real estate review
By Ethan C. Nobles, director of media relations for Arkansas Realtors Association

Over the past couple of years, housing markets throughout Arkansas in general and the Jonesboro area in particular have held up pretty well.

Why is that? First, let’s take a look at why housing markets in Arkansas have bucked national trends. While alarming drops in home values and high foreclosure rates have been set throughout the nation, Arkansas’ markets have performed comparatively well.

Statewide, sales through August fell 19.2 percent, but that really should come as no surprise. Not so long ago, there were quite a number of mortgages available that required no down payment – an applicant could get a loan to cover 100 percent of the purchase price of a home and a little extra for closing costs, too.

As we’ve learned from the foreclosures, the death of the subprime mortgage market that started at the first of 2007 and the highly publicized $700 billion bailout from the federal government, those risky mortgages were a bad idea.
It’s no shock, then, that lenders are being more careful when it comes to writing mortgages. And, honestly, who can blame them?

So, we’re left with a situation where lenders take a harder look at credit scores and most mortgages require some kind of down payment. Of course, there are still no down payment loans available to people who qualify for a Veteran’s Administration loan, meet the requirements to secure a first-time homeowner’s loan through the Arkansas Development Finance Authority’s bond program or live in a rural area and are eligible for a United States Department of Agriculture loan.

Most buyers, however, will have to come up with a down payment. How much that down payment is depends on what kind of credit score we’re talking about and whether the borrower is eligible for a Federal Housing Administration (FHA) loan.

If a borrower qualifies for an FHA loan, that person can purchase a home valued at as much as $275,000 and will have to provide 3.5 percent of the purchase price to cover closing costs and a down payment.

Another alternative is a conventional mortgage and borrowers are generally asked to come up with 5 percent of the purchase price as a down payment.
In other words, lenders are still issuing mortgages, but borrowers may have to come up with a down payment to access it. Interest rates are still favorable, but someone with bad credit may face a higher rate.

The good news is that more conservative lending practices should ultimately result in a more stable housing market – a situation that could well lead to healthy appreciation in home values. Average home sales prices in Arkansas stood at $152,400 at the end of August, down 1.3 percent from an average of $154,422 after the first months of 2007.

One of the advantages we’ve had in Arkansas is that market characteristics are fundamentally different than those in place in some other parts of the country. According to the National Association of Realtors (NAR), 32 percent of the homes in the nation are owned free and clear of any mortgages and 9 percent of the houses are covered by subprime mortgages. That’s a significant figure as 54 percent of the foreclosures in the country are on homes covered by those subprime mortgages.

In Arkansas, however, homeowners have bucked those national trends. According to the NAR, 42 percent of all homes in the state are owned free and clear of any mortgages and only five percent of the houses are covered by subprime mortgages. Few subprime mortgages mean fewer foreclosures, so Arkansas has avoided the worst of the troubles that come with a rash of defaulted loans. When you see a lot of foreclosures, you also see housing markets flooded with foreclosed homes and that weighs on market values – a bunch of discounted homes on the market tend to pull down the prices of all houses for sale.

While Arkansas has bucked national trends, the Jonesboro area has bucked statewide trends. Sales through August have fallen statewide around 19.2 percent compared to 2007, but the Jonesboro area has seen a 7.3 percent drop in sales. People in the real estate industry never like to see a decline in sales, but at least Jonesboro is ahead of state averages in that regard.

Also, sales prices have improved in Jonesboro, as averages declined 1.3 percent through August across Arkansas. At the end of August, the average sales price in Jonesboro was $139,536, up 3.5 percent over an average of $136,102 through the first eight months of 2007.

Of course, when sales drop off, that’s not a condition that lasts forever. Housing markets always expand after a period of market corrections.

The good news for Jonesboro is that the housing market has remained fairly stable. When conditions do improve across the nation and state, its pretty certain that the already appealing Jonesboro market will look all the more impressive.