The Townes at The Gates of St. John are under construction. With a low inventory of new housing in Northwest Indiana area realtors are welcoming new construction. Staff photo by John J. Watkins
After years of rising sales and prices, Northwest Indiana's housing market has finally started to cool off.
Home sales declined from 12,110 in Northwest Indiana in 2021 to 10,691 last year, according to the Greater Northwest Indiana Association of Realtors. That's an 11.7% drop, largely resulting from a decline in sales in the last six months of the year.
GNIAR CEO Peter Novak Jr. said Northwest Indiana's long-hot housing market finally slowed down as a result of rising interest rates and an inventory crunch, due in part to a lack of new home construction at affordable price points. The cost of lumber and other building materials skyrocketed during the coronavirus pandemic, driving up the price of new homes and in turn giving potential sellers fewer options to move into, restricting the supply on the market.
"It was a changing market in 2022," Novak said. "We were riding out that hot streak and waiting for that shoe to drop. It finally did in the last half of 2022. Some would say a correction was overdue. It was a historic run that couldn't last forever."
Northwest Indiana remains stronger than the national or Chicagoland markets. The Region has benefited from an influx of Illinois residents moving to Indiana, often for lower taxes, home prices and cost of living.
"If you look at our metrics for how long homes are sitting on the market, it shows demand is still relatively strong in relation to supply," he said. "But inventory is tight."
The average home is only on the market for an average of 1.6 months in Northwest Indiana, as compared to more than three months in greater Chicagoland. New construction has slowed during the pandemic.
"Construction went on an extremely hot 10-year run after the 2008 crisis," Novak said. "But now new construction has been lagging behind for a variety of reasons, including that building supplies are hard to get. There's still higher-end new construction, but the entry-level new construction at a moderate price point has gone away. You used to be able to get into new construction in the mid to high $200,000s, but that's gone away."
That's taken a toll on existing sales because the people who put their houses on the market need somewhere to move to, Novak said.
"Most people who are sellers are also buyers," he said. "When home prices are high and inventory is low, that's a complicating factor. You don't get a good pick of what you want. With high interest rates, a lot of potential sellers are waiting it out. New construction is lagging, and for a lot of sellers that's a natural sort of attraction for that next step. The inventory is now the lowest it's been since 2014. We're in a major inventory crunch."
Last year, new listings in Northwest Indiana fell to 13,205, down 6.1% from 14,059 in 2021, according to GNIAR.
The median sales price, however, grew 9.3% to $235,000, up from $215,000 the previous year.
"Prices are still rising," Novak said. "They usually decrease when home sales start to fall. It's been a seller's market for so long with the limited inventory. They were selling without having to negotiate or make concessions. That's something that's changing. The market's starting to get a little more balanced. We'd much prefer a balanced market. It's easier for everyone involved, whether buyer or seller. It's more sustainable."
Higher interest prices have put a dent in demand.
"In January, we have 1,400 homes for sale in our seven-county region," he said. "We had 700 homes for sale in 2021 so it doubled, but it's still historically very low. In a normal market, we would have 6,000 homes for sale. The lack of inventory is the main reason why home sales are probably softening."
Home sales fell 11% last year in the Michigan City market, but home prices remained high, said Mike Conner with @properties.
"For so long, homeowners wondered if the value buyer train would arrive," he said. "It did and brought with it buying fever."
The housing market will likely remain steady in the interior of Michigan City but will pick up along the lakefront if conditions continue to improve, Conner said.
"In the Michigan City lakefront area, 2023 will be off to a slow start in the spring as buyers look for signs that inflation will come down and weigh some uncertainty in the stock market," he said. "The market will pick up in the summer and stay strong throughout the year. "
Statewide, home sales fell 11% to 88,821 for the year. That's compared to a 16% national drop, according to the National Association of Realtors.
Tight inventory was also a problem across the state. New listings fell by 5% statewide to 102,764 as the market cooled off.
“Indiana housing in 2022 is a story of stability against stiff headwinds,” said Indiana Association of Realtors CEO Mark Fisher. “Sales were less than 2% off 2019 — a strong pre-COVID market — even as the Federal Reserve raised interest rates repeatedly to battle inflation at a 40-year high. Rising rates added more than $400 to the monthly payment on a $200,000, 30-year mortgage.”
Despite higher borrowing costs, the median sales price statewide rose 12% to $235,000 as compared to the previous year, with homes on average selling for 99% of the original listing price. The U.S. median sales price grew by 9.6% to $384,500.
“Even though national challenges pushed Indiana into a more balanced market, low inventory still favors sellers,” Fisher said. “But housing remains more affordable here than much of the country.”
Mortgage rates fell seven of the last eight weeks at the end of 2022. But a lack of inventory remains a thorny issue across Indiana.
“Limited supply could put a ceiling on our recovery,” Fisher said. “Realtors want to help more Hoosiers on the journey to homeownership — with 2022 in the rearview mirror, we need more available homes at all price levels to rebuild a healthy housing market."
The Region housing market remains poised for growth, especially with the exodus from Illinois into Northwest Indiana, Novak said.
"There's been a lot of momentum over the last four or five years," he said. "People are realizing Northwest Indiana is no farther than some of the other suburbs of Chicago and then start paying attention to what they can get here. That's when they get sucked in. Almost all the markets are hot, of course the traditional ones where there is room to grow like St. John, Crown Point and Valparaiso. But Illinois residents are also moving to Hammond and other more established markets. It's across the board."
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