Strong demand, scant supply in Indiana housingmarket.

• Author: Kinghorn, Matt

Indiana's housing market continues to be marked by a dramatic imbalance between strong demand and scant supply. Hoosiers purchased a record number of existing homes in 2017, with total sales up 2.4 percent over the previous year (see Table 1).Meanwhile, the average monthly inventory of homes on the market in 2017 was nearly 14 percent lower than in 2016 (which itself was down 15 percent over the previous year).

These tight market conditions are fueling a surge in home prices. Existing-house prices in Indiana were up 6.6 percent year-over-year at the end of 2017 --the state's largest annual increase on record dating back to 1991. While a boon to those looking to sell their homes, rising prices--coupled with declining rental vacancy rates and the expectation of rising mortgage interest rates--could begin to impact housing affordability for some in the state.

Not surprisingly, rising prices and short supply have paved the way for a relatively strong increase in new construction. The number of new residential building permits issued in Indiana increased nearly 16 percent in 2017. While this marks a significant improvement, residential construction remains slow by historic standards. The number of permits issued for new single-family homes last year, for instance, is still only half as large as the average annual number of permits issued between 1998 and 2005.

This article examines the latest data to gauge the state of Indiana's housing market. First, we present a detailed overview of market conditions with a focus on home sales, prices and foreclosures. Later, we check in on the demographic drivers of the housing market and look at trends in residential construction.

Existing-home market continues to heat up

With low interest rates for much of the year, a strengthening economy and still relatively low levels of residential construction in 2017, the conditions were set for another strong year for existing-home sales in Indiana. The state tallied more than 88,500 existing-home sales last year--a new record for Indiana (see Table 2).

With the exception of a brief lull in 2014, Indiana's existing-home market has been on the rebound since its low point in the middle of 2011, when the state registered only 53,600 existing-home sales over the previous 12-month period (see Figure 1). Comparing this trough to the current peak, the number of existing-home sales in Indiana has increased 65 percent over the past six years.

The rise in demand in recent years has also sparked a steady increase in home prices. At nearly $147,000 last year, the median sales price for existing homes increased by 5.7 percent in 2017--the sixth consecutive year...