Indiana housing snapshot: Market slows, many struggle to find affordable housing

Christopher Fox, a Sellersburg-based real estate broker and a senior business coach with Tom Ferry International, said the real estate market significantly changed when the pandemic hit, and “we’re getting ready to see even more changes” as 2023 approaches.

Fox’s realty agency covers Southern Indiana and the Louisville area, and he coaches real estate brokers across the country.

He said as interest rates hit lows during the pandemic, many people bought homes or refinanced homes at “stellar interest rates,” and they are now less likely to sell their houses. But as interest rates rise, buyers have less purchasing power, he said.

“We just had three buyers get pre-approved this week, and some had like 7% or 7.5% interest, whereas a year ago, it was 5% or 5.5%,” he said. “That changes the purchasing power dramatically. I think some of these people — especially the millennials and Gen Zs, they don’t know any different, because they’ve never owned a house, so there still are going to be buyers out there.”

Fox said people are still reaching out to him on a daily basis about becoming pre-qualified for a mortgage. Many are asking whether they should “bite the bullet” to begin the homeownership process instead of paying increasing rent to their landlords.

Lisa Batts, a realtor in Lebanon, said low inventory of housing and high interest rates are issues she is seeing in Boone County, along with hesitancy among buyers. She said “6% is still great interest, but when you’ve seen it at 2% or 3%, people are a little hesitant.”

“There are still buyers, but there’s just fewer buyers taking that leap because the interest rates have doubled,” she said. “So there’s a little bit of softening in that regard with buyers right now, but they’re still there.”

She is noticing a trend of price reduction as homes stay on the market for a longer period of time.

“It used to be you didn’t see a realtor having an an open house because the houses weren’t on the market long enough — they were snatched up — but now they’re sitting there a bit longer, and I see that they’re having a lot more open houses and marketing for homes,” Batts said.

The Indiana Association of Realtors reports that the state’s available home inventory has declined 80% from 2011 to 2022.

LOOKING AHEAD

Fox emphasizes that “what comes up must come down” in regards to the housing market, and he expects federal stimulation of the economy and lowered interest rates by early 2023.

He does not expect a housing crash, saying overall, “people are not underwater today like they were in 2008.”

From Batts’ perspective, she feels that the housing market is “going to be a rollercoaster for the next couple years until we get balanced back out.”

“Probably there’s going to be some more inventory, but people are hesitant,” she said. “There are a lot of people who are waiting until they see that market come back, and I’m not sure it’s going to come back like it was. I don’t want anyone to be encouraged to wait, because I don’t see it coming back in that way.”

This year, one of the concerns has been unsustainable rates of housing appreciation, Fox said.

“We’ve seen housing appreciation anywhere from 8% to 15% in some markets, he said. “So if you bought a house that was, let’s say, $500,000, and it appreciates at 10%, that homeowner has gained in one year’s time $50,000 worth of equity. That’s not normal appreciation, and the market can’t sustain that for too long. That’s why the fed has put the brakes on as hard as they can to slow not only inflation but appreciation as well.”

One of Batts’ concerns is “buyer’s remorse” and buyers paying too much for a home as its value was driven up by limited supply.

“People were desperate to buy a house, and so they were paying things they didn’t necessarily want to pay — it was almost like a board game,” Batts said. “You had so many buyers looking at the same property, and it was driving up the prices, and they ended up getting a home that they liked but didn’t love just because they had to have a place to lay their heads and not be paying the outrageous rent.”

Fox said in the real estate business, common advice to buyers is “marry the house, date the rate.”

“Interest rates might be 7%, 7.5% today, but find the house, close on the house, and when rates drop in five months or six months, go and refinance and get the better rate,” he said. “You’ve still got the house and you’re building equity instead of paying your landlord’s mortgage payment for them, because when you’re renting, you’re paying 100% rent versus paying 7% or 8% mortgage and gaining equity.”

When people are buying a house, it is helpful to have someone knowledgeable to walk them through the transaction, and buyers need to “shop around” to make sure they are getting the best rates, Fox said.

Batts said she believes that real estate is the “best investment for your money,” but it is important for prospective homeowners to be realistic and stay within their budget.

“I think we’ve put people in a position right now where I’m going to see in the next couple years that when people want to sell their home after buying a home in the last two years — they’re not going to be able to get their money out of it,” she said.

In Boone County, Batts is seeing many new housing developments as the area faces growth, but availability of affordable housing is a challenge, she said.

“I think you’re going to see a rise in homelessness, I think you’re going to see a rise in people living in groups together — I think it’s going to challenge all of us,” she said. “As for the less fortunate people to get affordable housing right now — they’re focusing on new construction, so you don’t see any focus on affordable housing for the less fortunate.”

A NEED TO REMOVE BARRIERS

Barb Anderson, executive director of Haven House Services in Jeffersonville and treasurer for the National Coalition for the Homeless, said ”disproportionate” rental costs are making it difficult for people to get by in Southern Indiana.

“The affordable housing market has, in my opinion, been compromised,” she said. “How is $1,100 for a two-bedroom affordable for a lot of people? The homeless shelter is full of people, many of them employed.”

According to Prosperity Indiana, median rents for two-bedroom apartments in Indiana grew by about 18% between the first quarter of 2021 to the first quarter of 2022.

Anderson said she works with clients who are on the brink of eviction and are facing delays in receiving rental assistance. She serves families who are living in hotels because they can’t afford their deposit for a rental.

“What we really see is people struggling just to pull together the first month’s rent and deposit, and then getting in and not being able to maintain it because they broke the bank getting in in the first place,” Anderson said.

Overvaluing of rental properties is another issue Anderson sees in her community, including aging apartment complexes going at the same rates of newer buildings.

“If it’s 25 years old, why should you be able to charge at the same rents as a brand-new apartment complex,” she said. “You need to take in consideration its age, because the wear on the unit is probably going to be pretty fierce, and what are the utilities, because they probably weren’t building for energy efficiency 35 years ago.”

In terms of public housing, Anderson notes that space is often limited, and even if a waitlist is open, it could be too long of a wait for people seeking immediate housing.

Anderson sees a need for transitional housing to help people before they move into private housing, and she would like to see more protections for tenants.

She would like to see more community-level discussions involving realtors, developers, building owners, tenants and service agencies to develop housing strategies that consider affordable housing for low-income families and individuals.

“We need to develop a housing strategy, and it needs to deal with everyone, from this level all the way to that level,” Anderson said. “Because yes, we need upscale housing, but we also need lower scale housing, too, for the people who are working at McDonald’s or working at the Dollar Store or working at Rally’s.”

“Where do they live?” she said. “We do not and should not expect them to live in a homeless shelter. They should be able to live in their own home, and we haven’t developed a strategy that includes our entire community.”