INDIANAPOLIS — The hot housing market that we've been experiencing is cooling down. Indiana home sales are down by 12% compared to last summer, according to the Metropolitan Indianapolis Board of Realtors.
Real estate broker Amy Clark at Capstone Realty told 13News the slowdown is mainly due to higher interest rates and inflated prices. Current interest rates are now as high as 6.75% compared to where they previously stood at just under 3%. Clark said she wouldn't be surprised if rates hit 8%.
That's driving the home prices down, making it more affordable for buyers and giving them more say. For instance, buyers had been skipping home inspections and paying cash if the home didn't appraise just to compete. Buyers were also offering well over the asking price.
Clark said the market now isn't quite that competitive. Home inspections, for example, have returned.
While this news helps level the playing field for buyers, Clark is concerned for clients who already bought high.
"I'm afraid we're going to see a lot of people filing bankruptcy or not be able to pay their mortgages," Clark said. "How many people are going to be sitting on homes with no equity, in fact, negative equity in the home? So, that's one of my biggest concerns about the market. I worry about some of my clients that I've had because they were so desperate to get a home."
Clark said rental properties also aren't as available. Clark said it's often because many who sold are renting as they wait to get into a new home.
New home construction is also slowing down, despite the cost of goods dropping. Clark said before, people were building when they couldn't find a home they liked.
Now, with homes more readily available, they don't want to wait.
Zach Whitesel just sold his home for a little over asking price, and is moving into a new home this September. He said the market seemed just as competitive.
"The initial buyer on my house fell through, and then within a day, we had another buyer still. And so it does seem like things might be cooling down a little bit, but from my perspective, it's probably not to that point yet," Whitesel said.
Lynn Wheeler, senior vice president of Berkshire Hathaway Home Services Indiana Realty and president-elect of the Indiana Association of Realtors said this is good news for Hoosiers.
"Don't panic when it comes to real estate, this is a very good thing for people looking to buy and sell," Wheeler said.
After two years of a red-hot housing market, demand is finally starting to cool. Wheeler explains that instead of inflation-driven prices raised higher by multiple offers selling homes at record paces, this dip will help normalize the market, slowing demand down.
"It's going to make homes more available for buyers to actually take their time and find the right home and not compete with as many potential buyers and offers. And it's still going to create appreciation and a great investment for sellers as they sell their homes," Wheeler said.
Nationally, Realtor.com data reports that despite home prices staying at near-record highs, the number of new listings on the market plummeted by 15% from a year ago.
But here in Indiana, Wheeler said the cooling market is leaving homes on the market for longer, bringing options for buyers up.
"We actually saw the greatest increase in inventory these past two months than we've seen in the past two years," Wheeler said.
Why is the housing market now starting to normalize?
A big piece of it is coming from recent rate hikes from the Federal Reserve. Doug McCoy, Al and Shary Oak director of real estate at IU Kelley School of Business said the Fed has been easing into these hikes in hopes of slowly curbing inflation without hurting families.
“We keep talking about tapping on the brakes and kind of avoiding a big recession and that’s what we keep seeing if we can do," McCoy said. "And I think right now, we’re in that middle ground to say how hard do we need to step on the brakes? A lot of people feel like haven’t done that hard enough and fast enough and so that puts us at risk of a longer period of inflation and potential recession."
Right now, McCoy said, the housing market is moving in the right direction as intense demand from the past two years for home buying and selling slowly drops. But it's likely another interest rate hike is coming, cooling the housing market even further in hopes of getting the economy back to where it should be, he said.
"We've got to get inflation under control. And that's the issue right now," McCoy said. "And the only way for us to do that or really the main way is to increase those interest rates. So how far do we have to go and how much pain do we have to experience, that's the question."