By Dann Denny, for The Times-Mail
ddenny@heraldt.com
In May 2006, a middle-aged couple decided to sell their Morgan County ranch home.
So they contacted Sheila Scott, managing broker for Keller-Williams Realty in Martinsville, and told her they wanted to list the home at $209,000 - $10,000 more than its appraised value.
"It was a beautiful home in wonderful condition," Scott said. "Three years ago it would have sold very quickly, and for full price."
But no sooner had Scott listed the property than the air began seeping out of the housing-price bubble.
An oversupply of homes in the area and a paucity of qualified buyers meant that instead of selling quickly, the house languished on the market.
"The market just went dead," Scott said.
For 17 months, the couple paid a total of $2,400 each month to cover two mortgage payments. The same month they had put their house on the market, they also had moved into a $347,000 home in northern Morgan County.
They finally sold their first home last October for $171,500, 14 percent lower than its appraised value.
To add insult to injury, the buyers required the couple to forfeit their refrigerator, putty all the nail holes on the home's exterior, and give it a fresh coat of paint.
"What happened to them broke my heart," Scott said. "But the buyers got a fantastic deal."
The couple represents just two of the thousands of area residents who've been bloodied and bruised by one of the worst housing slumps in years.
Combining to create the crisis are sinking demand, rising foreclosures and growing inventories.
Some potential buyers are sitting on the sidelines, waiting for prices to plummet even further.
Others can't obtain mortgages because of tightened lending standards.
"Because there are fewer qualified buyers and a huge supply of homes, sellers are getting beaten up," Scott said. "They are having to reduce their asking price and sometimes even paying closing costs."
Ken Blackwell, owner of Blackwell Construction in Bloomington, blames the slowdown on the national credit crunch coupled with a glut of single-family homes on the market.
"When things are going well, everyone becomes a developer and builder, flooding the market with too much inventory," he said. "Today, you can drive around Bloomington and see subdivisions no one has even heard of."
Steve Martin, chairman of the Real Estate Certification Program - part of a company that does real estate education and consulting in Indiana and the Midwest - said central Indiana is in a catch-up cycle.
"For seven years we were in a free-fall spending cycle, with people taking mortgages they could not afford," he said. "Now we're catching our breath and being more realistic about our spending."
Jeff Fisher, director of the Benecki Center for Real Estate Studies at Indiana University, said the ripple effect of the slumping housing market extends to virtually every segment of the broader economy.
Contractors are letting employees go, subcontractors are starving for work, and lumber yards and home improvement stores are feeling the pinch as well.
"It's definitely affecting business," said C.E. Taylor, general manager of Black Lumber in Bloomington. "What accentuates this slowdown, which began in 2006, is that 2004 and 2005 were such tremendous years."
Fisher said Indiana's foreclosure rate, one of the highest in the country, has prevented many consumers from refinancing their mortgages or taking out home equity loans.
"That has led to reduced consumer spending, which is what supports the economy in general," he said.
Building permits down
In several area counties, the number of building permits issued for single family homes has fallen dramatically in recent years.
From 2003 to 2007, the number of permits issued for single family homes dipped from 539 to 366 or 32.1 percent, in Monroe County; 357 to 160 (55.2 percent) in Morgan County; and 133 to 85 (36.1 percent) in Brown County.
In just one year, from 2006 to 2007, the number of issued permits dropped from 425 to 366 (14 percent) in Monroe County and 289 to 160 (44.6 percent) in Morgan County.
Steve Lains, CEO of the Builder's Association of Greater Indianapolis, said Morgan County's huge drop off is a reflection of what is occurring in the Greater Indianapolis market's nine-county area, which saw a 23 percent drop off in building permits for single family homes from 2006 to 2007.
"What is occurring in our entire marketplace is having an impact on Morgan County," he said. "And because Morgan County had less building activity than other counties in our marketplace when things were going strong, Morgan County is now experiencing a bigger drop than other counties that were doing more building when the cycle was strong."
Lains said Hamilton County on the fast-growing north side of Marion County, for example, issued just 13 percent fewer single family home building permits in 2007 than it did in 2006.
"That's because Hamilton County is one of the strongest counties in our area in terms of attracting people and building new homes," he said. "Even as Hamilton County's housing market slowed down, it still had plenty of amenities, schools, shopping and jobs, meaning it was able to continue attracting more people. The things that sustain a county during the good times also sustains it when the housing market slows down."
Though no figures are available for Greene or Lawrence counties, where building permits are not required, the decline in Bedford has been slight -from 15 permits issued in 2003 to 11 in 2007.
"But there's not a lot of new homes being built in Lawrence County outside Bedford's city limits either," said Ken Phillips, president of the Lawrence County Homebuilders Association. "It's just a really bad slump in the market, and all the builders are just hanging on."
In Owen County, the number of new permits issued for single family homes actually climbed from 38 in 2006 to 63 in 2007 - the only two years for which figures are available.
In addition to hurting the overall economy, the reduction of permits also cuts into county budgets. In Monroe County, the loss of 173 single family residence building permits from 2003 to 2007 - assuming an average home of 2,000 square feet - would have taken $41,520 out of the county's general fund.
Prices often fall with sales
According to a study by the Century 21 Realty Group Company, the average number of all homes sold in Central Indiana dipped 9.5 percent from 2006 to 2007.
The fall was even sharper for Morgan County, which registered a 12.3 percent decline and Brown County with a falloff of 12.2 percent.
The decline was less severe for mostly rural and less active Greene County, dropping from 65 homes sold in 2006 to 60 in 2007. Owen County had a 7 percent drop in sales and Monroe almost 5 percent.
The report also found that the average sale price of homes in Central Indiana dropped 0.8 percent from 2006 to 2007 - from $143,099 to $141,983.
The decline was more dramatic in Greene County, perhaps at least partly because such a relatively small number of homes changed hands. The percentage decline in price was almost 6 percent.
Other area counties showed small percentage increases in price, ranging from a high of 7.8 percent in Brown to a low of 0.8 percent in Morgan County.
Monroe County showed a modest price increase of 2.6 percent from year to year.
Martin said the rise in home prices in some area counties might be attributed to retirees with disposable incomes buying fairly expensive homes in those counties.
"We know Bloomington is a destination for a lot of retirees," he said. "We also know some retirees from major cities want to move to rural areas and build $200,000 homes."
Lains said in smaller counties, such as Owen and Greene, home prices often experience fewer peaks and valleys.
"A lot of times the economic engine in the smaller counties is not that strong in terms of development and new jobs, so when down times hit they don't lose a lot of momentum during that cycle," he said. "It's easier to maintain the status quo."
It could be worse
Martin said central Indiana's housing market is in better shape than the plunging markets in many parts of the country.
"Central Indiana's market is down, no doubt about it," he said. "But it's decline is minuscule compared to states like Florida, California and Arizona."
Taylor, Black Lumber Company's general manager, said a vendor recently said things are so bad in Michigan that nearly 30 independent lumber yards in the vendor's market have closed during the past two years.
Martin said Indiana is the only state in the Midwest that has added jobs consistently over the last four years.
"At least we still have bodies coming into the state and some activity going on," he said.
To be sure, sales of new homes in the U.S. fell last year by 26 percent, the steepest drop since records began in 1963, according to the U.S. Commerce Department. And sales of previously owned single family homes suffered their biggest annual drop in 25 years.
Martin said even these national statistics are skewed by half a dozen states that are suffering the worst.
"In those states buyers and developers got greedy and tried to flip houses," he said. "That created a huge number of new homes that are now unoccupied."
Stolberg said Monroe County typically does not suffer as much as other Hoosier counties by housing slumps, due partially to a steady influx of retirees. "We buck the trend in the sense that we don't have huge spikes and don't have bad troughs," he said. "We tend to stay fairly steady."
Blackwell concurs, saying the Bloomington housing market has not been hit as hard as other Hoosier cities.
"Bloomington is still kind of sheltered," he said. "We've lost Thomson and Otis and will lose GE, but we've still got IU, Cook, Baxter and Bloomington Hospital bringing people to the community."
The bright side
Experts say the high inventory of homes and low interest rates have created a perfect storm for home buyers.
"This is a great time to buy a home," Scott said. "Even if you have to sell your home for less than you want, you can save on the other end by buying another home for less."
It's also an ideal time for home owners to do some professional remodeling.
"We're seeing a lot of that," Stolberg said. "With some of the builders and subcontractors not being as busy as they normally are, they are doing a lot of remodeling work on existing homes."
Turnaround?
Blackwell thinks 2008 may be a decent year for builders, but predicts the market won't fully rebound until the summer of 2009. By then, he said, some builders and developers - mostly newcomers to the construction scene - will have gone belly up.
"That's good for me," he said. "It cleans out the market."
Scott said the housing market is going through a correction period that's necessary.
"Most of the national experts say by the end of 2010 the market will have fully recovered, and will once again be booming," she said.