Northwest Arkansas Housing Market Slumps
Last updated Saturday, January 6, 2007 3:33 PM CST in Business
By Kim Souza
The Morning News
A five-year bull run in area residential home construction and record real estate prices hit a wall in late August. The slowdown was felt in the small-business, banking and construction sectors of the local economy.
Kathy Deck, economist with the University of Arkansas, said the downturn was consistent with a national trend of the biggest decline in home building in 15 years.
Many economists and federal reports indicated that the end of a five-year housing boom has taken a toll on the nation's economy, reducing the economic growth to an annual rate of 2 percent -- the slowest pace of the year.
Month after month news of declining home sales reported by the Arkansas Realtors Association was offset by optimism from builders and real estate agents until a builder bankruptcy case made headlines in October.
Bella Vista-based Betty's Homes Inc. and its owners Robert and Betty Abercrombie filed for Chapter 11 bankruptcy, owing almost $10 million to local creditors and affecting eight area banks and dozens of small businesses.
A sign of the times perhaps, as normal business cycles produce ups and downs within a marketplace, Deck said.
Rumors of cash flow problems and a glut of inventory in upscale single-family dwellings should force banks to look closely at their loan portfolios, said Tim Tarvin, professor of law at the University of Arkansas.
"It just amazes me that with all the solid data available to bankers and builders related to supply and demand that banks are still willing to loan and builders are still building. It will hit a wall," said John Dominick, finance professor and Arkansas Bankers Chair for the University of Arkansas.
The Skyline Report released Nov. 10 compiled by the Center for Economic Research at the University of Arkansas concluded that residential home building slowed dramatically in the three months ending Sept. 30.
While the housing pipeline remained clogged with an oversupply of unoccupied homes, the Skyline report showed the overall number of building permits dropped more than 60 percent in the year-over-year quarter.
A November Arkansas Realtors report showed 2006 to be the third best year on record for area home sales, but 14 percent lower than in 2005.
The decline in building and home sales took its toll on many small-business owners who service the real estate sector. A slumping number of jobs and a marked increase of slow and non-payments from several area builders for labor and materials furnished months earlier prompted cut-backs and layoffs among small employers.
The number of mechanic's liens filed by area sub-contractors against builders surged more than 50 percent in recent months, according to the court filings in both Benton and Washington counties.
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