What goes up must come down. It’s a basic law of physics – and, as it turns out, of the housing market. But how far? How fast? When? And will it be enough to make housing attainable for hardworking Hoosiers, millions of whom were already priced out?

What’s next for the Indiana housing market? Dr. Steven Byers, senior economist with the Common Sense Institute (CSI) gives us a glimpse into the near future and what it means for hopeful homebuyers.

For more information on the CSI Housing Study, click here.

Indiana is a Great Place to Call Home

We have some good news and some bad news, as they say. First, the positive: We live in an incredible area! Stats agree. Indiana is an attractive location in which to purchase and own a home. According to WSJ (Wall Street Journal)/Realtor.com’s Emerging Housing Markets Index, three cities – Lafayette, Fort Wayne, and Elkhart – are ranked #1, #2, and #3 respectively for home buyers who are looking to put down roots in a location with a healthy, value-growing market, a strong local economy and job options, and desirable lifestyle amenities (e.g. leisure /social activities, shops, restaurants, theaters, galleries, sports, medical services, etc.).

In the ranked cities and others, such as Fishers, Carmel, and Noblesville, homeowners can find a wealth of opportunities for socialization, recreation, culture, culinary exploration, art, and connection. These Central Indiana cities are making a solid investment that will serve them well now and into the future.

Predictions for the 2023 Indianapolis Housing Market

Now for the not-so-great news: we are seeing a decline in permitting for new builds. The monthly average for housing permits dropped 37% in 2023. Dr. Byers says, “If this continues going forward, new home construction will drop off and will result in supply issues.” Based on comprehensive research published by CSI, it is likely that this will, in fact, become a reality. Or, rather, an even starker reality for those wishing to buy a home.

What goes up must come down… like mortgage rates. They have certainly been on the rise over the post-pandemic years. In 2020, rates hit about 2.68%. In 2022 and 2023, we saw them creeping up past 5%, then past 6%, and then exceeding 7%. There is some downward movement, but Dr. Byers expects that it won’t be enough to make a difference for millions of buyers.

Analyzing data from various sources, such as the Mortgage Bankers Association, the National Association of REALTORS, Freddie Mac, Realtor.com, and Zillow Home Loans, 30-year fixed rate mortgage rates appear to have peaked and will settle in the 6% – 7% range. “This,” says Dr. Byers, “poses significant challenges to home affordability.”

Think of the housing market like an elaborate domino set-up. Each piece impacts the next. Because of higher mortgage rates, home builder confidence in our region has declined by 57% over the past two years. That domino then knocks over single-family housing starts, which are down about 26% for that same period.

Where Do We Go from Here?

The Indiana housing market is undoubtedly attractive – but expensive. People who are searching for a house that they can actually afford know this all too well. They also know the frustration of finding a suitable home for their needs and their budget, then being unable to compete when it comes to bidding.

What’s the answer? There isn’t one. Keyword: one. Solutions must be multi-pronged, address all the complexities involved in this issue, and involve every stakeholder, from buyers to owners to investors to businesses to policymakers. It starts with us. Join the conversation at https://buildindianaroots.com/.