Taking Inventory
The housing market has made more shifts in the past 2 years than the past 15 years combined.
Seller’s Market.
Now, Buyer’s Market.
Ope, Seller’s Market, again.
Most of the regular folks I’m talking to are all saying the same things: “What in the h*ll is going on in the housing market?” And I have to admit, even from on the inside it’s akin to major whiplash.
Here’s what I do know as of September 2023:
- Inventory is still at historic lows. We have 4351 homes active as of August 2023. In 2013 this number was over 13,000 homes… with less overall population living in greater Indy, by a lot. (source: MIBOR)
- Interest rates have doubled. The average rate is around 7.2% right now, whereas we were sitting around 3.5% at the start of 2022. (source: FED)
- Home values are high. The median price in Indianapolis surged in 2023 to the highest ever – symbolically crossing the $300,000 mark. This was under $200,000 in 2020… Meaning we have seen 100% appreciation in not even 3 years. (source: FED)
- Thus, housing is not affordable. Nationally, home price to median income is at a record 7.75 ratio. Which means homes cost 7.75x the amount of the median family income… For context, this ratio was in the 3’s and 4’s throughout the 1970-1990s. (source: FED)
What does all of this mean?
It means it’s tough out there. Unless you are sitting on a stack of cash, it’s hard to engage in this market. In fact, for the first time in a while, Baby Boomer’s (the ones who are cash heavy) are buying more homes than Millennials (source: NAR). Even at their old age…
Markets do what markets do.
This post isn’t meant to be all doom and gloom. Let’s face it our parents lived through a generation of stagflation, where interest rates topped out in the 20’s. Markets do what markets do. And eventually things do untangle.
Inventory will go up, as incentives to build increase. Rates will decline (at least temporarily). If you’re on the sidelines, your opportunity is closer than you think.
Here’s what I want to warn people of:
2023 is nothing like 2008. In fact, they are almost exactly opposite. There are literally zero markers indicating a crash is coming.
Home prices in Indianapolis have absolutely no indication of going down. The reality is, new builds are barely keeping up with population increases in Indianapolis. Our local economy is very strong, and we are often sitting well under the national unemployment average (right now in mid-2’s). With this healthy of an economy, the prediction is easy: People will continue to move into Indianapolis. Investors will continue to invest in our housing, and appreciation will continue. This is not disputable.
Get off the Sidelines
The reality is, the stock market has been flat. The markets have sucked. Whereas those who own real estate, have continued to see strong equity gains.
I’ve said this and I’ll continue to say this: Indianapolis real estate is one of the best investments anyone can make. Whether living in the home or renting it out.
If you’re a first time buyer:
Consider House hacking. Look into a Multifamily home or even a Single family home with bedrooms to rent out. Or a home with a basement that could have a separate entrance. Renting out part of the property will undoubtably make your housing expense less than renting.
Speaking of which – Stop renting. In 2022, we saw Indianapolis surge to one of the top metros in the nation for rent increases (some reports indicating as high as 30% increase, according to House Canary). Those $1200 rents have jumped real quick to $1500-1600. Remember, rents only go one direction long term. The good ole mortgage is locked in debt. And trust me, fixed payments will become more attractive in an inflationary economy.
Use an investor-minded agent. You need to find creative solutions. Think: unique loan products, Adjustable’s are back, small local banks with promotions. I help my first time buyers negotiate seller credits to reduce downpayment, or seller paid interest all the time. You need someone well-versed in how to win creatively — it’s just a baseline requirement. You can’t do it the way your parents did. The rules are changing (Remember – homes now cost more than 7x the amount of median income…)
If you’re a first time investor:
Ease into it. With these lower returns (as rates and prices remain high), there’s no reason to rush. However, if you’re only investing based on monthly cash flow you need to re-evaluate. Indianapolis has already transitioned into an Appreciation market. With record low inventory, any dips in interest rates will be accompanied by a mad rush to buy. We will continue to see housing spikes and appreciation clocking in around 5% per year. 2023 actually outperformed that metric…even despite rates doubling.
Bring on a partner to help ease the financial load. Offer to do the sweat equity in exchange for financial help. Be informed on how to speak to what returns look like now, meaning including appreciation gains. Research what projects are happening in Indy, where people are moving to, and buy in the right location — this is timeless real estate investing. Get off the spreadsheet paralysis, and zoom out. You’ll see opportunity where others are freezing up.
This list of suggestions isn’t exhaustive. Yes, it’s scattered. But I’m writing this to help people get a grip. This is more about a mentality, not a technical analysis or to-do list…
In the end, those that win in Real Estate are those that win in Relationships. Relationships are the keys that unlock the all the doors in Real Estate. I personally sat down with at least 2-3 new people every week in 2022 and 2023. Well over 100 people. All with a unique real estate perspective. I bought more coffee for people than I thought imaginable. And….I bought more property than I imagined. I don’t think it was a false correlation.
Investing in real estate starts with Relationship. Make that first reach. We will be there to help.
