Wouldn’t it be nice if housing prices were to come down and correct themselves? If you’re feeling the pinch when looking at housing prices, you’re not alone. The idea of a market correction might seem appealing, but in today’s blog, I’m here to tell you that housing prices aren’t coming down in the state of Arkansas—and in many other areas across the country. But why is this happening? If you’re looking for a quick answer, it all boils down to supply and demand.

In this blog post, I’ll dive into the reasons behind the rising housing costs in Arkansas and why they’re likely to stay high for the foreseeable future.

The Basics: Supply and Demand

As I mentioned in the blog, the short answer to why housing prices aren’t coming down is simple—supply and demand. When more people move into an area than there are homes available, prices go up. It’s basic economics. And in Arkansas, specifically in places like Northwest Arkansas, we’re seeing this in action.

But let’s dive into the key factors driving this trend.

1. Population Growth: More People, Higher Demand

As of the latest statistics, Arkansas has a population of just over 3 million people. While that might not sound like a lot compared to major metropolitan areas, we are growing steadily. Many people are relocating to Arkansas from states like Texas, Florida, California, and even the Northeast. These newcomers are attracted by the lower cost of living, which includes housing.

However, as more people come to the area, the demand for housing increases, pushing prices higher. It’s simple—more buyers, fewer homes.

2. A Booming Job Market

One of the main drivers behind the influx of new residents is a strong job market. Northwest Arkansas, in particular, is home to major employers like Tyson Foods, JB Hunt, and Walmart. These companies are expanding their operations, and Walmart is even developing a new home office, with many buildings already operational. This has created a significant number of job opportunities, pulling people from all over the country to Arkansas.

As more people move here for work, they need a place to live. The growing demand for housing continues to push prices higher.

3. Limited Housing Supply

With the rising demand, there’s a clear issue with supply. Arkansas is facing a shortage of housing units, whether single-family homes, multi-family properties, or apartment buildings. Not only are there more people moving into the state, but there are zoning restrictions that limit the areas where new neighborhoods can be built. Some land that could be developed for housing is restricted, making it difficult to meet the growing demand.

This lack of available housing units—combined with the increasing number of people looking to live here—pushes prices up.

4. Rising Construction Costs

In addition to the supply issues, rising construction costs are also driving up housing prices. The cost of materials and labor for builders remains high, meaning they can’t build affordable homes without taking a loss. As a result, more and more builders are focusing on high-end properties rather than affordable ones. This lack of affordable housing options is contributing to the rising prices.

5. Investment in Rentals: A Double-Edged Sword

An increasing number of investors are buying up homes to convert into long-term and short-term rentals. In many cases, entire neighborhoods are being purchased by investors, which reduces the number of homes available for people to buy. These investors are often able to offer higher prices than individual homebuyers, making it difficult for first-time buyers to compete.

This trend drives prices up further, as there are fewer homes available for people looking to buy and live in them.

6. Interest Rate Volatility

Interest rates have been fluctuating in recent years, making it harder for buyers to afford homes. Even though interest rates today are much lower than they were in the 1980s, they are still significantly higher than the ultra-low rates seen in 2020 and 2021. Many people who purchased homes during that time are reluctant to sell, especially if they have a mortgage rate of 2.5% or 3%.

As interest rates rise, many people who might have been in the market for a new home are opting to stay put, which further limits the supply of homes available for sale.

7. Lack of Affordable Housing Policies

Arkansas, compared to other states, lacks strong policies that ensure the development of affordable housing. While there are some local organizations fighting for more affordable housing, state-level policies aren’t doing enough to ensure that affordable homes are being built. Until that changes, the affordability gap will continue to widen.

8. Property Taxes and Rising Insurance Costs

In Arkansas, property taxes are assessed in arrears, meaning homeowners pay taxes based on the value of their home from the previous year. As property values rise, so do property taxes. This can make it harder for people to afford homes, especially when combined with rising insurance costs.

In Arkansas, we deal with natural disasters like hail and tornadoes, which can affect the cost of insurance. As more people are impacted by these events, insurance rates are rising, making homeownership more expensive.

9. Gentrification of Urban Areas

As wealthier individuals move to Arkansas for its lower cost of living, they are pushing up home prices in certain neighborhoods. Local residents, particularly those who are already struggling with rising housing costs, are finding themselves priced out. The influx of wealthier residents has led to gentrification in urban areas, further exacerbating the affordability crisis.

10. Rising Housing Costs vs. Stagnant Wages

Finally, another key factor contributing to the rising cost of housing is the gap between housing prices and local wage growth. While housing prices have been increasing rapidly, wages in Arkansas have not kept pace. This creates a situation where local residents are struggling to keep up with the rising cost of housing, especially as wealthier newcomers enter the market with more buying power.

Conclusion

In summary, housing prices in Arkansas, especially in areas like Northwest Arkansas, are not likely to come down anytime soon. The combination of population growth, a booming job market, limited housing supply, rising construction costs, and other factors are keeping prices high. If you’re planning to move to Arkansas, it’s important to understand the dynamics of the local real estate market, so you can make informed decisions.

📞 Let’s Connect

Have questions or thinking about making a move to Bentonville or Northwest Arkansas?

Reach out anytime—or watch the full video for visuals and charts on my YouTube Channel.

— Anthony Mosley, Real Estate Broker, Bentonville, Arkansas