SOUTHERN INDIANA — Ashley and Chris Judd knew immediately when they visited their downtown New Albany home in November that they wanted to buy it. They had to.
The house, with its high ceilings and dark wood floors, had just gone on the market that day and already had 12 people scheduled to look at it after the Judds.
Ashley and Chris placed a $128,000 offer on the home that evening and landed it, somehow managing to beat out a cash offer.
“She worked magic,” Ashley said about the married couple’s Realtor.
The Judds closed on their house the same month that another couple, Case and Renee Belcher began looking for their second home after several years of living in an apartment. Their budget was in the $150,000 range, and they were prepared to be aggressive in their search.
The couple visited one home the day the listing went up. A Realtor was placing a “for sale” sign in the yard when they got there. While they were looking, another group was at the back of the house doing the same thing. Before the Belchers left, a third car had pulled up.
The Belchers placed a full price offer on the home that night, but were rejected. The eventual buyer had gone over asking price.
“That’s when we knew that it was super serious right now,” Case said.
A HOT MARKET
The Belchers’ and the Judds’ stories are familiar ones to Barbara Popp and her fellow Schuler Bauer Realtor, Matt Lincoln.
“Right now I’m showing a $114,000 house in Jeff and there’s already an offer on it, and it’s been on the market for eight days,” Lincoln said.
The homes that are coming off of the market the quickest are in the $100,000 to $150,000 range: houses typically thought of as for the first-time home buyer. They’re staying on the market for an average of 75 days, according to the Southern Indiana Realtors Association, but Popp and Lincoln are seeing many disappear before a week is up.
The situation is placing a strain on new, middle-income home buyers, and it could potentially get worse as more people follow jobs to the area and fewer entry-level homes are built.
The trend is actually a statewide issue but hopefully a short-term one, according to Doug McCoy, the director of the Center for Real Estate Studies at Indiana University Bloomington.
The median sales price of a home in the state increased by 5.5 percent from July of 2016 to this July. At the same time, the inventory of homes for sale decreased by 18 percent. In short, the demand for Hoosier homes is outweighing the supply, and it might be even worse in Southern Indiana.
Last year, $129,840 was the median price for a home sold from January to May of 2016 in Clark, Floyd, Harrison, Scott, Washington and Crawford counties. This year, that number jumped to $140,000 for the same time period — an increase of 7.8 percent.
More homes are being demanded in Indiana because the population is increasing, but mainly because unemployment is low, McCoy said. People in general have enough money to buy their own home now. (And maybe more millennials are actually starting to think about transitioning from apartment life).
Employment is decidedly at a good level in Southern Indiana as more companies open in Clark County’s industrial hubs. The rate for the total metropolitan area was 3.9 percent in August, which is below the United States’.
Anecdotally, Popp has also noticed that demand for homes has increased as more people decide to move from Louisville to Southern Indiana.
The Judds were living in Louisville when the couple decided to start looking in Indiana for homes. Ashley had to persuade Chris at first to move away from the city, but he soon realized that housing was less expensive in the area and that New Albany and Jeffersonville’s downtowns were close enough for him to Louisville.
Popp and McCoy both don’t believe that the tight housing market is squeezing entry-level home buyers too much. There are still enough homes for searchers that they are finding places to live, even if it’s taking them a little longer. Residents can also afford to wait to buy a house as they save up. In many cases, they can also spare the money to buy a more expensive home and budget afterward.
“The good news is that it’s a choice,” McCoy said.
Case and Renee looked at 10 homes during their search. Eventually, they found a house in Georgetown that kept coming down in price, although Renee wasn’t too enthused by it.
“Oh, it was horrible,” she said.
The home hadn’t been updated in a while and the layout was odd because of some past additions.
“It looked like your 90-year-old grandma moved out,” Renee said. “The carpet was, you know, shaggy.”
“It was livable, but it was right on the edge of livable,” Case said.
But the location was right and the Belchers were about to have their first baby. It was January and Renee was due in April. They decided to put an offer on it, also above asking.
“Please don’t,” Renee remembers thinking. “I don’t want that one.”
A SHORT-TERM ISSUE?
McCoy is convinced that this is all a temporary problem. Indiana is not the West Coast where homes are more expensive, even after factoring in higher incomes.
In Floyd County, McCoy calculated a housing affordability score of 1.94, compared to the West Coast’s of 1.05, meaning that for every dollar of income that a Floyd County resident has available to spend on their mortgage, they have almost $2 left over. That assumes that the homeowner placed a 20 percent down payment on their home and accepted a 30 year mortgage.
Clark County, McCoy said, is in an even better situation because housing is less expensive and while residents’ median income is lower, it’s not that much lower than Floyd’s.
Low housing affordability in the west also leads to more volatility in the market where small disruptions can cause prices to shoot even further up.
“…If this pricing pressure continues, and we can’t get the supply in line, it could become that,” McCoy said. “But I don’t think that’s going to happen because our land cost is usually less expensive so we’re easily able to rectify this.”
There’s also a lot of land left in Indiana to build on, McCoy said. But — at least right now — the homes being built in Southern Indiana aren’t for entry-level buyers.
LOCAL HOUSING’S FUTURE
As desirable as they are to some Southern Indiana residents, developers today struggle to build entry-level homes.
Consider Ellingsworth Commons, a 512-house subdivision recently approved in Jeffersonville. It was billed as being for all types of families, but the homes start at $180,000 — a price that’s just out of reach for many first-time home buyers.
The reason why developers aren’t building cheaper is because the price of building materials has increased in recent years, said Charlie Smith, executive officer of the Building and Development Association of Southern Indiana. Laborers in the industry have also grown scarce, upping their pay.
As a result, it’s no longer profitable to build homes below $180,000
“Because of the volatility of the market, when you are trying to get in that low to lower price point starter home, under [$200,000], it’s a little bit of a dangerous game to play,” Smith said. “You rely more on quantity. You have to be able to build them, build them quickly, turn them fast to make a profit to pay your people and maintain your business.”
Instead, many homes in the area are being built in the $250,00 to $300,000 range, Smith said, which is also an in-demand market. Builders wouldn’t be working on homes if they didn’t think they could sell them, he added.
Plus, McCoy doesn’t think that more $250,000 homes will keep everyone out of the housing market. Residents will just have to do what he suggested before: save up before buying or purchase a slightly more expensive home and budget.
But as more people flow into the area to pursue jobs at Southern Indiana’s industrial hubs, they might want less expensive homes.
McCoy suggests that the area consider workforce-provided housing or more multifamily developments, including condominiums and duplexes, as well as smaller lots for single-family homes, which would make building homes more affordable for developers.
The city of Jeffersonville proposed a plan in February to make denser housing easier for builders, changes to the city’s zoning code that the BDASI endorsed. The proposal was in direct response to a study by the city showing that Jeffersonville would be short 2,000 housing units in October 2027 as more people move to the area for jobs.
The plans would have reduced minimum lot size and yard setback requirements for single-family homes and changed requirements for multi-family homes so that more units could be included in each development.
But instead of the plan receiving city council approval, a citizen board was created to review it. The commission has met twice since being formed in February, said Nathan Pruitt, director of Jeffersonville’s Planning and Zoning Department.
Even considering population growth, McCoy is optimistic about Indiana’s housing future and the economy in general.
“We’re sitting here and talking about home prices increasing 5.5 percent or something like that,” he said. “If we were to look out somewhere in Seattle or Denver, some of their price increases are double digits — 12, 13 percent.”
The Belchers were just about to settle for the Georgetown home when a couple at their gym made a casual offer.
“If you want to buy our house, we’ll move out,” they said.
Soon, the Belchers were negotiating a price with the couple. Once they came down about $5,000 from their original proposal, the Belchers were ready to buy.
It felt like a “god-send,” Case said.
Today, the Belchers are now parents to a son, Maverick Case Belcher, and proud homeowners. Their house is close to the gym they own, it’s in a good location for walks and, maybe best of all, it doesn’t need much work.