INDIANA - The housing market in Indiana will continue to enjoy substantial gains, but prices will start to fall from unsustainable highs. The number of new single-family housing starts will increase, which will help to balance the market. At the same time, concerns about affordability and healthy buyer demand will continue to weigh heavily on the market. As a result, sales will fall short of the previous record-breaking year.
Inflation Is Rising Faster Than The Fed Believed
Inflation is rising, and the Federal Reserve hasn't done much to control it. However, its unprecedented money-printing program is fueling rising prices. The rise in inflation threatens to bring the bond and stock markets down and may even cause a recession in 2023.
The increase in housing prices represents a large part of the inflation rate. Nationally, rents rose over 15%, and rents rose more than 20% in some areas. That's a far cry from the typical increase of 2 or 3%. And as prices rise, home prices and rents go up. This is because the Federal Reserve has increased its money supply by 50% in the past two years. The more money in circulation, the more cash is available to purchase real estate.
The Fed's inflation prediction is not entirely accurate. There has been a lot of uncertainty surrounding this issue. The Federal Reserve is trying to curb the effects of inflation. But the recent rate hike is complicating things. Inflation has been rising faster than the Fed thought, and this is hurting real estate values.
Inflation has risen at a faster rate than in most of the past cycles, and the central bank is playing catch-up. The Fed lowered rates in May, but the inflation rate rose in June, making it harder for the Federal Reserve to keep up with it. The June hike increased rates by 75 bps; another hike is anticipated in July. The Fed has not raised rates twice in one tightening cycle in nearly 40 years.
Home Prices Will Rise 6.6% In 2023
Despite the recent decline in the number of new listings, home prices in Indiana will still rise 6.6% over the next five years. The Federal Reserve plans to reduce interest rates in 2023, and the inflation rate will drop. This will allow the housing market to re-adjust to demographic and economic trends. However, limited capacity in the state could limit future growth. The statewide Housing Task Force is addressing this issue. Indiana REALTORS actively participate in the discussions and is prepared to advocate for the findings.
Zillow, a real estate research firm, recently updated its forecasts. It expects that home prices will increase 5.6% in 2019 and 3.1% in 2023. This is above the historical average annual home appreciation rate of 3.2%. The company is also taking into account the deteriorating sales outlook.
The housing market in the state will experience a slowdown after the recent boom. Fannie Mae predicts that year-over-year home prices will decline to 4.4% in the second quarter of 2023 and settle at 2.9% at the end of the year. However, this slowdown could lead to higher mortgage rates in 2023.
The deterioration in affordability will push many potential buyers out of the market. The number of first-time home buyers has declined to a 13-year low. The high mortgage rates will also lower competition for homes, and sellers will be willing to accept lower prices.
Indianapolis, the state capital, is experiencing a robust real estate market. The city is attracting new families and has a low unemployment rate. In addition, the city is home to major sporting events, including the world-famous Indianapolis 500. The real estate market can thrive during these events, especially with home rentals. The state capital also boasts numerous corporate headquarters.
However, this growth has impacted affordability. The Federal Reserve Bank of Atlanta measures affordability, and a housing index of 100 indicates affordability. This index is down by 13% in Indianapolis, while other large metro areas in Indiana are experiencing double-digit declines. For example, home ownership in Bloomington and Lafayette is fast approaching unaffordability.
The Indiana Association of Realtors released a housing market report in April 2022. As a result, the demand for homes has surpassed the supply of homes, pushing prices upward. This demand for housing is pushing Indianapolis home prices higher. Currently, Indianapolis and Marion County are seller's markets. However, as the need for housing remains high, the supply of hous ng is also low. This lack of supply will continue to drive up home prices.
As a res lt, Indianapolis is an excellent destination for cash flow rental properties. In addition, Indianapolis has a steady year-over-year appreciation rate. Therefore, Indianapolis real estate is a perfect choice for in tors.