Economist's Commentary: Little Rock, A Gem of a Market
Ken Fears
Manager, Regional Economics
Despite the sharp national economic downturn, Little Rock’s housing market remains one of the most stable in the country. Home prices slipped for three brief quarters in 2008 and early 2009 before rising steadily starting the second quarter of 2009. The median home price rose 5.8% over the 4-quarter period ending in December of 2009. While the brief step back in 2008 limited the 3-year growth rate to just 5.2%, a homeowner who purchased the median priced home in the fourth quarter of 2002 would have seen a $34,000 appreciation in the value of their home through the fourth quarter of 2009, a return of 35.1%.
The recent price trend was brought on by improved sales growth. Sales volume increased 29.9% over the four quarters ending in December of 2009. Helping sales in Little Rock is the fact that the median home price is only 32% of the local conforming loan limit. The low ratio of the local median price to the conforming loan limit implies that for most buyers in this market, government backed financing is available.
Demand for housing has also been aided by a relatively stable economy. While the unemployment rate rose from 4.9% to 6.5% over the 12 months ending in December of 2009, the current rate is well below the national average of 10.0%. Little Rock’s major employers are the state and U.S. government along with the U.S. military, which houses a large air force base there, all sectors that have retained workers during this recession.
On the other side of the coin, housing supply has been kept in check. Construction of new single family units edged down to the local long-term average. In addition, because of the relatively stable home price growth in Little Rock, consumers were not desperate to use risky mortgages to purchase homes during the national boom market. The result is that only 8.2% of mortgages in Little Rock are subprime compared to a national average of 11.2%. Furthermore, stable prices and steady employment have enabled homeowners to refinance, which helps to explain the low 7.0% foreclosure rate on subprime loans in Little Rock, well below the national average of 18.0%. Foreclosures on prime home borrowers are on the rise in Little Rock, 1.0% in November of 2009 compared with 0.7% just one month earlier, but this rate is well below the national average which rose from 2.1% to 2.6% over this same period.
A final factor helps shedding light on Little Rock’s stability is affordability. Affordability in Little Rock was never as misaligned as in many other markets. The monthly payment (principal and interest) on the average mortgage never rose above its long-term average during the entire housing boom and sits well below it today. Low home prices, stable employment and income growth, and relatively steady inventories have created the confidence that consumers needed to act in an environment of strong affordability.
Little Rock isn’t the only market that was able to withstand the national downturn. NAR Research recently released its Local Market Reports for the fourth quarter of 2009. These reports cover 150 markets and highlight the current pricing and sales patterns as well as future demand and supply conditions. The Little Rock report as well as reports on many other markets can be viewed on NAR Research’s website.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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