Indianapolis indoor market at “peak of madness, but it will get less bizarre

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This seems like the perfect time to sell a house.

If you have one that is in good shape, or maybe even less than in good condition, you can put it up for sale on a Thursday and probably have several offers by Sunday. At this point, your choice might come down to which desperate buyer has crawled the most. Who offered the highest number above the asking price? Who pays for everything in cash? Who is willing to forgo their inspection? Who will give your name to her child? These are real factors in the offers – even the last.

It has never been easier for American homeowners to turn their properties into a quick and easy bargain. Except for one thing: if you want to cash in, but don’t want to rent out your next home, then you’ll have to become a creepy buyer as well.

That’s why this housing market is making everyone miserable – including, in many cases, the people who will benefit the most from the price-a-palooza.

It’s (probably) not a real estate bubble

Home prices are at record highs while mortgage rates and homes for sale are at record highs. Home builders cannot meet demand because the prices of materials, especially lumber, have soared to levels that are forcing them to raise their own prices beyond buyers’ willingness to pay – or to take a break from construction.

There is a temptation to view this as a real estate bubble, because at least this narrative fits into our recent frame of reference. Anyone 30 and over is likely to carry psychological trauma from the mid-year housing frenzy that collapsed and took the economy with them.

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The are similarities today.

“Housing is all the rage again,” said Ali Wolf, chief economist at Zonda, which provides real estate analysis to property developers and investors. “It doesn’t have to be bad in itself, but the bidding wars I hear are pushing prices to new heights that even appraisers often can’t justify.”

But there are also important distinctions between 2006 and the current real estate market: the fallout from this bubble has led to more cautious housing construction strategies (which contribute to the current shortage of supply), to standards of higher lending and more responsible consumer borrowing. Today, affluent buyers with very high credit scores are emerging from a pandemic to play full-contact musical chairs.

Winning bidders overpay tens of thousands of dollars for homes, but unlike rabid buyers of the early 2000s, they can afford it.

“What the pandemic has done is wake up Generation X buyers, second home buyers, investors and luxury buyers,” Wolf said. “A lot of these groups have a lot of money they can put into housing, whether it’s through home equity, equity cashing, generational wealth transfer, and just real savings. . At present, buyers are in competition with virtually all other types of buyers and can win the most qualified. “

Some people use the B word to describe this market, including Nobel Prize-winning economist Robert Shiller and Jamie Dimon, CEO of JPMorgan Chase, but both also say the latest housing crash is unlikely to happen again. If there is a bubble, then it is very different from the previous one.

Investors “put a floor under real estate prices”

The onslaught of qualified buyers in an anemic market places housing economists and analysts in uncharted territory. Wolf, for example, doesn’t think prices will go down, but thinks that “the current appreciation in house prices is not sustainable.”

These views are both widely held and seemingly irreconcilable.

Home prices in Indianapolis rose 11.5% from a year ago, according to John Burns Real Estate Consulting, which provides data analytics to clients in the housing industry. The company predicts that rapid price growth will continue into the next year before slowing down and finally stabilizing in 2024.

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“There is no real sign on the horizon that tells us housing is going to collapse anytime soon,” Rick Palacios Jr., director of research for John Burns Real Estate Consulting, told me. “When you think of a bubble, something has to change drastically for that bubble to burst. In addition, there are usually years and years and years of supply. We haven’t seen that. Almost every market has, really, no supply at this time.

“That’s why we don’t expect house prices to go down. We just expect them to start going from crazy growth to healthy growth. “

In Indianapolis, buyers aren’t just competing with other potential homeowners. They also compete with large-scale investors who buy and lease properties.

About 19% of Indianapolis homes are owned by entities that could be classified as institutional investors, according to data from John Burns, which is the highest percentage in 63 markets tracked by the company.

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Investors flock to Indianapolis because of its affordability. They can buy houses at low prices and rent them for big profits. This has several effects on housing, the worst being the proliferation of sleep vendors, which IndyStar has extensively covered.

These investors can inflate house prices by increasing competition for sales and raising rental prices. But Palacios noted that investors could also help support the Indianapolis market.

“If house prices start to go down, they will be buyers,” he said. “So we think they’re probably going to bottom under house prices a lot faster than what we saw during the great financial crisis.”

So, should I buy a house, or what?

If you are still reading this column, chances are you are looking for advice on whether or not to buy a home. Here’s what I can say: The market probably can’t get any stranger – and there are signs it is normalizing.

Housing stock has risen in recent weeks, a trend that is expected to continue, and it is only a matter of time before builders get a handle on crippling supply chain issues related to the COVID pandemic. 19. A year from now, the housing market will likely operate in a more familiar fashion, with fewer bidding wars and slower sales, even though prices are higher than they are today (Indianapolis appears to be heading for a crisis of affordability for low and middle-income workers, a subject that deserves its own future column).

“Housing is probably the peak of the craze in 2021,” Palacios said. “The craziness is starting to slowly ebb as we move into 2022 for a variety of reasons (including) more online offerings, both new and resale.”

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These are helpful tips depending on how you plan to buy a home.

If your buy or no buy question centers on price risk, the choice isn’t actually much different now than it has been most of the time. No one can guarantee future prices, but past trends are clear: Housing is still a bad investment with occasional spells of good and bad luck in the short term.

The average annual increase in a home’s value in Indianapolis has been 3.7% since 1982, according to data from John Burns, a growth rate you can probably beat by hiding money in an index fund. or a typical retirement account.

“My best advice is not to try and time the market,” Wolf said. “There will be people who tell you that a stock market crash is near and others who tell you that housing will be great for the next decade. The honest answer is, no one knows.

If your goal is to buy a home and live in it for a long time, price fluctuations don’t matter. Here are some better questions: Can you wait to buy a house? If so, would waiting be better for your sanity than undergoing the stress of bidding wars and rejections in today’s marketplace? If so, it might be better to remove the Redfin and Zillow apps and download them again in a few months, when there are many more homes for sale.

“The most important thing is to think about your finances and your needs to guide the decision,” Wolf said. “For example, ask yourself: is the house within your budget or are you stretching? Will the monthly payment inhibit your desired lifestyle? What alternative do you have that matches your needs? Ultimately, the more you plan to own the home, the lower the risk of out of sync with the market.

Just as the shortages of toilet paper and meat were resolved last year, the housing market will eventually recover. This doesn’t mean that there will be less risk, but it does mean that the process of buying and selling should be less maddening for everyone.

Contact IndyStar metro columnist James Briggs at 317-444-6307. Follow him on Twitter: @JamesEBriggs.

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