Metrostudy’s 2Q14 survey of the Indianapolis housing market showed many positive signs of continuing recovery in the sector, not withstanding a mid-summer slowdown. Including single-family detached units, townhouse units and duplex units in the six- county Indianapolis region; there were a total of 4,293 new units started in the twelve-month period ending 2Q14, an increase of 3.5% compared to the previous year. Despite the annual rate’s rise, the 1,233 units started in 2Q14 represents a decline of 2.3% over 2Q13. The annual rate of closings rose in the second quarter. There were 4,088 closings during the twelve-month period ending 2Q14, a 4.3% increase in annual closings compared to the prior year. The second quarter number of 961 closings is down 5.5% compared to the 2Q13 total of 1,017 closings.
“The recent slowdown is not surprising,” said Chris Huecksteadt, Regional Director of Metrostudy’s Indianapolis market. “Many markets throughout the Midwest experienced significant growth in construction activity over the past two years at a growth rate that was not sustainable given the lackluster rate of job growth and elevated levels of unemployment still in evidence.”
Through the first half of 2014, the majority of counties surveyed by Metrostudy saw a decline compared to construction activity in the first half of last year. Hamilton County still leads the way with approximately 41.6% of all new home construction in the Indianapolis market occurring there. Marion County is next representing 14.6% of Indianapolis new home construction over the past year. These two counties will likely continue to account for the majority of all new home demand through 2014. In addition, Hendricks and Johnson Counties will continue to generate increased new home construction activity as builders begin to open more communities there.
“With the consistent pace of new home construction and a declining level of vacant developed lot inventory, the months of supply for lots in Indianapolis has fallen from a high of nearly 80 months in 2Q09, to a current level of just 29.5 months,” said Huecksteadt. “This is the first time below the 30-month threshold since the peak of 2006. New lot development has begun to occur at levels not seen for several years.”
Every market area in Metrostudy’s survey saw a significant decline in the amount of vacant and developed lot inventory during the past year. The most dramatic declines have been in those markets that had limited levels of new lot deliveries: Hancock and Johnson counties. Approximately 100 and 400 lots have been absorbed in each of these counties respectively during the past twelve months.
There are good things occurring in the housing market: resale inventory continues to tighten and prices have been on the rise in the existing home market. What is lacking is strong economic growth that would provide the fuel that the new home market needs to expand. Given the current economic situation and inventory levels of both existing and new homes, Metrostudy expects from 4,250 and 4,750 new home starts in 2014.