Little Rock, Arkansas, has endured one of the country’s harshest real estate downturns in decades, with home prices gradually increasing even as sales decline.
Home sales have fallen for 28 consecutive months in Pulaski County, where Little Rock is located. For the first quarter of this year, sales in Pulaski County were off 28 percent compared with the corresponding quarter in 2007.
But the median home price rose 3.8 percent over the same period.
“By and large, Little Rock has not participated in the activities that have caused the [real estate] correction in other parts of the country,” said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas in Fayetteville. “Activities like subprime mortgages and unbelievably appreciating housing prices that some other parts of the country have had” have not hit Little Rock.
Metro Little Rock is home to about 250,000, and its median household income is about $37,500, higher than all of Arkansas’ major cities except two in the prosperous northwest corner of the state, which is home to Wal-Mart’s headquarters.
Roddy McCaskill, executive broker for Keller-Williams Realty in Little Rock, has sold real estate in the city for 30 years. During that time, home prices have averaged about a 3 percent increase a year, McCaskill said.
“Some years, it’s 6 to 10 percent, and other years they are just flat, with no appreciation,” McCaskill said.
So why have Little Rock home prices risen while many cities around the country reported double-digit drops?
The reasons vary.
The median home price in Pulaski County is about $170,000 to $175,000, said Scott McElmurry, chief operating officer for Bank of Little Rock Mortgage, the largest mortgage lender in Little Rock. When compared with the city’s median income, the median home is easily affordable, McElmurry said.
“Contrast that with the areas having the most trouble,” McElmurry said. “If the median home price is $450,000 in San Diego, let’s say, but the median income is $75,000, it is very difficult to find a house you can afford.”
Bankers and mortgage lenders in Little Rock are financially conservative, McElmurry added, noting that few got involved in subprime lending.
The affordability of homes in Little Rock allowed lenders to use more conventional products to finance homes, decreasing the need for subprime products, noted Bill Roehrenbeck, chief executive officer for Arvest Mortgage. Arvest is the third-largest mortgage lender in the Little Rock market and the largest in the state.
Only 2.4 percent of all mortgage loans in Pulaski County last year were subprime, according to data on the Federal Reserve Bank of New York’s Web site. That is below the national average of 2.6 percent.
Roehrenbeck said that most mortgage lending in Little Rock follows guidelines set by Fannie Mae and Freddie Mac because most mortgages are sold into the secondary market.
Most borrowers also are conservative and historically have sought fixed-rate mortgages, McElmurry said.
“And the majority of mortgage financing done in Arkansas is done by ‘A’ paper mortgage companies,” McElmurry said. “Most [Arkansas mortgage companies] are bank-owned, meaning they are highly regulated.”
The conservative lending practices have paid off. Only 200 of the 3,900 subprime loans in Pulaski County were in foreclosure last year, according to the Federal Reserve statistics, which were supplied by First American Core Logic of Santa Ana, Calif. That is 1.2 subprime loans in foreclosure for every 1,000 homes, about half the national average.
While statistics were not available for Little Rock only, Core Logic, which gathers public information on mortgages from 99 percent of the 3,100 counties in the country, estimates that 64 percent of Arkansas’ 1.17 million homes — about 750,000 — are paid in full and don’t have a mortgage.
“It is impossible to get foreclosed on if you don’t even have a mortgage,” added Mark Fleming, chief economist for Core Logic.
Still, the stability of the Little Rock housing market may be tested in the coming months.
Because home sales are declining, a drop in home prices almost certainly will follow at some point, said Deck, the University of Arkansas economist.
“A price decline usually follows a quantity decline like we’ve been seeing,” she noted.
McElmurry points out, however, that prices have to decline only if homeowners are forced to sell their homes for various reasons.
“Because if I don’t have to sell my house, and I don’t like the offers I’m getting, I can just take my house off the market,” McElmurry said. “Then I go back in the market when it gets better.”
Little Rock is not a city of transient residents who move in, live for a few years and move out, McElmurry said. And no major employer has laid off a large number of employees, so there haven’t been a large number of homeowners being forced to sell.
Still, Alltell Corp., one of the largest employers in Pulaski County, announced in June that it is being acquired by Verizon Wireless.
Alltel employs about 2,900 people in Pulaski County. While no details have been released about job losses, it is possible that hundreds of residents could get handed pink slips and be forced to sell their homes and find work outside the state.
That would dramatically affect the city’s housing market, McElmurry said.
David Smith is a real estate reporter for the Arkansas Democrat Gazette.