The real estate market in the Ozarks is on fire. This dynamic market is becoming prevalent in many areas around the country.
We’re all hearing stories of properties selling well above asking prices and getting multiple back-up offers above the agreed-upon sale price. This is becoming commonplace throughout the area. I have personally heard of or experienced real estate sales contracts being signed the same day. This sometimes applies not only to homes but land and other properties as well.
Let’s look at some financial considerations that impact this phenomenon:
Supply vs Demand: The old saying holds, “They’re not making any more of it.” Land is of finite supply. We’re experiencing a classic marketplace where there is pent-up demand, strong cash/financial positions and limited properties for sale. It’s a perfect storm for a great sellers market. This set of scenarios applies to farms, commercial, residential and recreational properties. Land is in demand.
Demographics: The Baby Boomer generation is looking to real estate as a stable, durable asset class to hold. Given the enduring rise in the stock and investment markets, capital gains can be realized and converted to real estate. Real estate is a “go-to-option” right now for interim and longer-term investors alike. Flipping homes or other properties is another subject and outside the scope of this article. The word gets out, and people from all over the country and beyond tend to migrate toward “desirable” areas. Given the propensity to allow more remote and work-from-home employment options, individuals and families find moving more attractive than ever.
Business and Employment: In addition to three of the largest companies in their respective industries (Wal-Mart, Tyson and JB Hunt), there are many affiliated and supporting businesses in our area. These companies provide thousands of jobs and contribute to the real estate demand. Many of these supporting companies are smaller businesses are local and worthy of local support. They, too, are significant employers.
Growing Pains: Rapid increases in populations create demand. “Hot” real estate markets are typically tied to attractive, accessible locations where multiple are amenities available. These include quality schools and education options, shopping and entertainment offerings, good transportation options and the perception of a safe quality of life. These and other amenities con-tribute to residential demand. As a result, commercial, farm and recreational properties become more desirable as well.
Here are some recent residential market stats in Northwest Arkansas for October 2021 Year over Year:
• Active Listings were 881, down 33 percent Y/Y and 14 percent for the past month (reduced supply = higher demand)
• The median listing price increased from $294K to 379K (demand, location and price inflation)
• The average days on the market decreased from 36 to 26 days, a 27 percent decrease (higher demand)
• Units sold increased from 965 to 1,050, an 8 percent bump in sales (again, increasing demand)
Info provided on-line by Coldwell Banker – Harris McHaney Faucette
An Upcoming Bubble?: There are several outside factors in play that impact land values. These include available credit from banks and lenders and the Federal Reserve’s on-going policies that are keeping interest rates at historical lows. However, we should realize there is a limit to how high and how long this pricing trend will continue. Significant and accelerated interest rate increases would immediately affect demand. Also, consumer confidence is a big driver in one’s desire to either borrow or hold tight regarding a large purchase or business expansion project.
Many will remember the low real estate cycle during 2008 and 2009. Hopefully, we’ve learned lessons from that period. However, history does tend to repeat itself. 1998-2000 and 2002-2003 were also down markets in real estate values when looking at the U.S. as a whole.
As we step back and view the bigger picture, let’s enjoy the positive impact of our robust economy while staying cognizant of the potential for change. Every seller needs a buyer and vice versa to maintain the thriving real estate community in this area. Careful planning is important when maintaining and improving real estate. I’ll always contend our farmers and ranchers are the best stewards of this great asset – the land.
Ken W. Knies is an agricultural and rural consultant. He holds a bachelor’s of science and arts from the University of Arkansas and a master’s of business administration from Webster University in St. Louis, Mo. He formed Ag Strategies, LLC as a business unit focused on quality borrowers and lenders.