New home permits are down across central Indiana, including Johnson County, and experts say inflation and supply chain issues are the likely reason behind why.
Some areas see less permits
In Johnson County, new home permits are down 20% so far this year, with 292 new home permits issued between January and April. During a similar period from January to April 2021, about 365 home permits were issued, according to the Builders Association of Greater Indianapolis.
In several parts of the county, the number of new building permits has decreased. Unincorporated Johnson County saw the largest decrease this quarter, dropping by 95.8%, and Franklin saw the second largest drop at 69.5%. Bargersville dropped by 23.4%, data shows.
There were also several areas of the county that seemed to buck this trend. Trafalgar’s increased by a whopping 140%, from five permits in 2021 to 12 in 2022 so far. Greenwood’s increased by 61.9% and Whiteland’s increased by 2.3%, data shows.
Edinburgh, New Whiteland and Princes Lakes did not see any changes to the number of permits issued, according to the data.
Johnson County is not alone with the overall decline. Statewide, a total of 6,796 single-family building permits were issued in the first four months of this year, down 8% from the first four months of 2021. In April, 1,866 permits were issued, a 19% drop from the 2,310 issued in April 2021, according to data from the U.S. Census Bureau.
Across central Indiana, there was a 24% decrease in single-family building permits in April compared to last year’s numbers. Last month, 801 permits were issued compared to 992 in April 2021, according to a news release from the Builders Association of Greater Indianapolis.
Inventory still low, affordability more of a concern
While permits are down, the housing inventory for single-family homes in the county has ticked up slightly, but remains near historic lows. There were 113 single-family homes considered active inventory in April, a slight increase from the 97 available in April 2021. This is still far from the high of 408 in October 2019 and the low of 71 in February 2021, according to data from the MIBOR Realtor Association, the professional organization representing Central Indiana realtors.
The number of new homes listed has also stayed close to 2021 levels. Last month, 315 homes were listed on the market for the first time, a slight decrease compared to the 319 listed in April 2021, data shows.
While these numbers have remained near similar levels compared to last year, demand has continued to send prices skyrocketing for those wanting to buy already built homes. The average sale price for single-family homes last month was $280,000. This was lower than the $295,000 average price in March, but still higher than the $250,550 average sale price reported in April 2021, data shows.
Higher prices are making housing affordability more of a concern. For example, higher mortgage rates present challenges for some homebuyers. Some could lose their mortgage eligibility, while others could be deterred because higher borrowing costs will make their payments less affordable, Dave Coffey, president and CEO of Franklin-based Mutual Savings Bank, told the Daily Journal last month.
Earlier this month, several mortgage rate averages hit their highest levels since late 2018, with the average 30-year fixed mortgage rate hitting 5.3%. However, for the last two weeks, rates have dropped. On Thursday, Freddie Mac, a government-sponsored secondary mortgage company, reported that the average 30-year fixed mortgage rate hit 5.1%. This is down 0.15% from the previous week, but year-to-year is up 2.15% from 2021. The average 15-year fixed mortgage rate was 4.31%, down 0.12% from last year, but up year-to-year 2.04%, data shows.
Housing market slowing
The reason for the decrease over the last few weeks is due to multiple headwinds the economy is facing. There is evidence the housing market has slowed. The deceleration caused by this is spreading to other segments of the economy, including consumer spending on durable goods, Sam Khater, Freddie Mac’s chief economist, said in a news release.
Inflation has played a role in increasing home prices. Costs of materials needed to build a new home have increased because of pandemic-related supply shortages and other external factors, including the war in Ukraine. Inflation is quickly approaching a 40-year-high, with consumer prices in April increasing by 8.3% from a year earlier. This number is just below the fastest such rise in four decades that was set in March, The Associated Press reported.
Indiana Builders Association President Paul Schwinghammer expected to see a downturn of permits in April due to the effects rising mortgage rates, inflation and supply chain disruptions are having on the housing industry. These challenges are likely to persist for a while, he said in a statement.
“Challenges will persist overall for the housing industry across the country in the coming months, but Indiana is well-situated to weather the storm as companies continue to look to Indiana to locate and/or expand their operations,” Schwinghammer said.
In addition to rising interest rates and inflation, a volatile stock market is also affecting prices. These challenges have led to a more serious issue of affordability, which in turn is a large contributing factor in the slowdown of permits issued, Jeff Langeston, owner of Old Town Design Group, said in a news release. Old Town Design Group is a custom builder who builds custom homes in several communities across the state, including Hillview in Franklin and Aberdeen in Bargersville.
People looking for homes under $400,000 represent almost 5% of the housing market, and the cost of housing has now priced out a section of the market, he said.
“This price range is driven by cost of payment and with increased rates, coupled with increased costs, the most susceptible market has seen the impact first,” Langeston said.
Local realtors concerned about inventory
Locally, realtors say that while there are still plenty of buyers, there is a substantial lack of inventory and people selling their homes. Realtors are not seeing enough homes getting listed, said Ron Rose, a Greenwood realtor.
“People are just not moving,” he said.
The lack of inventory is particularly hurting the market in Johnson County, and Rose believes the county’s inventory is not likely to significantly increase over the next few months. Some potential sellers have likely decided to stay where they are at and will wait and see what happens with the market. These sellers include those who may have been nervous about moving during the pandemic, he said.
“If they’re not pulling their equity out (by moving), people are probably going to stay another year and see what happens,” Rose said.
The market is still strong for sellers, so Rose suggested that anyone who is in a position to sell their home for any reason, they should consider it. Buyers should be prepared to continue to encounter bidding wars and other competitive situations when looking at buying a home, Rose said.
“I don’t see that changing this year,” he said.
Building industry leaders say consumers should remain positive about the current market situation. Consumers should also understand that the normalization of activity will allow the labor force and supply chain to breathe and eventually get back up to speed, Builders Association of Greater Indianapolis CEO Steve Lains said in a news release.
BY THE NUMBERS
Here is a look at single-family building permits issued through April of this year compared to the same period in 2021 in Johnson County:
Percent decrease: 20%
Percent decrease: 23.4%
Percent change: None
Percent decrease: 69.5%
Percent increase: 61.9%
Percent change: None
Percent change: None
Percent increase: 140%
Percent increase: 2.3%
Percent decrease: 95.8%
Source: Builders Association of Greater Indianapolis