Readers- Over the years I’ve tried to keep my real estate day job and my column writing separate, mostly because I didn’t want newspaper readers to think I was writing my columns to feather my nest. The newspapers wanted it that way, too. But over the last few weeks I’ve been asked by a number of readers to take a current snap shot of Noblesville and Hamilton County housing issues. I suppose people are curious, not just because of the mortgage and real estate industry problems nation wide, but also because of the recent local school funding referendum; an issue many are only now realizing is closely tied to home sales. So here are the basics, with no sales pitch.
In recent years Indiana’s real estate market didn’t look like the national market we heard about in the news. In the mid-2000s, while southern California, Florida, Vegas, New York, and northwest states saw enormous appreciation rates, central Indiana homes grew in value a meager 3-6% a year.
That’s counter intuitive, because Noblesville, Fishers, Westfield and Carmel have all seen dramatic population increases, so demand was clearly there. But we had something that L.A. and Boston didn’t have: lots of undeveloped land next to highways. So while we had lots of demand, we also had ample supply.
Consider new construction numbers. In 2005 and 2006, Noblesville issued building permits for 2,831 living units (houses, apartments & condos). That’s why, if you had an existing home for sale, it didn’t grow in value as much as you might wish. If you weren’t going to moderate your price, well C.P. Morgan, Beazer, or another builder would, or potential buyers might pick one of those reduced-price foreclosures.
Mortgage foreclosures are not a new problem. During the past decade Indiana was routinely number 1 or 2 in the nation in foreclosures. And a study done in Chicago suggested that for each foreclosure, homes within a one-mile radius drop 1% in value. That number seems exaggerated. Noblesville has some neighborhoods with homes built in the past 10 years where as much as 10% of the houses went into foreclosure well before the mortgage industry unraveled. If the Chicago study is correct, then homes should have been worthless in those neighborhoods. Still, they sold. But even if the study overstates reality, it’s clear foreclosures have held down Hamilton County appreciation rates.
So buyers have had elevated power in our market for some time. But, there were enough buyers that the whole thing kept rolling along.
That was then, this is now.
As the mortgage industry contraction has squeezed troubled buyers out of the market, there are fewer buyers chasing more houses. The sellers who succeed are giving buyers more value, either in lower price or more features than competing sellers.
And with fewer buyers, new construction is suffering.
In 2007 and 2008, Noblesville issued building permits for 1,633 houses, condos and apartment units, a 42% drop over the previous 2-year period. As a result, builders like Davis, Dura, KB Homes, and RDJ have disappeared.
Supply and demand are out of wack. There’s too much supply and too little demand. Between 2006 and 2008 home sales in Hamilton County have dropped 21%. This has caused the average home price to drop 4% during the same period. While it’s not what we would want, it’s better than much of the rest of the county.
What do the most recent months suggest for Noblesville? Home sales have begun a positive trend – supply and demand are inching toward one another. Since April of ‘08 when there were 644 homes on the market in Noblesville Township, we’ve seen that supply of homes slowly fall to the approximate 490s in December and January. That’s good. And surprisingly, demand actually rose last month as 53 homes were sold, compared with just 33 in December.
Like all Realtors, I’m hoping that supply continues to inch down while demand inches up. And if supply does inch up, as it usually does in the spring, I’m hoping that demand rises at an even faster rate, narrowing the gap between the two. If we can get those numbers closer together, sellers will gain more power and home values will stop falling.
Are their winners in this down market? You bet. Interest rates are hovering around 5%, FHA loans are available, and home prices have dropped. If you’re a first time buyer with good credit, you are buying in the best buyers market in recent history. Which dictates who the successful sellers are.
The strongest segment of the market right now is entry-level - homes under $150,000. But the higher in price you go the harder it gets. I recently ran statistics for a seller with a home priced over $400,000 and found that only 1 new buyer appeared in the Noblesville Township market in the last half of ’08 in the $400,000-$450,000 range.
If the market improves will we go back to meager annual appreciation rates for our homes? Probably. Even if Noblesville City leaders approve no new subdivisions and allow only the build-out of already approved subdivisions, a conservative estimate is that another 4,000 homes could be built. A number substantially higher than the ’05-’06 boom years. Like low-producing oil wells mothballed when gas prices are low, when the market rebounds, builders will start building again.