An “overheated” housing market has cooled down in Johnson County and across the state.
Compared to the unprecedented last two years in the market, home sales are balancing out, but not crashing. Houses are remaining on the market longer, leaving room for buyers and sellers to breathe a little, area real estate agents say.
“We’ve called the market hot, some might even say overheated, in terms of the demand that was out there. It certainly created a hyper-competitive situation for buyers in particular,” said Chris Watts, vice president of public affairs for the Indiana Association of Realtors.
Inventory in Johnson County increased by 127% in October, compared to October 2021, according to housing data from F.C. Tucker Company. Pending home sales are down 31%, compared to this time last year.
These numbers mean the market is balancing itself out, and that is not a bad thing, nor a sign of a market crash, said Victor Perr, an area Realtor with F.C. Tucker.
Homes a year ago on average stayed on the market for less than a week, and now listings are up for 10 days or longer. The median days on the market for last month in Johnson County was 14 days, according to MIBOR data. Home buyers now have room to make decisions about homes they want, without the pressure of competing to get a house before someone else, Perr said.
“Buyers were looking at homes, and if they found one they thought checked eight of their 10 boxes, they were already making an offer on it … they didn’t want to lose the opportunity,” Perr said. “Today, it feels like buyers are taking more time to put their offers in, so they’re looking around more.”
The number of buyers has also dropped off, and people are more hesitant now about buying or selling, for a number of reasons.
One is cost. Despite inventory increasing, and demand dropping, home prices are still climbing. The average home sale price in Johnson County last month was $330,226, a 12% increase from the sale price last year.
Interest rates on mortgages are also hovering around 6.6% and 7%, a high from the last two years. Rates in 2020 and 2021 dropped even below 3% at some points.
“I would say the two big factors are the interest rates and what that means to a buyer as monthly payments. And the belief that if they hold off a little bit, they’re gonna get home at a much better price,” Perr said.
Inflation is playing a role too, Watts said. First-time buyers are holding off a bit more because the cost of living is up, as well.
“It makes it tougher for first-time buyers in particular to save the down payment. Because it’s impacting their … monthly bills and their buying power,” Watts said.
Perr, for the first time in two years, has had very few showings on some of his listings, and no offers, as well. He also has spoken to a number of real estate agents who are also seeing more pending offers fall through, for various reasons — another occurrence that was almost unheard of two years ago.
“I wouldn’t say that that’s a substantial contribution to more homes on the market. I think the amount of homes on the market today has a lot to do with available buyers, and qualified buyers,” Perr said.
However, real estate experts don’t believe the market is heading for a crash, or indicating a recession. Interest rates are expected to fall back to normal levels, and home prices will catch up as well.
“Most of the experts you know, myself included, believe that there’s not going to be a collapse or implosion in the market, there’s a leveling off, and I would say that’s going on,” Perr said.
A lot of what people are seeing now with the high home prices, in particular, is just a lag in appraisals, Perr said. Appraisers or brokers do comparative market analyses looking at home sales prices for the last six months. Six months ago, the market was still hot, interest rates were lower and homes were at a higher price, Perr said.
For the past two years, homes have also been selling over asking price, because of the competitiveness to outbid other buyers. So, many sellers are still listing their homes at higher prices, and then having to drop in order to sell, said David Brenton, an area veteran Realtor and broker and owner of David Brenton’s Team on the south side of Indianapolis.
Sellers six months ago could list a home for $260,000, and expect $275,000. Now, with fewer offers coming out, sellers likely would now have to drop the price to sell it for around $240,000, Brenton said.
“Did the market really drop, or did the market just quit having over-list price offers?” Brenton said.
The central Indiana market has seen a steep incline in prices by about 10% every year for the last three years. A steep incline, usually means there will be a steep decline when the market shifts.
Brenton also does not see signs of a housing market crash, and also said everything is leveling. He expects interest rates to return to normal levels around 5%, but going back down to 3% is “wishful thinking,” as those rates were unprecedented.
Homes are still selling, just not as quickly, which is not bad, Brenton said. An increased inventory with slower sales is not a reason for concern — even in Johnson County where new subdivisions are building out with hundreds of new homes, Brenton said.
In Johnson County, 316 homes were listed as of Friday, and 216 additional homes were pending. Of those, 59 of the pending are new homes and 104 of the active listings are new, he said.
“It’s not a gloom and doom situation by any means. I mean, Johnson County is in a good spot,” Brenton said.