Low inventory, high prices

Despite interest rates rebound from record 2% to 3% in early pandemic levelsthe housing market continues to see extremely high demand and extremely low supply, spurred by historically low interest rates and strong interest from millennial homebuyers.

the Indiana’s current housing market is an “extreme seller’s market,” said Jim Littenthe general manager of FC Tucker.

Generally, a market with a four to six month supply of homes for sale is considered a balanced market, Litten said. Markets with less than a four month supply of homes for sale favor the seller. Right now, the central Indiana housing market has about a month’s supply.

In January, the housing stock was so low that homes would sell in just over 24 days if no news was added and sales rates remained the same, according to MIBOR data.

Unless a recession occurs, Litten doesn’t expect the market to cool down anytime soon.

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IndyStar sat down with Litten, who has 50 years of real estate experience, to talk about what buyers and sellers can expect from the housing market in the coming year.

The interview has been edited for clarity and conciseness.

Sales down in January

Question: How would you characterize the market in the first month of 2022?

Responnse: The market we experienced in January is a continuation of last year. Obviously, last year ended very strongly.

What is a little unique in January and February is that it is very difficult to judge the dynamism of the market, because of the weather. In January of this year, we had a week of sub-zero temperatures. If you look at February, we had this snow storm two weeks ago. And that pretty much closed the market all weekend.

That said, January sales were only 2.3% lower than last year. We are still seeing considerable activity in the market. There’s so much pent-up demand right now that it’s making the market really, really tough for consumers and for agents.

Interest rates should continue to rise

Q; How will rising mortgage interest rates affect the market?

A: One of the things we’ve seen happen, and it was to be expected, is that interest rates are starting to move. If you think back to last year, interest rates fluctuated between 2.75% and 3.5%. They ended the year at 3.5%. Today, rates are around 4.1%.

Now, because the Federal Reserve rattled its sabers that it was going to raise rates, I think the mortgage market has already priced in those interest rate hikes.

My prediction for the year is that you’re going to see those rates go up, probably until mid-four. I don’t think they will go to five.

I don’t see this as anything that will slow the market down. When you look at interest rates over the past 30 years, they have averaged 7%. If rates went up to 10% or 12%, then yes, I think that would have a drastic impact on the market. But if they get into the top four, the top four, maybe even the bottom five, I don’t think it will impact the market.

Prices have increased by 16% in 2021

Q: How hot is the market right now?

A: We are seeing a huge escalation in prices. Last year, prices increased by about 16% in our market. I don’t see that moderating one bit.

The other thing we’ve found is that when we put a house on the market, it’s not uncommon to have 10, 15, 20 viewings right away. And in one day, multiple offers on it with people paying more than the seller is asking.

It’s something I’ve never experienced in my career.

I remember five years ago what we are experiencing (now) was a common occurrence in the San Francisco, CA market. I thought, ‘We’ll never see that happen here in Indiana.’ Well, you have to be careful what you say, because this very thing happened right now.

Indiana among the most affordable markets

Q: Will Indiana remain more affordable than other markets nationwide?

A: Indiana has always been in the top third (in terms) of home affordability in America. I don’t see that necessarily changing. I still think we’re going to be one of the most affordable, but I think it’s going to be more expensive in the past.

Q: How have pandemic-related supply chain disruptions impacted the pace of new home construction?

A: Construction has been higher this year than it has been since 2007. But there’s no doubt in my mind that if we didn’t have the supply constraints, we would have even more new construction. One of the problems faced by builders is that, especially in the middle of last year when lumber prices skyrocketed, builders were hesitant to even quote a price because they did not know what it would cost to build the house.

Q: How has the extreme seller market impacted sellers?

A: Here is the challenge for the seller however, even if he will get the best price for his house, when he sells it, he will have to pay full price for everything he buys. There are plenty of sellers out there who would love to sell, but uncertainty about what they would find to buy lingers in their minds and makes it a little more difficult for them to decide to move on with their home.

Cash is King

Q: Since so many homes are selling above their listing price, does this make it difficult for buyers without a lot of cash to buy a home without being outbid?

A: There’s no doubt that this puts a buyer at a huge disadvantage who doesn’t have a lot of extra cash.

One of the things that we’ve seen happen, especially with some of the younger buyers, is that the parents lend the kids that money to buy the house outright, so they have a very attractive offer for the seller . Then, after buying and moving into the house, they take out a mortgage and pay off the parents.

Probably 25-28% of the transactions we do now are in cash. (Five years ago) it was probably around 15%.

Q: What would you advise buyers who do not have abundant disposable income in this type of market?

A: That’s the $64,000 question, because they never know what they’re up against. And what I would encourage them to do is not lose faith in their ability to buy a home. Sometimes they’re going to have to bid on four or five houses over a period of time to finally get one, but they just need to hang in there and keep doing it.

Q: When can we expect inventory to rise again and it will become easier for potential buyers to find a home they can afford?

A: I don’t think anyone knows the answer to this question. As long as the demand exists, which it does, and the interest rates are acceptable, I think it will continue.

It would take a recession, where unemployment rose, consumer confidence fell and interest rates rose a little, for stocks to change.

Contact IndyStar reporter Ko Lyn Cheang at kcheang@indystar.com or 317-903-7071. Follow her on Twitter: @kolyn_cheang.