The once white-hot demand for housing has now declined in Central Indiana. But it’s not because fewer people want to buy; it’s because more of them have given up. The unsustainable rate of price appreciation did slow last year – but as mortgage rates doubled to nearly 7%, this news did little to revive the hopes of weary home buyers. 

What’s behind declining affordability? How does it impact the larger community – and what can we do about it?

Declining Affordability: “Lowest Level in History”

What’s an “affordable” house? According to brokerage firm Redfin, a home is considered affordable when the estimated monthly mortgage payment is 30% or less of the local median income. Just 21% of homes listed in 2022 met these criteria, less than half of what it was just the prior year. 

Let’s put this into perspective. In Hamilton County: 

This is more than half the individual median income; while under the 30% threshold for a household earning $98,000, there are other factors to consider. One hefty one is that $83,000 down payment.  

According to the Common Sense Institute’s Indianapolis Metropolitan Area Housing Affordability Report, average wages have increased by 28%, from $23.00 to $29.34. The thorn in that rose is that the number of hours required to cover the average mortgage payment has gone from 30 hours to 58 hours, an astonishing 95%. We can manufacture more homes – but we cannot build more time into our days. We are spending more time working, saving, hoping… And must still cope with the reality that homeownership is not a realistic dream for many of us. 

Redfin deputy chief economist Taylor Marr says that given the lack of listings (Indiana has just 1.5 months of inventory versus the national average of 3.2) and the failure of wage growth to keep pace with price growth, it surprises no one that affordability is at its “lowest level in history.” 

The Ripple Effects of the Housing Crisis 

Declining affordability is not a case of “pull yourself up by the bootstraps,” save, work harder, and go after your dream. Not only is this mindset insulting to hardworking Hoosiers who have been priced out of the market… it is simply not within the realm of possibility for many.  

This can have significant impacts on their households, of course, but also the broader community. With approximately 76% of the population priced out of the market, people cannot afford to live where they work. The state is expected to add 275,000 over the next two decades. This means we need to increase new units by 9000 annually – a goal which escapes our grasp by some 1750 units each year. We see concurrent housing and labor shortages for this reason. 

With declining affordability, we also see a lack of diversity when it comes to homeownership. According to data compiled by the Indiana Business Review, there was a resurgence in homeownership in 2020 and 2021, thanks to low mortgage rates and increased pandemic savings. The state’s homeownership rate climbed from 69.3% to 71.1%. What’s more, there were strong gains in ownership by younger adults, and while disparities remained, there were increases among Indiana’s larger race and ethnic populations.  

This movement proved short-lived; the percentage of purchasers who were first-time home buyers is at the lowest level since the National Association of REALTORS began tracking this data (1981), and the age of first-time buyers was the oldest on record. The percentage of buyers who were Asian or Black also plummeted. 

These factors send ripples throughout the community in terms of lost economic potential, missed opportunities for enhanced diversity, and unrealized dreams for Hoosiers who want to put down roots in the areas in which they work, have formed relationships and connections, in which they are raising families.  

Here We Are 

This is the rather stark situation in which we find ourselves now – but it does not need to be our future. Awareness of the housing crisis and declining affordability is essential. It’s not someone else’s problem; it’s not in someone else’s backyard. It’s in ours. The next step is to act.  

Build Indiana Roots strives to educate Hoosiers on these issues, highlight the importance of achievable housing, and advocate for balanced housing policies that empower residents to make the dream of owning a home a viable reality. Join the conversation.