The Arkansas real estate market is amongst the most affordable markets in the country. With an attractively low price-to-rent ratio, most real estate in Arkansas is actually cheaper to own than rent. That—combined with an improving economy, new indicators left in the wake of the pandemic, and promising job growth opportunities—should facilitate the increasing demand for the foreseeable future.
While the Arkansas real estate market couldn't avoid setbacks onset by the pandemic, the state's relative affordability is now benefiting the local real estate sector. Whereas most states are witnessing appreciation rates price many buyers out of the market, real estate in Arkansas hasn't grown prohibitively expensive yet, which means there's still room to run up. As a result, real estate investors in Arkansas are still awarded the opportunity to exercise rehab strategies with attractive profit margins; that's not the case in most places.
However, it is worth noting that while relatively affordable, prices have increased quite a bit over the last decade. In response, more and more investors are starting to look into long-term strategies which are benefiting from secular tailwinds. Rental properties, in particular, look more viable than ever in Arkansas, and investors are starting to take notice.
The Top Arkansas Real Estate Markets
While the best real estate market in Arkansas is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Units Sold (Year To Date): 21,629 (+14.52% year over year)
Average Days On Market: 102
Median Rent Price: $851
Price-To-Rent Ratio: 14.60
Unemployment Rate: 4.4% (latest estimate by the Bureau Of Labor Statistics)
Population: 3,017,804 (latest estimate by the U.S. Census Bureau)
Median Household Income: $47,597 (latest estimate by the U.S. Census Bureau)
Arkansas Median Home Prices
The median home price in Arkansas is approximately $149,120. To put things into perspective, the median home value across the United States is $293,349, according to Zillow’s Home Value Index. The 96.7% difference between the two can be primarily attributed to the last year. While home values have appreciated in both regions for the better part of a decade, the median home value in the U.S. has increased 15.0% in the last year. Over the same period of time, real estate in Arkansas increased a more modest 10.4%.
There is no doubt that Arkansas’ appreciation rates have trailed behind the national real estate market in recent history. It is also worth noting, however, that median home values in the United States have fared better since the latest recession. Since the Arkansas real estate market bottomed out around April 2012, prices have increased 44.7%. Real estate prices across the United States, on the other hand, averaged increases somewhere in the neighborhood of 79.9%.
Despite nearly a decade's worth of appreciation, it looks as if the Arkansas real estate market still has room for growth. As one of the more affordable states to buy in, demand will remain supported by affordability. However, in addition to relative affordability, new indicators created in the wake of the pandemic will facilitate future price increases. In particular, the state's lack of available inventory isn't nearly enough to keep up with new demand. In the last year alone, demand has increased because of lower interest rates and lower unemployment rates, so much so, in fact, that supply can't keep up. The resulting competition will drive prices higher for the foreseeable future, most likely at a rate faster than was seen over the last year.
Arkansas Median Rent Prices
Arkansas’ home prices share a distinct correlation with every housing indicator, and rent prices are certainly no exception. You can very easily attribute Arkansas' higher rental prices to the state’s latest bought of appreciation. If for nothing else, higher home values are preventing a large population of prospective buyers from actually committing to a purchase, if not pricing them out of the market altogether.
In other words, there’s a large contingent of people that want to buy but can’t, which lends itself to another issue: the same supply and demand crisis facing would-be buyers is impacting renters. Since more people are priced out of the buying market, we see more renters than average competing over fewer available properties. As a result, landlords have found themselves in a position of power in Arkansas and increased their asking rates.
According to the latest data released by Apartment List, the median rent in Arkansas has increased 7.9% in the last year and now sits around $851. The latest increase has resulted in the following prices for individual unit sizes:
1 Bedroom: $647
2 Bedroom: $822
3 Bedroom: $1,012
4 Bedroom: $1,213
Comparatively, the national average rent price is $1,219, or 43.2% higher than Arkansas'. The difference is noticeable, and appreciation forecasts suggest the discrepancy will only grow for the foreseeable future.
Arkansas Foreclosure Trends & Statistics
According to Attom Data Solutions’ Midyear 2021 U.S. Foreclosure Market Report, a total of 65,082 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) in the first six months of the year. “That figure is down 61 percent from the same time period a year ago and down 78 percent from the same time period two years ago,” according to the report.
Foreclosures are down on a national level for one reason: Over the last year, forbearance programs and government aid prevented many distressed homeowners from defaulting on their loans. Foreclosures in Arkansas are no exception, as filings are down about 53.0% over the first six months of 2021 from the same point in the previous year. In all, Arkansas saw a total of 350 properties file for foreclosure from January to June. At that rate, only 0.03% of the state's housing units are considered distressed.
However, it needs to be noted that the lull in foreclosure activity isn't expected to last much longer. As government assistance runs out, distressed homeowners will be forced to come current on their mortgages, leaving many no other option than to file for foreclosure. As a result, preemptive Arkansas real estate investors will want to start lining financing up for the second part of 2021. Over the next year, in fact, foreclosures are expected to increase, and prepared investors may be able to step in and help distressed homeowners avoid bankruptcy.
Tax Lien Investing
Tax Lien or Deed: Tax Deed State
Redemption Period: 3 Years
Arkansas Real Estate Investing
The Arkansas real estate market is not unique in that it is performing in a new marketplace largely created in the wake of the pandemic. The same indicators impacting other states are alive and well in Arkansas: low interest rates, higher home prices, fewer listings, and more demand. In response to the new metrics, homes are selling at historical prices in just about every state.
According to Attom Data Solutions' second-quarter 2021 U.S. Home Sales Report, "the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and $60,572 in the second quarter of 2020."
Homes are selling for more everywhere, and Arkansas is no exception. As a result, real estate investors in Arkansas have had to adjust their business strategies. While there are still attractive profit margins spread across the state, savvy investors have started turning away from short-term strategies and towards long-term rental properties. If for nothing else, several indicators suggest investors would be wise to build out their rental property portfolios.
For starters, interest rates are historically low. As recently as July, the average commitment rate on a 30-year fixed-rate loan was 2.87%. While up slightly year to date, today's rate is historically low and represents a great opportunity for investors to increase cash flow and offset higher acquisition prices simultaneously. Consequently, the less money rental property owners have to pay towards their mortgage each month, the more they can pocket from incoming rent.
In addition to lower borrowing costs, Arkansas boasts a price-to-rent ratio of 14.60. At that level, it's more affordable to own real estate in Arkansas than to rent it. Traditionally, a 14.60 price-to-rent ratio would work against landlords, as more people would look to own. However, the state's low inventory levels have prevented many would-be buyers from making the jump to homeownership. Subsequently, more people are forced to continue renting, effectively increasing rental demand. The latest increase in rental demand has allowed landlords to mitigate risk and increase asking prices accordingly.
The Arkansas real estate market remains more affordable than many of its counterparts, which means there are still plenty of opportunities to rehab properties. However, the newly introduced metrics of today's market make long-term strategies much more viable. In response, investors are starting to pay special considerations to long-term rental properties, and they will continue to do so as long as market fundamentals remain where they are.
Arkansas Housing Market Predictions
It is nearly impossible to predict where the Arkansas real estate market will be in a year, and perhaps even six months from now. Regardless of how predictable Arkansas real estate trends appear to be, there are too many variables to rely on them without at least some degree of error.
Nonetheless, it’s good practice to try and make well-informed, educated guesses about a respective housing market. Keeping a finger on the market's pulse is the simplest way to keep pace with today’s fast-paced market cycles. Consequently, there are a few Arkansas real estate market projections that are more likely to play out than others:
Rental properties will slowly replace rehabbing as the prominent exit strategy: As one of the most affordable housing markets in the country, Arkansas real estate has become a commodity for the budget-conscious shopper. Real estate in Arkansas is so affordable that it’s actually cheaper to own than rent in a majority of the state. As a result, attractive profit margins on rehab deals still exist.
However, metrics are starting to suggest that rentals may be a more viable exit strategy moving forward.
Low interest rates, combined with a lack of listings and pent-up demand, will drive rental demand for years.
Home values will increase: Not unlike everywhere else, demand in Arkansas is outpacing supply.; there aren't enough homes to meet consumer needs. That, combined with low interest rates and more money in savings accounts, creates more competition. The competition has already enabled sellers to increase asking prices, and it will continue to do so for the foreseeable future.
There are several Arkansas real estate trends working in favor of today’s investors. Thanks to encouraging economic developments, like more savings and lower interest rates, the local real estate industry has become the beneficiary of more active buyers. However, the same lack of inventory impacting the rest of the country is present in the Arkansas real estate market. While more people are interested in buying, they are faced with rapidly escalating prices. Nonetheless, recent demand has already stimulated the local market and should look to improve things even further for the foreseeable future.
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