REAL ESTATE 2013: Finding Balance in the Housing Market

Fall Festival of Homes 2013.

If we learned anything from the recent ups and downs in the housing market, it’s that the pendulum swings both ways.

The road to recovery has been anything but easy. Yet, it’s not secret that the local housing market has been steadily improving for more than two years.

The Greater Northwest Indiana Association of Realtors latest report shows September 2013 marked the 27th month of consecutive year-over-year growth in units sold for the combined counties of Lake, Porter, LaPorte, Jasper and Newton.

September was up nearly 17 percent over September 2012. New listings were up nearly 18 percent and the median sales price rose more than 7 percent during the same time period.

When you compare year-to-date numbers, 2013 continues to improve upon the positive momentum established in 2012.

New listings are up more than 7 percent at 13,028, closed sales are up over 23 percent at 6,944, median sales price up more than 2 percent at $135,000 and the percent of original list price received at sale was up more than 1 percent at 92.9 percent.

“The continuous upturn showcases consumer confidence is being restored,” says GNIAR Chief Executive Officer Peter Novak, Jr. “People are recognizing that now is a good time to buy and sell in Northwest Indiana.”

While there are still challenges in the economy as a whole, Bill McCabe, Broker/Owner of Century 21 Executive Realty in Schererville who provides housing market updates as part of the The Times Board of Economists, believes Realtors in Northwest Indiana see the glass as half full, not half empty.

“The two most common questions I get asked are what is happening to home prices and where are interest rates going,” he says.

Since prices have stopped falling, they have seen only small increases, and McCabe cautions people against equating an increase in average sales price to an increase in home values.

“The larger home market got hit the hardest in the recession,” he says. “With those homes selling, it brings up the average square footage and sales price. Also, more new homes are selling which are typically more than a pre-loved home.”

Interest rates are also continuing to drive the housing market, but not for the reason you want to hear, according to McCabe.

“They are rising, and I think the 3 percent rates are something you will have to tell your kids and grandkids about. It has buyers scrambling to find a home before rates rise more. They are still a bargain, but many younger buyers have never experienced high rates and may begin to think they are not a bargain if they exceed 5 percent.”

So as this summer’s trend toward sellers relishing multiple offers or little negotiation when it comes to their asking price cools off along with the weather, buyers could find they are once again in the drivers’ seat. For those who refrained from the frenzied pace of the housing market earlier in the year, this particular shift may be just the push they need to realize the benefits of buying a home now.

Nationally, after hitting the highest level in nearly four years, existing-home sales declined in September, but limited inventory conditions continued to pressure home prices in much of the country, according to the National Association of Realtors.

Even so, theses sales have also remained above levels from a year ago for the past 27 months.

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NAR Chief Economist Lawrence Yun explains why the decline was expected.

“Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he says. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

In the latest existing homes sales report published by NAR at the end of October, the median price nationally for an existing home in September was $199,200, up 11.7 percent from a year ago. Nationally, home prices have had 10 consecutive months of double-digit year-over-year increases. A little different than what we are experiencing but reflective of the fact that our prices never plummeted as fast or as far as other areas.

Housing inventory held steady in September, with a five-month supply at the current sales pace or 2.21 million existing homes available for sale in September, up 1.8 percent from a year ago.

The median time on the market for all homes was 50 days in September, up from 43 days in August but down from 70 days a year ago, with 39 percent of homes sold in less than a month.

Foreclosures and short sales accounted for 14 percent of September sales. That’s up from 12 percent in August. A year ago, distressed home sales made up 24 percent of the market. This accounts for some of the growth in median prices. In September, foreclosures were sold at an average discount of 16 percent below market value; short sales were being discounted by an average of 12 percent.

So with all of this data pointing to the fact that affordability is a growing challenge to many people realizing their dream of owning a home, the results of this year’s American Community Survey, which is an annual estimate of population, demographic and housing data that reveals where it’s cheapest to own a home were just released – and Indiana ranks among the most affordable.

With some of the lowest costs in Midwestern and Southern states, the survey looks at homeowner costs like a lender.

Along with credit scores, interest rates and home prices, the ability to buy home is dependent on location, i.e. cost of living. Census bureau data provides a state-by-state look at homeowner costs. So in addition to debt-to-income ratios used by loan officers that show how much debt obligation (including the proposed mortgage payment) consumes a borrower’s gross income, other homeowner costs, which vary from consumer to consumer, are factored into the ratio.

The results reveal that among the 50 states and the District of Columbia, average owner costs, including mortgage payments, made up between roughly 19 percent and 29 percent of household income in 2012.

Indiana comes in tied for third at 20 percent.

Homeowners in the top 15 states with the lowest costs will encounter new homeownership costs less than 22 percent of household income, on average. Owner costs include mortgage payments, insurance, taxes, fees and any utility bills that may apply to a living unit, according to the Census Bureau.

So while prices and interest rates will always be leading factors that influence the housing market, it really comes down to affordability, especially for first-time buyers who tend to set the pace.

Currently, housing demand from Generation Y, people 18 to 31 years of age also known as millennials or echo boomers, is tough to predict. Will they enter the housing market with a preference for living in more urban neighborhoods with easy walkability and access to public transportation, or will they prefer a more suburban setting that caters to families with single-family homes and a little more personal space?

The answer will play out over the next several years, and most likely affect the way the pendulum swings.