pandemic year. Americans want the ability to work comfortably from home when needed, and they want more space to accommodate children attending school virtually from home or for more pandemic-friendly outdoor entertaining.
Jonie Burks, executive broker with the Charlotte John Co. in Little Rock, said she continues to see a “bigger is better” trend in 2021.
“Buyers are wanting larger homes to accommodate working from home or family members moving in,” she said. “Outdoor living spaces are in high demand, especially pools, and homebuyers are focused on the suburbs where more acreage can be obtained.”
Carlton said Americans are investing more in their home-office space as reflections of their own style. Furniture manufacturers are taking notice. Knoll + Muuto’s Work from Home line, for example, includes furniture, lighting and other home-office accessories marketed to remote workers.
Harp is seeing consumers more attune to energy efficiency but calls home offices and outdoor entertainment spaces the new “must-haves’’ for homebuyers. For her clients, outdoor entertainment essentials include a fireplace or fire pit, a spacious patio with plenty of shade, a “fantastic pool and other accoutrements such as mosquito misters, cooling misters and fans.”
A recent HomeLight study found the value-add of an inground pool went up 39 percent in the Little Rock market, from $22,258 pre-COVID to $30,829 in May.
The current seller’s market won’t last forever. Carlton thinks a few factors may hint at a change in the market. First, look at new construction permits, he said. They’ll provide a snapshot of homes being added to a market inventory and can be compared to existing demand.
“Permits are an indicator of homes that will be available six to eight months from the time the permit was issued,” he said. “If permits starting to increase well above demand, then we could assume that six to eight months from that time there might be a small change; that rising interest rates will impact sales since the higher the interest rate, the less a buyer can afford to borrow toward their purchase which could result in less buyers having the ability to purchase; and as prices continue to rise there will be more reluctance to purchase in fear of buying in a bubble and losing money in the future.”
Carlton doesn’t foresee a bubble, though. “As long as there remain more buyers than there are available homes, the seller’s market will continue.”
He does, however, anticipate another 12 to 18 months of a market similar to the past six, with rates settling in at 4 to 4.5 percent and construction catching up with demand.
“I don’t anticipate a rapid change at that time, just a slow movement toward a more normal market where homes sell in two to four months of being listed instead of 10 to 15 offers in the first 48 hours,” he said. “For many decades, we’ve indicated that a six-month supply of homes is a normal market with prices remaining fairly steady. With the change in technology and available information of the average buyer looking at their smartphone at instant market changes, it feels like a normal market may be somewhat shorter in the future.”
According to the latest Skyline Report from the Center for Economic and Business Research (CBER) in the Walton College of Business at the University of Arkansas, building permits in NWA are at their highest level since 2006.
In the meantime, many consumers who sold their homes quickly and couldn’t find a new house are looking at rentals to bridge the gap. Add the natural influx of young adults entering the job market, and you get a market in high demand.
“An additional factor that we are starting to see is the absorption of available rental homes,” Carlton said. “When buyers are unable to purchase within their timeframe, they will choose to lease a home, and this appears to be happening more and more. Furthermore, the increased value of many rental properties is resulting in a sell-off by some investors to realize profits on their investment. These two factors will remove rental homes from the market and may impact the price of rent over the next year or two.”
Harp, married to prominent Central Arkansas home builder Richard Harp, said the market and its future are a frequent topic of conversation around her house. The market eventually should catch up to itself, rates will rise, and inventory will return to normal levels. But Harp sees more of the same for the immediate future with sellers holding the cards.
“Normally when interest rates increase, people can afford a smaller mortgage payment and pressure is placed on home prices,” she said. “As a result, we typically see decreased demand in residential real estate, lowering home prices. However, we don’t forecast this scenario playing out in today’s environment. The cost of materials to build and remodel homes has increased substantially. While we may see slight relief, all data reflects the cost will remain elevated for building materials compared to historical averages.”
Material costs increased in 2020 due to factories and lumber yards closing because of COVID-19, Harp noted. And the current seller’s market is keeping them elevated.
“In 2021, high demand is the root cause,” she said. “When the cost of new construction is substantially higher, this has a direct impact on the replacement value of a home. As a result, we expect home values to remain.”
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