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'Phenomenal' growth highlights NW real estate.

Building Permits Valued at $144.8 Million Issued in First Six Months of '93

WILL ROGERS ONCE said land was a good investment because "they ain't making any more of it."

It's very possible the cowboy philosopher, who was married in Rogers at his mother-in-law's home on West Walnut Street, was referring to northwest Arkansas, which has been experiencing a tremendous real estate boom.

Realtors describing the real estate market in northwest Arkansas tend to speak in superlatives, with due cause.

"You couldn't be in a better market climate than we're in now," says B.W. Dykes of Dykes Bassett Mix & Associates, a Fayetteville-based real estate company with sales of over $40 million. "It would be impossible."

"In the last two years the market's the best it's ever been," says Patrick Harris of Rogers-based Harris-McHaney Real Estate Co., which posted $43.6 million in sales for 1992, a 40 percent increase over the previous year.

The figures support these statements.

In 1990-92, real and personal property assessments for the two-county region increased from $1.4 billion to $1.6 billion, a 14.9 percent increase. In the first six months of this year, more than 1,650 new building permits valued at $144.8 million were issued in Washington and Benton counties, a 54 percent increase over the same period in 1992. Fayetteville posted the largest increase in building permits with a 130 percent rise, according to the Northwest Arkansas Regional Planning Commission.

"The real estate market has had steady, consistent growth for the last 15 years, but the last two years it's been phenomenal," says Kirk Elsass |pronounced EL-saw~, a vice president with Lindsey & Associates Inc.

Lindsey, the area's largest real estate company, had $58 million in sales last year. This year the company will post about $64 million in sales.

"I attribute it primarily to interest rates," Elsass says.

Interest rates are at a 20-year low, hovering around the 6-7 percent range. In effect, northwest Arkansas has been able to reap the benefits from the rest of the country's woes while not being affected itself.

Insulated From Recession

Northwest Arkansas' types and diversity of industry kept it somewhat insulated and not greatly affected by the recent recession. The real estate market remained fairly steady as transplants moved to the region fleeing depressed areas of the country.

In 1991, when the Federal Reserve Board began slashing interest rates to combat the recession, the local real estate market received an enormous boost. This open the floodgates of emigres by making it easier and less expensive for people to relocate to the area.

In addition, the economic atmosphere allowed existing residents to trade up in the market. They were able to buy larger, more expensive homes while keeping their mortgage payments the same because of the lower interest rates.

"One of the strongest things we have around here is our balance," Harris says. "We've got a good mix of people moving up because of the low interest rates and a lot of people moving into the area. We've been getting across-the-board increases, and that's been very helpful."

The low interest rates have impacted the real estate market in other ways, as well. As rates fell, investors found it harder to get a good rate of return on traditional financial investments such as certificates of deposit or bonds. Often they turned to real estate, buying rental property or building houses on speculation.

Commercial real estate also is experiencing the boom brought on by low interest rates.

"Companies that were coming in here two years ago would look around and were excited, but they would hold off on making a purchase," Elsass says. "Now we're getting people who are calling, saying they want to be in this market, and they're buying property within a very short period of time. And, in turn, they're operating in six to eight months. They see a site and, even if they're not ready to build, they're going ahead and purchasing it to lock in the low interest rates."

Elsass says much of this commercial growth has been in the retail sector, and he attributes most of it to the lower interest rates. He notes another factor, though: The area has grown to the extent where it has a large enough population base to support the national restaurant chains -- such as Hooters or Chili's Grill & Bar -- that have stayed out of the area in the past.

"That's the type of growth we're going to have in the future and we're beginning to have now," he says, "the growth of commercial retail space as these national firms realize we now have the population base and the wealth to support them."

Lending Eased

Not only have interest rates dropped dramatically, but financing has become easier to obtain from banks, which, after the credit crunch brought on by the savings and loan bailout, have eased lending.

"Now we're able to get commercial loans from the local banks on fixed rates where a year ago all they would give you is a three-year mini-loan," Elsass says. "Now you can get 10- and 15-year investment property loans where two years ago you couldn't find anybody to give more than a year loan. The banks are very, very eager to loan on investment property."

But, while low interest rates have spurred the northwest Arkansas market, the increased demand has put inflationary pressures on real estate. Area Realtors say the region's property values are increasing between 8-10 percent a year. The concern is that they will rise too fast, putting a quick stop to the bull market.

"Prices have been going up, but not too fast," Harris says. "Our biggest fear is that it will overheat and we'll wake up like California or New England and scare off our buyers with the price increase outstripping the personal income increases."

Adding to the increase in property values is a dramatic rise in the nation's lumber prices following Hurricane Andrew's devastation of southern Florida in 1992 and the damage caused by the Mississippi River flooding this year. According to Harris, that price spike increased the cost of building new houses by roughly $5,000.

Curtis Ray, a vice president with Lindsey & Associates, relates another example. After moving out of a 2,700-SF house last year, he was only able to build a 2,200-SF home this year for the same price.

On the other side of the equation, the high demand for real estate has led to a shortage in other areas. Apartment vacancy rates are near zero percent and the inflationary tendencies in the local market have led to a shortage of low-cost housing.

"The increased demand has driven the price of lots up and we're seeing a shortage of lower-priced lots," Ray says. "A big problem that I've seen is a shortage of affordable housing, the houses from $40,000 to $50,000. Because of the rising property values, you start $35,000 in the hole with just the lot. Another thing is the increased price of materials."

No Oversupply

Those looking for commercial property are also feeling the pinch on supply, especially in the leasing market.

"I get people from Dallas and Tulsa looking to lease commercial space and they're amazed at the lack of selection," says Bob Nickle, vice president of Coldwell Banker Faucette Real Estate. "They're used to the market in their depressed area of the country where there is an oversupply of property."

This shortage is in part due to an inadequate supply of contractors and construction workers to meet commercial and residential needs. In addition, an unusually wet spring slowed area construction dramatically.

"The builders are having a heck of a time getting things done because there is so much activity," Nickle says. "People are still getting houses built, but it's taking longer and the bidding is probably not as competitive as it could be."

As much as low interest rates have boosted the market, Realtors don't see a major problem if the rates take an upturn. While they say this may slow some internal sales -- those taking advantage of the lower rates and trading up -- they do not believe it will have much of an impact on those relocating to the area.

"People are spoiled right now because interest rates are so low," Dykes says. "But even if and when they get back up to 10 or 11 percent, naturally they're going to slow things down, but people will get used to that and it will pick back up to the levels it's at now because we still have to accommodate the growth we're experiencing."

Despite the current boom, most in the industry say the best is yet to come. They say once the area's infrastructure catches up to the growth the region has already experienced, the market will really take off.

"We have so many things in place," Dykes says. "We have a good population base, the highways are coming in place and the airport is on line, and that's going to enable this area to grow even more. The next 15 years are going to far exceed what's happened the last 15 years."

That enthusiasm among Realtors is tempered by the realization that the booming market may lead to its own demise. Inflationary pressures, overbuilding and overpopulation all threaten to ruin the area's attractiveness.

"That's something we have to worry about," says Jim Shearin of Rogers-based Shearin and Co. "We have to be careful that all the growth doesn't get out of hand and impact the quality of life that has brought so many people here in the first place."

But the Realtors don't see that happening, what with the recent controls implemented by local municipalities concerning greenspace, sidewalks and the like.

"The more you grow and the bigger you get, your planning commissions and your city government have to get involved and make sure the growth is positive and controlled," Dykes says. "The cities are putting in more guidelines and they need to, because everyone benefits as long as they're not cost-prohibitive."
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Title Annotation:northwest Arkansas
Author:Tobler, Christopher
Publication:Arkansas Business
Article Type:Industry Overview
Date:Oct 25, 1993
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