INDIANAPOLIS HOUSING 4Q18: New Home Starts Up Year Over Year – Builders Focus on Delivering Affordable Product in a Lot-Challenged Market

  • Annual new home starts in 2018 were up 8.5% over 2017 numbers; annual closings were up 5.5% YoY.
  • Quarterly new home starts were up 8.5% YoY, and quarterly closings were up 9.5% from 4Q17 levels.
  • Builders continued their focus on delivering homes priced under $300K; this building activity poises the market favorably to endure anticipated softening of economic and housing fundamentals in the upcoming months.
  • Builders remain challenged by lack of lot development, which continues to cap this market’s potential – they will need to expand into submarkets beyond Hamilton County in the upcoming years in order to maintain starts and closings volumes.

Metrostudy’s 4Q18 survey of the Indianapolis housing market shows that annual starts were up 8.5% YOY at 6,133, and annual closings were up 5.5% YOY at 5,718. A comparison of quarterly data from 4Q18 to 4Q17 shows starts up 7.7% and closings up 9.5%. Indianapolis remains an expanding new home market evidenced by starts exceeding closings. The greater the delta, the more rapidly the market is expanding.

“Builders continued their focus on delivering homes priced under $300K,” said Danielle Leach, Regional Director of Metrostudy’s Midwest market. “In 4Q18, annual starts outpaced closings by 7.3% in the under $200K price range, 13.3% in the $200K to $249K price range, and 5.8% in the $250K to $299K price range. The market average of starts eclipsing closings was 7.3%. This building activity poises the market favorably to endure anticipated softening of economic and housing fundamentals in the upcoming months.”

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Hamilton County accounted for the majority of housing activity in the Indianapolis market with 42% of total starts and closings. Marion County was a distant second and accounted for 17% of total starts and 16% of total closings. Top submarkets in the Indianapolis market based on volume of last twelve month starts include Indianapolis, Westfield, Fishers, Noblesville, Carmel, Greenwood, Avon, Plainfield, Zionsville, and Brownsburg. Together these ten submarkets accounted for 79% of total starts.

Residential construction labor in the Indianapolis MSA is supply constrained and projected to remain so through 2021, according to Metrostudy’s Labor Index. The top five undersupplied labor types include painters/construction/maintenance; cement masons and concrete finishers; first-line supervisors of construction trades and extraction workers; plumbers/pipefitters/ steamfitters; and electricians. Labor constraints and increased cycle time remain evident by the large volume of homes in the under construction category.

Annual starts outpaced annual lot deliveries in 4Q18, and lack of lots will continue to be a challenge in the Indianapolis market. Lack of lot development in consumer preferred locations is capping this market’s growth potential, as consumer demand is evident. VDL supply in the overall market is extremely tight but even more so in “A” and “B” submarkets. Replacement communities in “A” and “B” locations are increasingly more challenging to bring to market; as those communities take longer to come to fruition and are often smaller in unit count, future volume in starts and closings is impacted.

The resale market in Indianapolis continues its slow expansion with 37.3K closed sales over the last twelve months, up 1.1% YOY. There are currently 2.3 MOS, with resale inventory down 4.0% YOY at 7.0K listings. The median sales price was up 6.7% YOY in December 2018 at $176K.

This “Steady-Eddie” market experienced solid economic and housing market fundamentals in 2018. Job gains, especially in high-income sectors, continued to support new home demand. However, builders remain challenged by lack of lot development, which continues to cap this market’s potential. New home building continued its concentration in southern Hamilton County, and builders remain challenged to expand into new submarkets in the upcoming years in order to maintain starts and closings volumes. Softening national and local fundamentals will temper housing demand as the current economic cycle ends – expected in late 2019 to 2020. The Indianapolis market is poised for new home volume growth through 2019, with flat to minimal growth in 2020 and 2021.

For information contact
Danielle Leach – dleach@metrostudy.com
Tel: 847-812-3295

About Metrostudy: Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com

About Hanley Wood: Hanley Wood is the premier company serving the information, media, and marketing needs of the residential, commercial design and construction industry. Utilizing the largest analytics and editorially driven Construction Industry Database – powered by Metrostudy – the company provides business intelligence and data-driven services. The company produces award-winning media, high-profile executive events, and strategic marketing solutions. To learn more, visit hanleywood.com.