The pullback in new-home construction activity has been strong in Indianapolis as builders look to focus on inventory amid continued push-pull factors in buyer demand.
Annual starts have decreased sharply year over year and are at the same level as March 2020. Meanwhile, annual new-home closings have increased to their highest level in Zonda's history back to 2007. During the spring, most Midwest builders reported demand was slower than expected but not worrisome.
Resale supply remains extremely tight, and Midwest markets like Indianapolis are seeing strong year-over-year increases in rents, a result of more people pushing into affordable markets.
Strengths
Most employment sectors continue to see year-over-year job growth in the market, which flies under the radar as one of the business capitals of the U.S. Indianapolis is home to big companies like pharmaceutical giant Eli Lilly, Cummins Engines, and Elanco, an animal health company.
Weaknesses
The largest year-over-year decreases in vacant developed lot inventory have occurred for prices under $25O,000. The number of finished vacant units has continued to rise, now at its highest since January 2008. The number of active projects remains down year over year.
Supply
Quarterly housing starts decreased 28.2% from a year ago, while the number of available vacant developed lots sits at 9,717, up 34.8% over the same quarter last year. In terms of supply-demand balance, the market area is 4.68% undersupplied.
Sales
New-home sales in the Indianapolis metropolitan area decreased 30.8% year over year to an annualized rate of 4,923 units in April. Over the past 12 months, 668 of sales were attached units, and 4,255 were detached. Existing-home closings for the 12 months ending in April posted a year-over-year decline of 59.6% to an annualized rate of 38,254 units.
Prices
The average list price for a new detached home in the Indianapolis region increased 4.6% from 2022 to $400,453 in April, while the average list price for a new attached home decreased 7.3% over the same period to $348,645. Homes priced under $250,000 experienced the most closing activity over the past year. The new-home affordability ratio for a detached home reached 32.9% in April.
Economy
TotaI nonfarm employment in the Indianapolis metropolitan statistical area increased 3.4% from the same period last year to 1,161,100 payrolls in March. There were approximately 3,200 more jobs in March compared with the previous month, and the local unemployment rate remained flat at 2.8% month over month. March's jobless rate is higher than it was this time last year when it stood at 2.6%. Zonda forecasts the region's unemployment rate will finish the year at 3%.
Community
The population of the Indianapolis metropolitan area is approximately 2,178,720 people and is projected to increase by 1% this year. There are approximately 859,720 households in the region, which is up 1.1% year over year. Forecasts show that current household formation is expected to increase by an annual growth rate of 3.2% for 2027. Incomes increased by 4.1% from the previous year to $74,186.
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