Houses Pile Up in Outlying Small Cities – The Morning News
Last updated Saturday, June 28, 2008 5:17 PM CDT in Business
By Kim Souza
The Morning News
When Jennifer Grandon bought her Prairie Grove home in 2005, gas was $2.15 per gallon and the one way 23-mile drive to work was a compromise made to find a larger house she could afford on her single income.
Grandon was moving up from a small starter home she owned in Fayetteville.
Now that gas is pushing $4 per gallon, she would like to sell and move closer to her workplace in Springdale, eliminating the 230-mile weekly commute.
“I kept my house in Fayetteville as a rental and I would move back in a heartbeat if I could only sell my house in Prairie Grove,” Grandon said.
The problem for Grandon and dozens of others in similar situations is homes in outlying areas are in generous in supply but short on demand. Land and new home prices in Fayetteville, Springdale, Rogers and Bentonville have declined in recent months, said Jody Hendrix a real estate agent with Coldwell Banker Faucette in Fayetteville.
He said in many cases home owners who bought near the market’s peak in mid 2005 could owe more than the house is worth at today’s value.
An analysis indicates building has stalled in Centerton, Pea Ridge, Elkins and Prairie Grove – areas that were construction hot spots in 2005. Houses, new and existing, are piling up as home sales have decreased an average of 63 percent from May 2005 in these outlying communities.
Jason Smith, agent with Crye Leike Realty in Springdale, said buyers are taking a methodical approach.
“Everything matters right now. Buyers are looking at proximity to work, shopping conveniences, the days the property and subdivision have been on the market (to make sure resale is possible),” Smith said.
He said the market correction and high gas prices hurt outlying areas that were booming a few years ago.
Centerton was one of the region’s most active with a new home inventory of 161 homes listed for sale between March and May of 2005. The market had a healthy 4.9 months of inventory, and closing 110 sales in that three month period.
Fast forward three years, the same market had 139 new homes listed for sale with 11.6 months of inventory. The city is in a deep buyer’s market, closing 31 sales between March and May of this year, according to data supplied by Paul Bynum, statistician with Coldwell Banker Faucette Real Estate.
Vickie Briolet, agent with Crye Leike Realty in Rogers, is the listing agent for a bank-owned home in the Char-Lou Estates in Centerton. She said after five failed contracts and six months on the market, it looks like they finally have a buyer willing to pay $180,000 for the new home built in 2006 and never occupied.
Other homes in the subdivision are priced at $230,000, but those sellers who are investors, not banks, are willing to owner finance buyers with credit problems with little or no money down, she said.
Briolet said the bank marked their property down to $180,000, roughly a $50,000 decrease, and it still took six months to sell. Agents say this is an indication the Centerton market is overbuilt with many properties overpriced.
An interesting phenomenon is that median home prices in Centerton are up 12 percent in the last three years to $159,900, Bynum’s data indicated.
Other agents warn that the numbers by themselves rarely depict the whole story.
“Home prices are being artificially inflated by sellers and builders who are subsidizing all the closing costs and downpayment for many buyers,” Hendrix said.
Recently he represented a seller who took a check for $30,000 to closing, covering all the closing costs and downpayment subsidy for the buyer in order to sell the house.
The buyer agreed to pay full asking price for a contract sale price of $300,000, but the seller received less than $273,000 because 9 percent of the contract price went to cover the closing and downpayment for the buyer, before he paid his listing and selling agents.
Hendrix said the buyer got a great deal, at the expense of the seller although the sales statistics gleaned from the Multiple Listing Service Web site don’t disclose that detail.
Elkins is another market saturated with new and existing homes for sale. Between March and May of this year only four new homes were sold. The average days on market for builders with new homes to sell in Elkins is 299 days, up 288 percent from 77 days in 2005.
New home inventory is at 15.5 months, compared to 2.9 months during the same period in 2005.
Bynum said more than 6 months of inventory indicates a buyer’s market.
Hendrix said the surplus inventory and slack in demand has put downward pressure on prices in Elkins and the entire Northwest Arkansas market in general. He said it’s only a matter of time before the MLS begins to register the price reductions.
The Prairie Grove new construction market has 48 homes listed, an inventory equal to 8.5 months at the going sales rate. Between March and May, 15 new homes were sold with an average of 79 days on the market. This is roughly half the sales pace in 2005.
Fred Rausch of Rausch Coleman Homes built and sold 65 homes in Centerton before he left that market in 2006 to focus on Southwest Fayetteville and Prairie Grove.
He said the Centerton market priced itself out of the realm where his company felt they could be successful.
Catering to first-time home buyers Rausch Coleman developed Walnut Crossing between Farmington and Fayetteville on Arkansas 62 and purchased the Valley View development in Prairie Grove out of bankruptcy in 2004.
Rausch put the Valley View development on hold while he developed and built the Walnut Crossing subdivision where homes are priced between $130,000 and $160,000.
Rausch said his company is completing the development for about 42 homes priced between $130,000 and $160,000 in the Valley View subdivision. He expects a model home will be up for showing by the end of this summer.
Realizing that Valley View is further off the radar screen than other similarly priced new subdivisions in both West and East Fayetteville, Rausch said he hopes to cater to people looking to live near a golf course with golfing privileges and scenic mountain views for an affordable price.
Another outlying market suffering from excess lots and slower sales is Pea Ridge.
The city of roughly 4,000 people had 66 new homes for sale in May, equal to a 15.2 month supply. The 14 sales occurring between March and May of this year was about 2.5 times less than the 34 homes sold in the same 2005 period.
Briolet, who also lives in Pea Ridge, said real estate sales in the town have slowed along with the rest of the region.
She said the two large subdivisions located along It’ll Do Road off Arkansas 72 tell the story. Developers worked to get the agricultural land re-zoned and developed with roads and utilities in 2006. But now just two homes are occupied in the area. She said dozens of lots and roughly 20 new homes sit vacant in the almost forgotten subdivisions.