Northwest Arkansas leads the nation in home price gain despite high mortgages, declining sales

August 29 - September 4, 2022

By The Daily Record Staff 

A new report by the National Association of Realtors (NAR) shows that northwest Arkansas is leading the nation in yearly home sales despite escalating mortgage rates and a declining housing market in the second quarter of 2022.

According to the nation’s largest trade association, which has hundreds of members across Arkansas, a greater number of markets experienced double-digit annual price gains compared to the prior quarter, based on NAR’s latest quarterly report. Eighty percent of the 185 tracked metro areas posted double-digit price gains, up from 70% in the first quarter of this year.

Nationally, the median single-family existing-home price eclipsed $400,000 for the first time, rising 14.2% from one year ago to $413,500. Year-over-year price appreciation eased slightly compared to the previous quarter’s 15.4%.

“Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” said NAR Chief Economist Lawrence Yun. “Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief. The recent dips in mortgage rates will bring additional buyers to market, especially in those places where home prices are still relatively affordable and where jobs are being added.”

Regionally, the South accounted for 44% of single-family existing-home sales in the second quarter and posted the largest price appreciation of 18.2%. Prices increased 12.7% in the West, 10.1% in the Northeast and 9.7% in the Midwest. 

The top 10 metro areas with the largest year-over-year price gains all recorded increases greater than 25%, with seven of those markets located in Florida. Those include Fayetteville-Springdale-Rogers, Ark.-Mo. (31.9%); Lakeland-Winter Haven, Fla. (31.4%); Naples-Immokalee-Marco Island, Fla. (28.9%); North Port-Sarasota-Bradenton, Fla. (28.8%); Myrtle Beach-Conway-North Myrtle Beach, S.C.-N.C. (28.5%); Tampa-St. Petersburg-Clearwater, Fla. (28.0%); Cape Coral-Fort Myers, Fla. (27.8%); Punta Gorda, Fla. (27.4%); Ocala, Fla. (26.7%); and Ogden-Clearfield, Utah (25.5%).

The national NAR confirms an earlier Skyline Report in March on residential and multifamily real estate in northwest Arkansas by Arvest Bank, which shows the  number of homes sold set a new record in the second half of 2021 despite significantly higher home prices.

In Washington and Benton counties there were 5,934 homes sold, which eclipsed the previous Skyline highwater mark of 5,726 from the second half of 2020. This new record came despite the average price of homes sold increasing over the same timeframe by 17.8% in Benton County and by 15.8% in Washington County. Over the past five years, the average price of a home sold has increased 55.6% in Benton County and 54.5% in Washington County.

Researchers at the Center for Economic and Business Research (CBER) at the Sam M. Walton College of Business at the University of Arkansas voiced concerns about the region’s long-term ability to sustain its reputation as offering a lower cost of living than other metropolitan areas if these trends are not mitigated.

“Northwest Arkansas has been able to effectively compete against areas like Austin, Texas and Seattle, Washington because of our lower cost of living, but housing costs are the primary driver of that advantage,” said CBER Director and economist Mervin Jebaraj. “We believe it is imperative that the major cities in the region accelerate efforts to address zoning and other issues impacting the ability for developers to build along the I-49 corridor. While regional efforts have begun toward this goal, we hope to see results of these efforts sooner rather than later.”

According to NAR, the top 10 most expensive markets in the U.S., half of which were in California, included San Jose-Sunnyvale-Santa Clara, Calif. ($1,900,000; 11.8%); San Francisco-Oakland-Hayward, Calif. ($1,550,000; 11.9%); Anaheim-Santa Ana-Irvine, Calif. ($1,300,000; 17.2%); Urban Honolulu, Hawaii ($1,145,000; 17.3%); San Diego-Carlsbad, Calif. ($965,900; 13.6%); Boulder, Colo. ($933,400; 11.8%); Naples-Immokalee-Marco Island, Fla. ($850,000; 28.9%); Los Angeles-Long Beach-Glendale, Calif. ($825,700; 9.2%); Seattle-Tacoma-Bellevue, Wash. ($818,900; 14.4%); and Boston-Cambridge-Newton, Mass.-N.H. ($722,200; 8.9%).

“The local job market performance and supply availability are the clear distinguishing factors driving local home price growth,” Yun added. “Job growth is positive and should be applauded, but supply restraints are creating unnecessary barriers to ownership opportunities.”

Housing affordability dramatically tumbled in the second quarter of 2022, driven by sharply rising mortgage rates and climbing home prices. The monthly mortgage payment on a typical existing single-family home with a 20% down payment jumped to $1,841. That’s an increase of $444 — or 32% — from the first quarter of this year and $612 — or 50% — from one year ago. Families typically spent 24.3% of their income on mortgage payments, up from 18.7% the prior quarter and 16.9% one year ago.

Growing unaffordability impacted first-time buyers looking to purchase a typical home during the second quarter of 2022. For a typical starter home valued at $351,500 with a 10% down payment loan, the mortgage payment rose to $1,810 — a bounce of $433 (or 31%) from the prior quarter and $597 (or 49%) from one year ago. First-time buyers typically spent 36.8% of their family income on mortgage payments, up from 28.7% in the previous quarter. A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to over 25% of the family’s income. 

A family needed at least $100,000 to afford a 10% down payment mortgage in 53 markets, nearly double the 27 markets from the prior quarter. Yet, a family needed less than $50,000 to afford a home in 23 markets, down significantly from 63 markets in the previous quarter.

Meanwhile, a monthly real estate market report by Seattle-based Zillow shows that as home-buying demand cools from the record pace of 2021, competition is now hottest for the lowest-priced homes as mounting affordability obstacles stretch buyers’ budgets. 

Throughout most of the pandemic, buyers shopping in the middle and top price tiers faced the strongest competition — inventory was relatively lower, and there were more sales. Now, inventory for the least expensive homes is tightest while the sales gap has closed. 

“Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door,” said Zillow senior economist Nicole Bachaud. “Still, the less frenzied market compared to last year will feel like a breath of fresh air for those buyers who haven’t been priced out. It’s not yet a buyers’ market, but it’s becoming a better time to buy, with more time to consider options and less chance of being dragged into a bidding war. Demand is lighter for homes at the top end of the market, and owners appear to be reluctant to sell and move to a different home that will presumably come with a much higher monthly payment at today’s mortgage rates.”

Shifts in inventory, sales and price cuts show the market is in the midst of rebalancing after perhaps the most competitive period ever. Home sellers are adjusting their expectations to the current reality, and buyers have more negotiating leverage than they have had since the onset of the pandemic. Still, home prices are at or near record highs, pushing buyers who remain in the market toward homes in the lower end of the price range.