IU examines potential for Indiana housing bubble

A new publication from the Indiana Business Research Center at Indiana University says a generational housing bubble is in the offing, and that the U.S. may be building more new housing than it will actually need over the next decade.

The study, which was conducted in collaboration with the IU Center for Real Estate Studies, shows current demand from millennials in Indiana has put pressure on the housing market in recent years, but that trend won’t last.

“Demographic variables will become as important as interest rates, income growth and construction costs in determining the return on real estate assets,” said report co-authors Phil Powell, a clinical associate professor of business economics, and Matt Kinghorn, senior demographer at the IBRC. “At present, demographic pressure on housing markets is at its peak. This implies continued strain on supply in the next several years followed by long-run erosion in demand.”

The study indicates new housing built now to meet strong demand may sit vacant in a decade as the current bubble in demand generated by millennials will slowly deflate.

The study also shows baby boomers will continue to downsize their living space and age out of the housing market. They say the volume of houses put back on the market by seniors will steadily increase.

“The reversal in demand is projected to intensify by the middle of the next decade, when the annual number of homes that seniors add back to the market is expected to be 40% higher, according to an earlier study,” stated the report.

It also says falling fertility rates mean post-millennial generations will be smaller, requiring less housing.

Click here to view the report.