The tightly interwoven threads of the economy are seemingly all around us. Nowhere is that more true than in the housing market. The state of the economy at the national level, the state level, and even in the Indianapolis metro area has a profound impact on the affordability of housing here. Understanding the complex relationship between various economic forces and their impact on housing affordability is key to gaining necessary insights into the solutions necessary to truly help Hoosiers become homeowners.

What Economic Factors Affect Home Affordability?

It’s important to remember that many elements affect both the price of homes and the number of individuals looking to buy. Certain factors, though, tend to have more of an impact on the housing market than others do.

  • Interest Rates and Inflation: This one may seem like two different factors, but they often go hand in hand. As inflation goes up, interest rates often go up in response to help control the inflation itself. High rates of inflation and higher interest rates make real estate less affordable for the average person, as it can make borrowing costs far too high and discourage property builders from constructing new homes. The problem, though, is that low interest rates may create issues, too. Often they tend to increase property demand, which can drive up prices in a given area because borrowing costs are so low. That can make home ownership out of reach for many people.
  • Employment and Economic Growth: As the national, state, or local economy expands, so too do jobs and wages, creating a space where many more people are employed in a stable space. If the economy is in a state of growth, and good jobs with high wages are being added, it can lead more individuals down a path toward home ownership, thus pushing the residential property market forward.
  • Government Programs and Incentives: Economic incentives often motivate people to act in certain ways. When programs are developed that incentivize home ownership, the market tends to become a more affordable place. Programs like mortgage interest deductions, tax incentives for home owners or home builders, and shifting zoning regulations can impact the supply and demand for housing, thus influencing prices.

How Are Those Economic Factors at Play in the Market In Central Indiana Now?

Now that you know a few elements that can affect the market, you may be wondering what they’re doing to the market right now. In the greater Indianapolis area, all of those factors offer some mixed signals for the Indianapolis area in terms of housing affordability. Interest rates and inflation are beginning to fall, which makes borrowing costs considerably lower for many who want to become part of the market. Many analysts have suggested that interest rates will continue to decline over the coming months, which should lead to stronger affordability in the coming months.

The economy is growing here, too. A January economic report found that the Gross Domestic Product for Indianapolis was far higher than peer cities around the Midwest. Indianapolis’ GPD grew by nearly 8.4% over the past four years, while other metro areas around the Midwest grew at far more modest rates. That translates to solid economic growth, and it meant good things for sellers, as the data suggest home values are up by 4.7%. The problem, however, is that because the number of homes on the market is so low, most Hoosiers remain priced well out of the market.

What This Could Mean For You

In the coming year, the real estate market in the area may not change significantly, but things are moving in the right direction. If you’re interested in home ownership in Indianapolis or how we’re working to make homeownership more possible than ever, learn more about our work now.