Residential real estate market follows nation into slump

December 31, 2007

For most of this decade, the Indianapolis residential real estate market enjoyed a good run. But in 2007 it muddled through the doldrums just like the rest of the country, and builders pulled out all the stops to avoid getting stuck with inventory.

"There are just not a lot of people out there looking," Jeff Kontor, vice president of sales for Indianapolis-based Brenwick Development, said this fall. "So far as numbers are concerned, whether it's for lots or homes, it's definitely down right now."

The slow times came about thanks both to national trends (tighter mortgage lending) and local ones (sudden, steep property tax hikes). Those and other factors combined to slice about a third off the city's home-building activity.

From 2000 to 2005, the number of building permits for the Indianapolis metro area hovered around 12,000 per year. But in 2006, according to statistics supplied by research firm Permits Plus, the number plunged to 8,481. Through August 2007, only 5,224 had been issued.

Selling new homes in Indianapolis suddenly became a dicier proposition--especially since so many builders had chosen to crowd into one price point.

"Seventy-five percent of this market is for homes between $100,000 and $200,000," said Dax Meredith, who directs the Indianapolis office of American Metrostudy Corp., a Houston-based housing research firm. "So that makes for a very, very crowded field."

Too crowded for some. In July, Los Angeles-based KB Home Inc. abandoned the Indiana market. But that still left a large field of local and national builders to battle over a greatly diminished, much more hesitant pool of potential buyers.

To attract customers in 2007, many builders used deal sweeteners, including free basements, finished basements, screened-in porches--sometimes all three.

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