The Indiana housing market: Indiana Business Review 2026 forecast

While several key indicators moved in the right direction in 2025, steep costs and scant supply continued to weigh on Hoosier housing markets. For instance, the average monthly inventory of existing homes on the market increased nearly 20% year-over-year, yet the state’s so-called months supply of inventory has topped out at just 2.8 months (six months supply is considered the benchmark of a balanced market). Due to these tight market conditions, the rate of house price growth in Indiana — while continuing to slow — still far outpaces the U.S. (see Table 1).

Indiana will also see an uptick in existing home sales in 2025, but the state is on track to post fewer than 80,000 existing home sales for the third consecutive year. For context, Indiana averaged roughly 94,200 existing home sales per year between 2017 and 2022.  

Residential construction in the state is also on the rise, particularly for new multi-family developments. Even with a lull in activity in 2024, Indiana has added new apartment units over the last four years at a pace not seen since the late 1970s. This multi-family boom continued this year, even as the rate of new household formation in the state has slowed.

Affordability, affordability, affordability

On the face of it, prospective homebuyers received a boost in 2025. The 30-year mortgage rate, which stood at roughly 7% in mid-January, fell throughout the year and stood at 6.2% at the start of December. Additionally, the annual rate of house price growth in Indiana continued to fall. While Indiana’s 5.1% annual increase in the third quarter of 2025 is still relatively high, it is a far cry from the double-digit gains seen in 2021 and 2022, and a meaningful improvement over increases in the 7% range in 2024 (see Figure 1).  

However, due to stagnating household income growth, these positive developments have yet to translate into true improvements in housing affordability in many Hoosier communities, according to the Federal Reserve Bank of Atlanta.

Figure 2 shows the trend in homeownership costs as a share of median household income for the state’s two largest metropolitan areas. In the Indianapolis metro, homeownership costs (i.e., the estimated annual mortgage payments on a median-priced home) amounted to 36% of the area’s median household income in September 2025 — just shy of the high watermark in this measure set in July of this year. Costs were slightly more reasonable in the Fort Wayne area, but were still above the 30% threshold commonly used to determine whether homeownership is deemed affordable.

Figure 2: Homeownership costs as a share of median household income, January 2005 to September 2025

Note: Homeownership costs refer to the estimated annual mortgage payments on a median-priced home in a given area.
Source: Federal Reserve Bank of Atlanta, Home Ownership Affordability Monitor

Muncie and Terre Haute were the only Indiana metros where homeownership was considered affordable as of September 2025 (seeFigure 3). This indicator stood at 43% for the U.S. as a whole.

Figure 3: Homeownership costs as a share of median household income by metro area, September 2025

Note: Homeownership costs refer to the estimated annual mortgage payments on a median-priced home in a given area. Data not available for the Kokomo MSA.
Source: Federal Reserve Bank of Atlanta, Home Ownership Affordability Monitor

The strain of these affordability conditions, coupled with a broader uptick in inflation, is pushing homeownership further and further out of reach for many households, particularly potential first-time buyers. According to the National Association of Realtors (NAR), first-time buyers accounted for just 21% of all U.S. homebuyers in 2025 — a historic low for this measure. Meanwhile, the NAR reports that the median age of first-time buyers climbed to 40 years of age this year — an all-time high.1

Here in Indiana, a recent decline in the homeownership rate for the population between the ages of 25 and 44 shows that many of the state’s young adults are also falling behind in this regard. Indiana’s homeownership rate for this age group had declined sharply between 2000 and 2019, but growing savings accounts and rock-bottom mortgage rates in the immediate aftermath of the pandemic led to a surge in homeownership among young adults. Since 2022, however, much of this progress has been erased (see Figure 4).  

Figure 4: Indiana homeownership rate for population ages 25 to 44, select years

Source: U.S. Census Bureau

Another strong year for multi-family construction

With increasing numbers of Hoosier households turning to the rental market, it’s no surprise that Indiana is adding new apartment units at a strong rate. For the third time in four years, Indiana communities issued building permits for more than 5,350 new apartment units through the first eight months of the year (see Figure 5). Over the previous 20 years, by contrast, the state averaged half as many permits for new apartment units through the month of August.

One notable shift in 2025 is that 48% of these new apartment units will be built in the Lafayette-West Lafayette area, while the Indy metro area accounts for another 20% of the total. The Indy area accounted for half of the state’s new apartment units added between 2022 and 2024.

Figure 5: New single-family and multi-family units authorized by building permits through August year-to-date

Note: Multi-family refers to structures with five or more units.
Source: U.S. Census Bureau

This recent apartment construction boom has largely been driven by a sharp increase in the state’s household formation rate between 2019 and 2022. The pace of new household formation has slowed some since, although it has still been well above Indiana’s average formation rates between 2000 and 2019 (see Figure 6). It is important to note, however, that exceptionally high levels of immigration to Indiana accounted for more than three quarters of the state’s strong population growth between 2022 and 2024, according to Census Bureau population estimates. Given that immigration will almost certainly contribute far less to the state’s growth over the next few years at least, Indiana will likely see its household formation rate continue to fall.

Figure 6: Average annual household formation rates

Source: U.S. Census Bureau

Housing market outlook

Nationally, forecasters expect that house price growth will slow further in 2026. The consensus forecast of a 1.1% increase in prices shown in Table 2 would certainly be lower than the rate of inflation next year, meaning we can expect a decline in prices in real (inflation-adjusted) terms. However, with mortgage rates expected to remain above 6% in 2026, prospective homebuyers shouldn’t count on too much additional relief through lower borrowing costs.  

With the buyer’s side potentially gaining a bit more leverage next year, national analysts see a healthy increase in existing home sales in 2026, although it would be an improvement over a very low level of sales this year. Meanwhile, forecasters expect that residential construction activity will decline in 2026, which won’t help solve lingering inventory woes and is generally not a positive sign for the economy.

Realtor.com also publishes forecasts of changes in home sales and prices for larger metro areas. They project that the Indy area will see a 6.4% decline in sales in 2026 with a 6.6% increase in prices.2 Both forecasts seem extreme to this analyst, but they at least underscore the sense that Hoosier housing markets — along with the economy overall — still face significant uncertainty heading into 2026.