Why are houses selling so fast right now in Indianapolis?

Why are houses selling so fast in Indianapolis?

This question is on the lips of everyone trying to buy in this crazy housing market. The simplest way to answer why the houses are selling so fast to to chuck out the cliche’ that we are in the perfect storm of a sellers market… but that doesn’t tell you anything. So lets define what formed this storm, and take a look at why its so perfect for sellers…and treacherous for home buyers.

For starters lets look at what makes a housing market a sellers market. According to Merriam Webster a sellers market is “a market in which goods are scarce, buyers have a limited range of choice, and prices are high”. So for our purposes, a sellers market exists when there is less housing inventory than there are buyers. In greater Indianapolis (or more accurately the MIBOR [Metropolitan Indianapolis Board of Realtors] area), roughly 12,000 homes sell year over year. So in general terms, we are in a sellers market anytime we have our average demand and there are less than 12,000 homes available in our market. Most real estate agents consider our market to be balanced when there are between 14,000 and 18,000 homes available. At this time their are about 8,500 houses available and demand is well above average. Which not only puts us within the definition of a sellers market…it puts us in a very strong one.

So how did we end up in this strong of a sellers market?

To answer this pat of the question we have to flash back to 2008. I know its painful to remember, but the near economic collapse that our country faced as the result of the housing crisis that came to a head that year is the driving force for this entire market.

The first impact of 2008 on our current housing market has to do with the inventory of available homes, or rather the lack of them. We all know that part of the reason for that crisis was that real estate prices had soared and as a result there were new developments going up at a pace that was unsustainable. The other thing that was happening is people who were not credit worthy were being sold those homes. I could spend an easy 3000 words on going over the ins and outs of what happened, but those general statements are enough to set the stage so that it is easily understood that in that immediate time frame this created a glut of homes that were not worth the material cost it took to build them. As a result, many home builders either went under or were bought out. Those that survived, cut way back because people were able to buy existing newly built homes for a fraction of what it would cost to order one. The builders kept a very low profile right up until it was evident that the buyers were back in 2015. After seven years of very little new home construction, the economy began to recover, the buyers came back.

Which brings us to…

Three generations battling for the same houses. 

Generation X finally gets its money together, the Millennials reach economic maturity, and the Boomers start to retire and downsize.

As many other people have written about, Generation X has been slow to develop economically. The blame for this has been everything from they are natural slackers to long lifed Baby Boomers not making room in the market. The reasons don’t matter…it happened. While they should have started coming to their economic maturity in the early 2000’s, they were just really starting to about the time the markets collapsed. Needless to say, the set back of a third of the nations wealth disappearing overnight was enough of an impact to set them back another 7-10 years. As a result we are just now starting to see Gen Xers enter the housing market (or again if they were right on time and lost their homes during the collapse).

The Millennials on the other hand, have progressed at an accelerated pace. Rather than waiting 20 years after the Xers should have reached economic maturity (2000), they are coming in on the early side and have entered the housing market full force. Starting with the rebirth of the housing market in 2015, Millennials are buying more than their share of both first timer homes and even first move ups. If having both of these generations vying for the same homes didnt seem daunting enough, the Millennials are an even larger generation than the Boomers… and very few homes were built in the previous 10 years.

Speaking of the Baby Boomers.  One of the reasons the Gen Xers and the Millennials have made this economic headway is the Boomers are starting to retire. Like previous generations retirement for the Boomers means relocating. Unlike previous generations, the Boomers were the creators of the McMansion. So along side of their relocation, they are also downsizing. This puts the largest demographic of last century  in direct competition with both the Xers and Millennials for what have historically been first homes and second move ups.

Summary of the sellers market

So rather the the Boomers living in their family homes until its time for the assisted living center, Xers buying there second or third move up homes, and the Millennials buying their first homes; we end up with all three competing for what are typically first homes and first move up homes.

And on top of that unplanned and difficult convergence of desires, there just aren’t enough homes on market.

Sellers market issues specific to Indianapolis

It occurs to me as I am writing this, that all of those issues describe what is happening on a national level. Sure some markets are feeling it more than others, but this is happening in most metropolitan areas in the USA right now. Something special is making it a more extreme situation in Indy though.

That something is thanks to the fact that our city development has done an excellent job of making Indianapolis a damn near perfect place to have a convention or national event. This has resulted in lots money coming to our city, and with it attention. It turns out that people visiting Indy found it to be the great town it is. When digging deeper they found that Indiana is a friendly state taxwise. Then they realized the the cost of living (especially for real estate) in Indianapolis is tiny compared to other large cities. All of this has snow balled into Indianapolis being a hot spot for tech companies and some others in fast growing industries.

So on top of trying to find homes for all of the locals looking to buy homes, our market is bearing the weight of becoming the tech center of the midwest.

Is this market creating another housing bubble?

I am going to have to be careful here, because I don’t have a crystal ball. The most commitment I will make is this:

Its not looking like a bubble right now.

Yeah, I know that is a but of a chicken answer. I will share my thoughts on why I don’t think it is currently…and don’t think its will likely grow and pop again in the near term (I mean eventually it will, all markets cycle).

The reason I don’t think it is right now is because prices are just now getting above pre 2008 levels….9 years later. Assuming the historical 1.5% growth in real estate values we still have room for substantial price increases before we start reaching bubble like pressure levels. Being that the builders are back online now, I would expect that this surge of buyers will peak and fizzle before that happens and allow the market to return to balance. Then it should be much less exciting for the next decade or so, with the much safer moderate growth that real estate should have. In my mind this peak will happen over the next 1.5 to 3 years…but that is a prediction based on observation and just like everyone else, I have no idea what will happen in the broader economic world in these turbulent times.

So that’s how we got to this strong sellers market and why there are not enough homes on market to satisfy the buyers.

If you want to work with a professional Realtor who studies and understands the Indianapolis housing market on this level, give Robb a call at 317-657-8059, or email robb@yourrealtylink.com to schedule your FREE no obligation home selling or buying consultation.

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About Robb

A husband, Dad to 5, and Grandpa to 9. US Navy Vet. 18 Year Postal Employee turned full time Realtor. I enjoy a wide variety of things, but you will find that here I mostly write about Indianapolis, government/politics, recent news, and whatever book I am reading or have just finished at the moment.
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