The Local Indiana 2023 Housing Market forecast is in! While nothing is guaranteed, we need to look at facts and data – not the fear mongering of the media!
The data tells the story. Interpreting the data without emotion and IN CONTEXT is integral to understanding and forecasting the what we think the housing market will do in the coming 12 months.
While being aware of what is happening nationally is good, it does not dictate what happens locally. That’s the thing about real estate – it’s hyper-local. What’s happening in the south or out west doesn’t necessarily predict what will happen here in the Midwest. It can be similar, completely opposite or something in between.
Savvy Buyers and Sellers will learn about their local market from the facts and data when they work with local REALTORS like me. They won’t be susceptible to what fear mongers say anymore. Sound good? Good!
Buckle up, here we go!
Real Estate Market = Cycles
The overall housing market is cyclical and prices will go up and down based on a variety to economic factors. To try and see where we are headed, we have to look at the recent statistics.
The Housing Market can be full of surprises. Remember the beginning of the Pandemic? The media was saying we were going to have another Housing Bust!
Instead, housing prices, values and transactions went through the roof! This is why it’s much better to not try to time the market but buy and sell when the time is right for you personally and financially.
Mortgage Rates in the Local Housing Market
Mortgage Rates seem to be the biggest question on most buyer’s and seller’s minds. And, rightfully so. They are more on a national level with the FED making prime rate changes that affect the mortgage rates. Then, those mortgage rates will have an affect on the local housing market – to what extent, depends on what else is happening in the local market.
While the current rates should never dictate whether you buy or sell (NEVER try to time the market – instead, do what is best for you/your family), it’s a piece in the puzzle of figuring out what the local housing market will do in the coming year.
Okay, with that caveat out of the way, let’s see what we *think* mortgage rates might do in 2023….
Believe it or not, the inflation rate has come down recently. Experts anticipate this to continue to happen.
You see, the FED relies heavily on the Core Consumer Price Index
Report to see how their rate increases/decreases are affecting the economy – or real people’s spending habits for goods and services.
The Core CPI excludes food and energy prices because the FED cannot control those. OPEC, other energy producing countries and even weather will affect how much we pay at the gas pump and in the grocery store, not the FED Prime Rate.
However, things like housing, car sales, medical care, recreation, education, transportation and more – the normal things and services we buy and use each month are calculated in the Core CPI. With this information, we get an Inflation percentage rate. And, the FED goal is to be around 2% (currently 6%, down from over 7%.)
The Report includes a rolling 12 months in the calculation – meaning, they include the monthly inflation rate for the most recent 12 months. With each new month’s rate appearing, a previous month drops out of the calculation to keep it at 12 months data.
Because it looks like inflation is starting to calm down, experts are predicting lower mortgage rates in 2023 – albeit, they don’t all agree…
Some are expecting to see the FED start to lower them by Spring/Early Summer where others are predicting it during the Summer and still others say by the end of the year.
A recession and inflation reports in the coming months will likely have these experts adjust their predictions accordingly.
So, IF inflation continues to come down, we will probably see rates stabilize and then come down to around the 5%-5.5% mark – a welcome change from the 7%+ we’ve seen in the 2022 Fall/Winter.
If/When this happens, we are likely to see a lot more buyers jump into or back into the market to buy a home. They’ve had a bit of “Sticker Shock” from the rate increases and many were even priced out of the home they want and need for themselves/their families.
When rates begin to reduce, whether due to inflation coming down or a recession, the demand for housing is likely to go up. And, as you know Supply and Demand are one of, if not the biggest catalyst to determining the housing market.
Supply in the Market
Just like high school economics, the supply and demand curve will also dictate what happens in the local Indiana housing market.
Not much has changed – locally – in the area of supply. We are still at less than 2 months worth of supply of homes to meet the demand. That keeps us firmly in a Seller’s Market.
Why is that? National News keeps saying supply is rising?
Supply is rising is certain local markets. In our local Indiana Housing Market? Not so much…
Yes we have more supply than a few months ago but still not enough to meet the demand from buyers – hence, a Seller’s Market.
We’ll have a more in-depth look about the supply of housing inventory soon. Stay tuned!
Does that mean Sellers can name their price and terms?
No, it doesn’t. Sellers who enter the market and have a savvy Listing Agent stand the best chance of getting the most for their home in the shortest amount of time.
An agent who knows and studies the local housing market, will be able to guide their listing client in these strange times. Pricing your home right is the single most important factor.
Pricing your home too high can waste valuable time and cause a stigma to your home! We don’t live in the era of “I’ll price my home higher because I can always come down later” anymore. That was gone years ago.
Today’s buyers and their agents know almost immediately if a home is overpriced. They won’t even come look at it. They’ll take the mental stance that the seller is trying to take advantage of them.
They will just move on to the next home – so, you’ve missed the opportunity all together!
Further, the longer your home is on the market, the more buyers fear something is wrong with it. Low ball offers can follow. The average Days on Market right now is 36 Days, up from 30 in October, 2022.
Sellers also need to understand that when demand lowers (not as much demand now as last year) that terms of the offers will reflect that, as well. We are still seeing multiple offers on properties that are in good condition and are priced right.
But, most buyers are now asking for inspections or might even have a contingent property they must sell. Stats show us that these types of offers are being written by buyers and accepted by sellers.
Waived inspections, appraisal gap coverage and closing in a couple of weeks are few and very far between now. That is a change we anticipate to continue through 2023 – even if mortgage rates begin to fall.
Demand in the Indiana Housing Market
Demand has cooled in our local Indiana Housing Market during the 2nd half of 2022. However, it has not completely dropped off. That’s why we are still in a Seller’s Market – more demand for housing than houses available.
Some people don’t have a choice – they have to move. A life event usually causes this like: job change, marriage, divorce, birth, death, etc… So, there is always going to be some sort of demand. But does it match the supply?
Generational Demands
This housing shortage has actually been decades in the making and two of the reasons are Millennials and Baby Boomers.
Millennial buyers made up 43% of all buyers in 2022. They are coming to/have arrived at the age most people buy their first home – 33 years old.
This is the largest generation in history! Each year, the US tracks “new household formations.” That’s when children leave their parent/parent’s home and start living in their own home; it’s a new household formation.
Realtor.com has a great article from November, explaining the supply gap where they say,
So far in 2022, an additional 1.12 million households have formed, resulting in a total of 14.6 million new households between 2012 and September 2022. Through September 2022, homebuilders started construction on about 812,000 single-family homes, bringing the 2012 to 2021 housing starts total to 8.8 million homes.
As household formations outpaced housing starts in 2022, the gap between these metrics widened from 5.46 million homes at the end of 2021 to 5.78 million fewer housing starts than household formations between 2012 and September 2022. This gap grew by about 306,000 homes between the beginning of the year and September 2022, despite high levels of housing starts, outpaced only by 2021 in the last decade. Housing completions, however, reached the highest rate in the last 10 years, likely due to the completion of the sizable uptick in homes starting in 2021 and early 2022.
Since the Housing Bust, we haven’t built enough homes to offset this generation’s coming of age, so we are short homes. Additionally, less baby boomers are selling their homes than previous generations. Lots of them have decided to stay put as they age, leaving less homes available to meet the demand for Millennials coming into the market.
Demand has cooled, as we said, but mostly because of the mortgage rate hikes. When rates level and start to come down again, look for more buyers to jump back into the market!
What Experts are Expecting
Indiana Housing Market
So the overview of the 2023 local Indiana Housing Market looks to be:
- Mortgage Rates will stabilize and begin to come back down and land somewhere in the 5% range.
- Demand will pick up once this happens.
- Supply is still short which means we are likely to stay in a Seller’s Market, though softer than the last couple of years.
- We anticipate Buyers making reasonable offers and sellers accepting them (i.e. inspections, little to no appraisal gap coverage needed, contingent on selling a home, etc…)
The white hot market of the past couple of years has been replaced with one that is more palatable to buyers.
Sellers need to ensure their homes are priced right for the condition and the local market if they want to sell for top dollar and in their timeframe.
While 2023 is not looking like a Neutral or Buyer’s Market just yet, it is easing. It will take time (years) for the supply of homes available to equal the demand. Foreclosures are far below pre-pandemic levels. And, homeowners are enjoying the highest amount of equity they’ve had in history (58% on average) so a slew of foreclosures is not likely.
It will be an interesting year, for sure. We are still anticipating a pretty good spring market.
