Ask anyone who bought or sold a home last year: 2022 was a rollercoaster of rising mortgage rates, inflation taking a bite out of household buying power and a more balanced real estate market after two years of surging demand. Home values increased but sale prices slowed as higher lending rates pushed homebuyers to reduce their budgets or rethink their plans.

Indiana’s 21,000 Realtors helped Hoosiers navigate this challenging climate on the way to nearly 90,000 closings before (finally!) turning the page to 2023.

Buying or selling a home is a life-changing decision and should be pursued with professional guidance based on personal circumstances. But looking at the bigger picture, what trends are starting to shape Indiana’s housing market early this year?

We’re finally turning the corner on inflation.

The Consumer Price Index has dropped for six straight months after peaking over 9% in June, and core inflation has improved to its lowest rate since late 2021. We’re still feeling the pinch of higher prices (especially in our grocery and utility bills) but slowing inflation helps prospective homebuyers rebuild their savings and reevaluate their budgets for 2023. 

The Fed is easing up on interest rates.

The Federal Reserve raised its target interest rate seven times in 2022 to battle inflation, hitting the housing market harder than the rest of the economy as mortgage rates doubled from January into October. But encouraging data on consumer prices has caused the Fed to cautiously pursue smaller rate hikes the past two months – good news for home loans and housing demand.

Thirty-year mortgage rates have fallen a full point since mid-November.

According to Freddie Mac’s Primary Mortgage Survey, rates have decreased from 7.08% on November 10th to 6.09% on February 2nd, equivalent to a $120 savings on every monthly payment for a $200,000 thirty-year home loan. Rates may not fall back to the historic lows of 2020-2021 this year, but continued improvement will help bring buyers back to the market.

Indiana is outgrowing our Midwestern neighbors.

Speaking of potential homebuyers, Indiana continues to grow through domestic migration, with more residents moving into the state than moving out.  We attracted 26,000 new Hoosiers from 2018-2021; recent Census data confirms a net gain of 5,200 residents in 2022. Compare that to our Midwest neighbors: Illinois, Ohio and Michigan lost a combined 158,000 residents last year.

Midwest-leading population growth helped Indiana weather a tough market in 2022 – while U.S. home sales fell 18% from 2021 to 2022, Indiana saw a more modest 11% decline. Preliminary numbers from January show sales stabilizing and starting to close the year-over-year gap.

Prices growth is still positive, but conditions are improving for homebuyers too.

Steady demand kept also kept home prices 11.9% higher than 2021, a positive trend for sellers and homeowners building equity. But there’s more good news for buyers beyond falling mortgage rates.

Indiana’s current median sale price ($215,000) tops January 2022 ($208,000), but year-over-year price growth has been slowing for ten straight months. 2023 also starts with more options (and opportunities to find potential bargains), as active listings have nearly doubled from last January.

Limited supply is still a long-term challenge for homebuyers in Indiana. Monthly listings increased in 2022 but are just half the average levels of 2017; our inventory of homes for sale has been steadily shrinking for more than a decade. But the General Assembly is considering a number of proposals to ramp up residential development, including a state-backed loan fund to address the costs of local infrastructure to support new housing.

After reading this far, you can tell that I’m confident in the future of homeownership and Indiana’s housing market. We tend to avoid the boom-or-bust cycles of the Sunbelt or coastal communities, offering steady growth in property values for homeowners who decide to put down roots here. With most of 2023 still ahead, we look forward to a year of recovery after 2022 tested the resilience of real estate.

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