• Metrostudy forecasts 2016 new home starts to range from 4,900 to 5,200, representing growth from 7.3% to 13.8%
  • Annual rate of closing in 2Q16 (4,652 units) up 3.6% year-over-year
  • Lot inventory remains low and quarterly lot delivery has not kept pace with absorption; if not corrected in the long term, this trend could restrict the market’s ability to continue its upward rate of growth.
  • Months supply of lots for all counties in the Indianapolis market are below the 30-month threshold

Metrostudy’s 2Q16 survey of the Indianapolis housing market shows that there were a total of 5,001 new housing starts in the region over the twelve months ending in 2Q16, a 13.8% increase from 2Q15. The 1,628 units started in 2Q16 represent a significant increase of 25.8% over 2Q15. The annual rate of closings numbered 4,652 units in 2Q16, up 3.6% from the prior year. Quarterly closings increased 5% YoY to 1,267 closings.

Annual New Home Starts and Closings (12-Month Moving Total)

“The second quarter is the first time annual starts came in over 5,000 since the recession and quarterly new home starts had the strongest single quarter since 2007,” said Mark Gianopulos, Regional Director of Metrostudy’s Indianapolis office. “The largest growth in annual starts occurred in Hamilton, Marion and Hendricks counties, with gains of 14%, 29.2% and 15.6% respectively. With the exception of Boone County, all markets in the Metrostudy survey saw an increase in construction activity in 2Q16 compared to 2Q15. A modest decline was seen in Boone County, while starts were relatively healthy in the remaining counties, up by single-digit gains compared to the same period last year.”

Annual New Home Starts by County Year-over-Year

By the end of 2Q16, just over 5,600 annual new lots were delivered with more entitlement activity also occurring. Quarterly lot delivery has not kept pace with absorption, with just over 800 lots entering the market in the second quarter. If not corrected, this trend will restrict the market’s ability to continue its upward rate of growth. With the tightening supply of lots, builders will begin to have difficulty meeting demand unless new lots are delivered. As many desirable locations begin to build out, it will be interesting to track the consumer as they consider other locations within the greater Indianapolis area.

With the rising pace of new home starts absorbing lots and a modest level of new lot delivery, the months of supply for lots in Indianapolis has fallen from a high of nearly 80 months in the second quarter of 2009, to a 2Q16 level of just 23.2 months. All counties in Metrostudy’s survey area are below the 30-month threshold. The over 4,400 lots brought to the market over the last three quarters has helped relieve some of the pressure but most of those lots are in Fishers, Noblesville, Westfield and Carmel in Hamilton County. With the amount of new lots added to the market, Indianapolis should see continued growth in new home construction activity over the short run, as the major concern regarding lot inventory has been temporarily addressed.

Vacant Developed Lot Inventory by County

In 2Q16, there was just over a 1.3-months supply of standing new home inventory in the Indianapolis market, well below the estimated normal level of 2.5 months. Continuing in this trend will serve to constrict absorption as builders have a limited supply of inventory, which has fallen by 10% from the previous quarter.

“With continued reasonable employment growth coupled with the tight supply of lots, the outlook through 2016 remains positive,” said Gianopulos. “ Metrostudy forecasts new home starts in 2016 to range from 4,900 to 5,200, representing growth from 7.3% to 13.8%. Strong wage growth combined with sustained job growth in the 2.5% to 3% range will positively impact this forecast. Interest rates and energy costs have remained low, providing further motivation for new home buyers. The amount of new lots available in the marketplace will provide the necessary supply to meet the demand forecast provided above through mid-2017. Builders will be challenged to bring new housing units to market under $280,000 as construction costs, land and lot prices and development costs continue to increase.”

For further analysis of the Indianapolis market, contact Metrostudy Regional Director Mark Gianopulos: