A Message from CEO Mark Fisher:
Inside IAR: 8/26/2022
Recency bias and Indiana’s real estate market
I’m writing this a few days shy of my one-year anniversary as CEO of the Indiana Association of REALTORS®. It’s been a whirlwind of listening, learning and planning, most recently against the backdrop of a cooling housing market – July sales were down ten percent versus 2021, and early estimates from August predict another double-digit year-over-year decline.
I’ve put in plenty of mileage over the past twelve months meeting with members and visiting local associations. I’ve talked to many seasoned and successful REALTORS® who have been tested by recession and helped clients realize their dreams in spite of economic challenges. I come away from these conversations more confident about the future and the value REALTORS® bring to the process.
But for the last decade – longer than the average Indiana REALTOR® has been in the profession – we’ve lived through an economic expansion interrupted by the sharp-but-short COVID recession (which helped fueled a sales frenzy as real estate was more than resilient through the pandemic).
We’ve seen housing inventory decrease in ten of 11 years since 2011, tilting the market towards sellers as demand outgrew supply. And it’s been a lucky thirteen years since mortgage rates last hit 5.25 percent for a 30-year loan.
This got me thinking about the phenomenon of recency bias. It’s human nature to give more weight to recent events; our brains try to equate “now” with “normal” even if facts tell a different story. For example, a broker heading into his or her first renewal next year may see the record-breaking sales pace since 2019 as the norm.
Putting the market in perspective:
This calls for some perspective. Even with inflation at a forty-year high and the Federal Reserve raising interest rates in four of the past six months, home sales are running just five percent below last year through mid-August. Total sales are nearly a billion dollars above 2021.
Looking further back, year-to-date sales numbers are also ahead of 2020 – the start of the sales surge – and are also beating 2018 and 2019, two strong years for real estate driven by solid economic growth and positive net migration into the state.
Our mantra has been that Indiana is moving into a more balanced housing market: Sales are down and price gains are slowing, but the economic headwinds aren’t rattling the foundations of the real estate industry quite yet.
A balanced market for buyers:
The current climate is also new territory for most consumers. Demographic data tells us that the large majority of real estate customers have never bought or sold a home with mortgage rates above five percent, or during a time of economic contraction. The average first-time buyer was just graduating high school during the Great Recession.
The shifts in the marketplace over the past few months are relatively modest looking at the bigger picture. But recency bias makes change seem more dramatic, even if emerging trends are actually more typical of our housing sector. It’s up to REALTORS® to reassure and point out the opportunities.
For buyers, sales are down but conditions are looking up – starting with prices. Median home prices dropped from $250,000 to $246,000 from June to July, and preliminary August data suggest that prices are continuing to cool closer to $240,000. Prices are up versus 2021 but the month-by-month gap is narrowing: Indiana’s February median price was 18 percent higher than February ’21, while July’s median was barely ten percent over last year.
There are also more homes available after many frustrated buyers spent 2020 and 2021 pursuing a limited number of listings. June and July have been Indiana’s highest two months of housing inventory (monthly homes for sale) in nearly two years.
Of course, the upturn in inventory was partially created by lower demand as mortgage rates hit six percent in June. Rates are still volatile but have dropped as the financial markets anticipate the Fed’s actions.
Even today’s mid-five percent rates look better with a longer memory. Mortgage rates hovered above 7 percent for most of the 1990s after spending most of the ’80s well above 10 percent. Current borrowing costs also beat the 2000s average, until the Fed slashed rates in 2008.
If inflation falls again in August (and price relief spreads beyond gas prices) rates are likely to stabilize even further. Easing inflation means the tasks of saving a down payment and affording a monthly mortgage get easier too. For determined homebuyers, the market is actually moving in the right direction.
Sellers still capitalizing, even with less competition:
On the other side of the closing table, it had become commonplace for sellers (especially in faster-growing areas) to get multiple offers and see negotiations routinely escalate above the listing price.
This dynamic is certainly changing, but that doesn’t mean a more balanced market is bad news for sellers.
Even though year-over-year growth has slowed, median home prices in Indiana have increased more than 14 percent through 2022. Compare that year-to-date return to the S&P 500 with the national economy struggling through two quarters of negative GDP!
Property values are rising despite economic turmoil, positive for owners building equity and sellers entering the market. A home remains a great investment and valuable commodity. Indiana is growing, and each new household adds another reason to be bullish on real estate.
Looking longer-term at housing supply:
Both buyers and sellers can find opportunities in today’s market, and Indiana’s REALTORS® are here to help. We’re also working to address inventory challenges that limit our market: I’ve written before about the Housing Task Force created by the Indiana General Assembly to study ways to increase residential development. REALTORS® have a seat on the panel based on our advocacy and obvious involvement on the issues, and I look forward to the first official meeting coming up on September 29th.
One of our roles on the Task Force is offering an accurate, data-driven view of the housing market over time. This means pushing back on the idea that more homes for sale this year is a sign that housing supply is a less urgent issue (again, the lure of recency bias). Inventory is up because higher mortgage rates pushed buyers to the sidelines. New listings, on the other hand, have essentially flatlined, climbing less than two percent compared to 2021.
Even if a sluggish economy impacts housing for another year, we can’t ignore the decade of declining housing inventory while Indiana’s population gained more than 300,000 new residents.
Demand will recover. In the meantime, it’s up to us to help build a blueprint for housing supply that matches our future ambitions for growth. Personally, I’m looking ahead to my second IAR anniversary (and more to come) reporting on even more Hoosiers finding new homes and planning next chapters for themselves and their families, building wealth and putting down roots in communities across Indiana.
Inside IAR: 7/21/2022
Market changes, class actions, and turning challenges into opportunities
Opportunities often come disguised as problems – it’s a timely adage for organized real estate: The housing sector is slowing, but a more balanced market can help REALTORS® prove their value on both sides of the closing table. And even a class-action lawsuit two states away can prompt brokers to reaffirm their pledge to client transparency and competitive marketplaces.
Let’s start in the statewide market: June data provides the clearest evidence to date that the housing terrain is shifting. More homes are available for sale – 12,000 new listings hit the market in June, and inventory hovered above 10,500 properties at the end of the month, breaking 10,000 for the first time since December 2020.
That’s good news for buyers generally after two years of high demand chasing a dwindling number of listings. But elevated mortgage rates and inflation are also contributing to supply by pushing some home-seekers to the sidelines. Closed sales are down 7.8 percent versus June 2021 and 2.4 percent year-to-date.
Median sales prices increased 13.6 percent in June (year-over-year), but this also represents modestly slower growth relative to 2021. Sellers are still capitalizing on rising values, homeowners are still building wealth – but demand has cooled from last year’s scorching pace.
REAL value – for buyers and sellers:
These changing conditions can highlight the true value of working with a REALTOR®, for buyers and sellers alike.
Homebuyers may find themselves with more choices and opportunities to negotiate better deals. They may also be forced to reexamine their budgets as higher interest rates impact monthly payments and purchasing power. Professional representation is already crucial to a life-changing investment in a new home; it’s even more important as new realities shape local markets.
On the other hand, potential sellers can’t expect a bidding war to break out over every new listing. June numbers imply fewer offers and more demanding buyers; the marketing savvy and promotional skill of a REALTOR® can pay off more directly in higher sale prices.
The power of REALTORS® working through their local MLS is also amplified in the current climate. As inventory grows, the MLS provides the most comprehensive, up-to-date resource for finding a home, and the best avenue for sellers to promote their property to the largest number of potential buyers.
REALTORS® can survive – and thrive – in tumultuous times by unabashedly selling their value to clients, claiming the role of trusted advisor and doing business with high standards of fair play and professional conduct. These ideals should always be top-of-mind but must be even more explicit as uncertainties – economic and legal – loom over the market.
From closings to courtrooms:
Many of you have likely heard rumblings about the class-action lawsuit filed in Missouri dealing with broker cooperation, specifically the routine practice of listing agents paying commissions to buyer brokers. While the litigation has no connection to Indiana, it could impact how REALTORS® do business and build competitive local marketplaces that benefit both sides of a transaction.
The Missouri suit, Sitzer/Burnett v. NAR was granted class action status in April. This is a procedural move that doesn’t reflect on its merits but does allow notifications to be sent to potential class members (individuals who sold a home after mid-2014 in portions of Missouri, Kansas and Illinois). A similar suit was actually filed before Sitzer in Illinois (Moehrl v. NAR) but hasn’t been certified as a class action (a decision is still pending).
Cutting through all the legalese, the suits ask a basic question: Why do listing brokers often pay the commissions of buyer brokers? Fortunately, we have a compelling answer.
Brokers share listings and cooperate on commissions to create the widest possible pool of housing inventory and potential buyers through the local MLS. Listing brokers agree to pay buyer broker commissions as a reasonable cost to reach more qualified prospects.
Commissions are negotiable, but cooperation incentivizes brokers to participate in competitive local marketplaces with the potential for fair compensation. Without cooperation, housing data would be fragmented, more homes would be sold through pocket listings or word-of-mouth, and the average client (and smaller brokerages) would be disadvantaged.
The current system works: Properties listed on a local MLS sell for 30 percent more on average than homes “for sale by owner” or through another platform. That’s why 90 percent of home sellers use a broker.
But the Sitzer lawsuit alleges that these sellers don’t recognize their own best interest, or that the commission process is too opaque for consumers to understand or negotiate.
The best defense against these claims happens to be good business advice in general: REALTORS® should be ready to set clear expectations with clients, operate with transparency and demonstrate their value to every deal.
- Start with communication: Detail the services that brokers provide, describe how the MLS works and be upfront about how commissions are calculated and paid – and how it all pays off when buying or selling a home.
- Don’t wait: This conversation should occur early in the process so the client feels fully informed, engaged, and aware that commissions are negotiable.
- Be open: The REALTOR® Code of Ethics (Articles 1 and 3, Standards of Practice 1-13 and 3-3) requires full disclosure of commissions and cooperation policies and allows negotiation through the process.
Following these principles is about more than responding to a misguided lawsuit. It’s an opportunity to reinforce what it means to be a REALTOR® in a market that’s changing rapidly, leaving clients looking for expertise and support.
Taking the long-term view:
There’s also a broader benefit to broker cooperation – the practice creates greater access to homeownership by not imposing another cash requirement on buyers (especially first-time buyers) since real estate commissions can’t typically be financed through a mortgage.
And even as we settle into pattern of slowing sales and price appreciation, affordability is still a threat to housing stability in Indiana. June shows interest rates and economic uncertainty putting the brakes on a frenetic market, but sales are still fundamentally strong (outperforming the first half of 2019, a record-setting year to that point at the end of a decade of economic expansion).
That’s why Indiana REALTORS® continue to advocate for long-term solutions to housing supply challenges and remain committed to helping clients navigate the inevitability of future change.
Inside IAR: 6/23/2022
Indiana’s housing market – undersupplied, not overvalued
The Fed raised its benchmark interest rate three-quarters of a percent last week as inflation remains stubbornly resistant to its efforts to control consumer prices and orchestrate a soft landing for the national economy. The increase drove 30-year mortgage rates past six percent as U.S. home sales continue to fall.
That’s a lot of unpleasant real estate news packed into one paragraph, and the circumstances have sparked grim speculation about plummeting home prices. It reminds me of the old joke about economists successfully predicting ten of the last five recessions – reports of impending doom are easily made and quickly forgotten.
I’m more bullish on prospects for the Hoosier housing sector: Rising interest rates will hit demand and we’re heading into a more balanced market, but residential property values in Indiana should prove more durable than our current economic challenges.
Popping the housing bubble predictions:
Forecasting a sharp ‘correction’ in home values presumes they were artificially inflated to start with – in other words, that we’ve been in another bubble. It’s true that prices have risen dramatically in this hypercompetitive market.
But it’s a much different dynamic than the years leading into the Great Recession, when the housing sector was super-charged by risky lending practices designed to feed mortgages into the securities market. Recent price increases are shaped by more fundamental forces – a widening gap between supply and demand.
Sales are still brisk and supply is still low:
Indiana reached 8,646 closed home sales for May, beating last May by 164 properties. Year-to-date sales are flat compared to 2021 but 4.4 percent above 2019. This is contrary to the national market, with May sales trending five percent below last year.
Listings this year are up about 4 percent, but there are 50 percent fewer homes listed now versus the end of May 2019. Housing inventory has been declining on an annual basis since 2011, with a single brief uptick in 2014.
What are some of the longer-term factors driving the imbalance between housing supply and demand in Indiana?
Indiana is growing. After nearly a decade of negative net domestic migration, Indiana turned a corner in 2018: 4,300 more Americans moved into the state than away, a number that surged to 14,280 in 2021. Combined with solid international migration, we’ve gained 54,000 new Hoosiers in the past four years.
Our new neighbors need places to live. And with Indiana’s net earnings outgrowing the nation in 2021 (9.7 percent to 8.9 percent), they’re generating personal income to support our housing market.
We’re wrapping up a record-breaking six months for economic development. The mid-point of 2022 also marks a $15 billion streak of business investment wins for Indiana, including massive new manufacturing projects in Boone County (Eli Lilly) and Kokomo (Stellantis). Commercial growth and job gains create the need for housing capacity.
Communities can’t compete (and companies can’t hire) if potential residents and recruits can’t find affordable, appealing places to call home. Lack of housing forces workers further from employment centers and creates a tougher climate for businesses looking to grow.
Indiana policymakers recognize the symbiotic relationships among talent, quality of life and economic development. The READI program is investing $500 million (and seeking to leverage billions in follow-on public, private and philanthropic funding) in strategies to promote population growth.
But the catalysts fueling housing demand are colliding with an undeniable reality – a decade-long decline in inventory.
Housing inventory: There are many issues behind Indiana’s relative housing shortage. New housing starts are stuck at roughly half the state’s mid-2000s levels, while our population has grown more than 500,000. Homeowners (including Hoosiers) are staying in their houses longer: Median tenure has grown from 10 years in 2008 to more than 13 years today. Indiana also had a higher home vacancy rate than the nation through much of the 2010s, and lower levels of renovation.
All of these factors add up to monthly inventory (unduplicated totals of new home listings) that has fallen by more than 80 percent since 2011, even though the numbers have nudged higher this year.
Today’s housing market isn’t overvalued, it’s undersupplied. As determined buyers pursued a dwindling number of options, Indiana home prices have risen for 64 straight months (and counting), including a 7 percent increase in 2019. That’s a pre-existing condition, not a pandemic-created bubble.
NAR’s chief economist, Lawrence Yun, has predicted that home sales will fall by 15 percent and growth in average prices will slow to around 5 percent nationally by the end of 2022. Given Indiana’s level of unmet demand, we could easily see a smaller dip in sales and prices continue to grow modestly ahead of these projections.
So what comes next?
The big question is how much the latest interest rate hike will impact demand. It’s been decades since we’ve seen the Fed raise rates at such a rapid pace, with mortgage rates rising in tandem. For a $200,000 30-year fixed rate mortgage, monthly payments are roughly $400 higher now than the same loan made last November or December.
The combination of interest rates and inflation is especially tough on first-time buyers. Listings under $150,000 have taken the most dramatic hit in the last four years, adding to the affordability challenge that’s beginning to undercut Indiana’s low cost of living-meets-high quality of life message to prospective residents and employers.
Looking ahead, more residential development at all price points is still needed to maintain a healthy housing market that’s positioned for growth beyond this economic turmoil.
For now, Indiana is still a seller’s market, even though inventory is up and demand is softening over the first half of 2021. We’re moving into a market that’s more balanced between buyers and sellers, raising the stakes for REALTORS® who can help clients navigate the changing climate and act as trusted advisors.
Housing is unsettled by external forces like interest rates and inflation, but prices aren’t headed for a cliff – in fact, a gentle upward slope is a more likely scenario. We can still say with confidence that buying a home is still one of the best investments Hoosiers can make in the future.
Inside IAR: 5/26/2022
Assessments, bills and caps – the ABCs of Indiana property taxes
With household budgets already feeling the pinch of inflation from the gas pump to the grocery store, many Hoosier homeowners are apprehensive about their property taxes: Rising home prices in 2020 are reflected in current bills, and new assessments are based on last year’s frenetic sales pace that pushed average prices up 13 percent statewide.
But tax bills moving in tandem with property values are a natural result of pro-taxpayer policies that protect homeowners from even larger, less predictable increases. REALTORS led the fight for dramatic reform during the property tax crisis that reached a crescendo in 2007 and 2008, most notably Indiana’s constitutional tax caps.
Without the caps, today’s homeowners could be facing higher tax rates applied to rising assessed values without any mechanism for holding their bills in check.
The majority of today’s REALTORS joined the profession within the last decade, so it’s worth a look back at how we got to the current system and the challenges that remain – most notably, housing inventory that continues to lag below demand.
From tax court to tax caps:
It started with a final decision in a seven-year marathon of litigation over Indiana’s property tax system (The Town of St. John et al vs. Indiana State Board of Tax Commissioners). In 2000, the Indiana Tax Court ordered a move to assessments based on the market value of real property.
This meant major increases to properties undervalued under the previous rules, especially older homes in neighborhoods with rising sales prices. After 2003, the residential share of statewide property tax collections jumped from 36 to 45 percent as assessments rose to match the market.
By 2007, the housing bubble had further inflated property values and the elimination of business inventories from the property tax base had saddled homeowners with responsibility for a bigger share of the total base. A full-fledged tax revolt was brewing in response to surging bills.
REALTORS advocated aggressively for reform on behalf of homeowners and housing affordability. In 2008, Governor Daniels and the General Assembly passed a tax package that increased homestead exemptions and capped property tax bills to a fixed percentage of assessed value – a cap of 1 percent for residential properties, 2 percent for agricultural land and multi-family housing and 3 percent for commercial property.
Through the IAR, REALTORS were among the strongest champions of the caps, and they paid off: From 2010 to 2011, residential property taxes were effectively cut more than a half-billion dollars.
Are the caps starting to crack?
If individual tax bills do hit these caps (later added to the state constitution in 2010), revenue losses are absorbed by the taxing districts overlapping the affected properties. IAR also aggressively promoted local government reform to promote efficiency and minimize the effects on public services. Nearly a thousand township assessor positions were eliminated to bring professional, predictable consistency to property assessments at the county level, but other attempts to consolidate local offices largely failed to gain traction.
Tax bills still increase if property values rise, but homeowners are also building wealth and equity. And the growth of total property tax collections by county (the maximum levy) is also limited to a six-year trend of Indiana income – tax rates are constrained by the combination of caps and levies.
This complex set of rules has given Indiana one of the most attractive property tax climates in the nation. While the caps provide shelter from erratic and unaffordable tax increases, the last few years have seen the tax burden shift towards residential properties as home prices rose and agricultural and commercial assessments dropped.
But any attempt to provide relief from this shift can’t compromise the top priority – accurate assessments aligned with the market are the basis of a fair tax system that passes constitutional muster.
Hancock County assessor Katie Molinder had a simple explanation in a recent Greenfield Reporter article: “‘The easiest way to think about it is if you were to put a for-sale sign in your yard,’ [she often tells] property owners…If you’d list your home for the amount at which it’s assessed, the assessment is fair.”
Make the case for fair assessments:
But assessments aren’t always on target, and assessing practices aren’t perfect – giving REALTORS a perfect opportunity to act as advisors and advocates for current, former and potential clients.
Assessments aren’t appraisals; they’re calculated by collecting basic information about a home and applying sales data from the surrounding neighborhoods, not a thorough examination of individual properties. This is where REALTORS can bring expert knowledge to the aid of homeowners attempting to navigate the process, examining their assessments and helping file appeals if homes appear to be overvalued.
Indiana’s Department of Local Government Finance has a good step-by-step overview of assessments and appeals in its Citizens Guide to the Property Tax (along with the relevant forms and contact information). But though the outcomes of some assessments won’t stand further scrutiny, the upward trend is clearly driven by larger forces.
Restore supply and demand:
It’s a recurring theme in these commentaries, but lagging inventory is an underlying culprit for rising prices. There’s an obvious difference between a strong seller’s market and prices that are inflated by housing supply that hasn’t fully rebounded from the Great Recession. Indiana needs new residential construction to restore some balance between supply and demand and bring prices into a sustainable trajectory – assessments (and tax bills) will follow.
One more thing – simplifying the tax code:
We continue to work to refine the system to benefit buyers, sellers and owners, and the last legislative session brought another modest step forward: The General Assembly (via HB1260) acted to simplify Indiana’s tax code by eliminating the state mortgage deduction (starting for taxes payable in 2023) and raising the standard homestead deduction from $45,000 to $48,000 to neutralize the impact. In effect, this means less paperwork at closing and no change in tax burden.
In fact, this tradeoff extends relief from rising bills by reducing assessed values to Hoosiers who don’t have a mortgage or have failed to file the mortgage deduction (or forgotten to re-file after refinancing their homes), making it a more far-reaching benefit.
REALTORS should be prepared to explain the change and reassure clients that it’s a positive development, addressing any confusion with the federal mortgage interest deduction or lingering concern that some benefit is being lost.
‘Reassurance’ is actually an appropriate theme for the summer, amid simmering concerns over assessments, interest rates and housing affordability. Growing property values are part of a healthy economy, and Indiana’s system still offers ample protection against unreasonable bills. Our agenda will focus on expanding housing inventory and options at all price points, attracting new residents to Indiana and promoting development policies that broaden the tax base – the best blueprint for making the tax caps work for homeowners.
Inside IAR: 4/19/2022
Five decades after the Fair Housing Act, REALTORS® work to deliver on its promise
April is Fair Housing Month, commemorating the passage of the landmark federal Fair Housing Act in April of 1968. It’s appropriate that this anniversary comes with the traditional springtime surge of new listings, a reminder of the importance of fair play and non-discriminatory practices leading us into the heart of homebuying season.
Like all successful entrepreneurs, REALTORS® are results-oriented – so let’s start with the unfortunate bottom line: More than fifty years after the Fair Housing Act passed, the gap between Black and white homeownership rates has widened to nearly thirty percent.
The Act prohibited explicit housing discrimination, overturning policies like racial covenants, and redlining that were pervasive across the United States. But it failed to address the accumulated injustices and compounding economic losses created by these practices.
Black Americans were largely shut out of the housing boom that followed World War II, missing out on decades of equity, wealth-building, and investment in one of the most significant sectors of the U.S. economy. Each subsequent generation begins their journey towards homeownership further and further behind the starting line, even after the Fair Housing Act cleared obstacles from the path ahead.
Alexia Smokler, NAR’s Director of Fair Housing Policy & Programs, detailed some of these challenges at a state legislative briefing we hosted earlier this year (I’d recommend watching the full presentation here – it’s worth twenty minutes of your time): She notes that white buyers are twice as likely to finance a home purchase with the sales of a previous residence, a tremendous head start bestowed by higher homeownership rates.
Conversely, Black homebuyers are forced to save larger down payments from lower average incomes and are three times more likely to tap into retirement savings. Because twice as many Black households are also working off student loan debt, family budgets are even leaner against the daunting task of building a nest egg.
A survey analysis released this month by NAR (“2022 Obstacles to Homeownership”) notes that white homebuyers are twenty percent more likely than Black and Hispanic homebuyers to have parents or guardians who are homeowners. This illustrates the generational challenge facing people of color in pursuing the often-daunting process of finding and purchasing a first home.
Access and equity:
These issues are amplified in today’s competitive climate of record-high housing prices and record-low inventory. Another recent NAR report confirms that the typical American home is thirty percent more expensive today than in 2019, calling rising costs and limited inventory “double trouble” for real estate.
Quadruple trouble doesn’t have the same ring to it. Still, surging inflation erodes these savings, and rising interest rates add to the cost of mortgages. You have a confluence of circumstances that are especially difficult for first-time homebuyers.
This only solidifies the long-term disparities that undercut the full potential for Black homeownership.
It’s been a recurring theme in these columns, but when supply is consistently stuck below demand, prices rise…and Indiana hasn’t enjoyed a year-over-year increase in inventory since 2014. New housing starts are stalled at two-thirds of 2005 levels, and statewide sale prices have risen 61 consecutive months and counting – pushing more potential buyers to the margins of the market with each passing month.
In short, the history of housing since the passage of the Fair Housing Act shows that equality in legal rights and protections doesn’t guarantee equitable access to the American Dream, especially as affordable housing options are increasingly scarce in Indiana and across the nation. So how do we move from making sure everyone plays by the same rules to actually leveling the playing field?
Affordability is a priority:
Affordable housing development is crucial to opening the market to new and first-time buyers. The ‘Obstacles to Homeownership’ survey confirms that affordability is the most significant barrier facing homebuyers of all backgrounds and ethnicities.
It’s time for a new real estate mantra alongside “location, location, location” – we also need “construction, construction, construction” to increase inventory and improve affordability across the board.
As we’ve reported, the General Assembly took a few modest steps to address widespread housing shortages this session. Lawmakers created a statewide housing task force to examine and report on obstacles to affordable and workforce housing development, and REALTORs will be deeply engaged in its deliberations.
The legislature also expanded tax credits for affordable housing construction, aligning Indiana with federal housing incentives.
We’ll also continue the fight alongside NAR at the federal level, where $25 billion will be allocated to affordable housing production for low-income Americans while securing $1.75 billion in grants for state and local governments for affordable housing solutions and pro-growth zoning reform.
A fair play policy agenda:
It’s naïve to pretend that fair housing has become an issue of supply and demand. Nearly forty percent of Black homebuyers still report racial discrimination in their experience; the Fair Housing Act has left us with systemic challenges and unfinished public policy concerns. Uprooting biases in the home appraisal process is one of these confounding issues.
At the federal level, REALTORS® worked closely with the Department of Housing and Urban Development in developing a strategy to address concerns and improve public trust in the appraisal profession without undermining the soundness of the market.
Champions for change:
You’ve heard the term “Think globally, act locally.” When it comes to fair housing, REALTORS® are active partners in addressing affordability challenges, as limited inventory adds to inequitable outcomes. Our federal and state policy platforms aim to strengthen the Fair Housing Act and advocate common-sense solutions in areas where the Act is silent.
But change starts with individual REALTORs as champions of fairness. Article Ten of the Code of Ethics clearly states, “REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity [or] be parties to any plan or agreement to discriminate against a person or persons…”
It’s up to us to live those words through daily activities and working proactively to welcome all clients.
This brings up a final point about professionalism and how REALTORS® should inspire confidence in a fair and transparent housing market. It’s tempting to celebrate fast closings and sales soaring over the asking price, but too many self-congratulatory social media posts risk undercutting the role of REALTORS® as trusted advisors to buyers and sellers, empathetic to their experiences and eager to help them succeed – not to mention, these posts make you vulnerable to scams and other safety risks. Let’s not just be advocates for our businesses, but ambassadors for an American dream that is accessible to all.
Inside IAR: 3/17/2022
Last week, the General Assembly adjourned with compromises on tax relief and concluding the COVID health emergency, updates to the state’s economic development toolkit, and more. We also compiled a winning record on housing issues: IAR’s government affairs team took care of business (yours), and with ‘sine die’ in the books, we’re ready to spring forward into the traditional homebuying season. But first, a recap and a few observations.
Let’s start with the tax package that made it to the fiscal finish line. House Bill 1002 gradually reduces Indiana’s income tax from 3.23% to 2.9% and eliminates two utility taxes to generate savings for ratepayers. By 2029 the plan gives us the lowest flat rate of any state with an individual income tax, another point for our appealing affordability. (It also helps broker companies organized as pass-through entities keep – and reinvest – more of their earnings.)
On the other hand, business personal property reform didn’t make the cut (pun intended) as lawmakers expressed concerns about the impact on local budgets and consequences for other taxpayers – concerns we shared, as I explained last month.
There’s a symbiotic relationship between economic development and the housing market –last week, I heard this saying at the Association Executives Institute: no homes, no jobs – but our top priority is protecting homeowners by protecting the integrity of our constitutional property tax caps. Reducing assessments on business equipment would shift more of the burden to residential property under the caps since rising home values also raise the ceiling for individual tax bills.
Success isn’t cheap:
Indiana’s combined state and local income tax burden (per capita) is nearly 20% less than the 50-state average. A dozen states cut income taxes last year, capitalizing on robust recoveries from short-lived COVID recessions. HB1002 allows Indiana to leapfrog these peers and sharpen our competitive edge on personal taxes.
But we also recognize the limits of cost as a catalyst for growth. Indiana’s Secretary of Commerce, Brad Chambers, has laid out a new blueprint for economic development that combines our traditional strengths in tax and regulatory climate with an “aim higher” emphasis on place-making and asset-building, making talent a priority to lean into advanced industry opportunities.
The same lessons apply to housing. Affordability matters and taxes are part of the equation. But houses aren’t commodities – successful REALTORS® sell communities. That’s why we balance endorsements of tax reform with advocacy for state and local quality of life initiatives.
In addition to expanding state incentives, new legislation (Senate Bill 361) empowers local governments to create worker relocation programs. We encourage REALTORS® to engage in these partnerships as we push for state-level investments through next year’s budget process. But these efforts can’t just position Indiana as the cheapest place to live.
Strong housing markets support quality public services and amenities. A recent analysis by Ball State University economist Michael Hicks (via the Brookings Institution) studies the ‘premium’ associated with livability across the Midwest – what drives higher home prices, employment and earnings – and identifies public school quality and other community attributes with sustained population growth.
Tax relief isn’t sufficient as a talent strategy. Cutting business personal property taxes also erodes the base shared by school corporations. State revenues need to keep up with education budgets, infrastructure demands, and programs like READI that also help attract new Hoosiers.
On the supply side:
(That’s a Laffer Curve reference for you tax policy aficionados.)
Limited inventory was a pre-existing condition for local housing markets that worsened through the pandemic as a persistent challenge for potential buyers across Indiana. Housing supply – especially the need for affordable and workforce options – isn’t a short-term challenge and won’t be solved overnight.
But this session did see a few promising steps forward on housing supply and stability issues. House Bill 1306 creates a statewide housing task force to examine and report on obstacles to workforce housing development, including a REALTOR® representative to provide a practical perspective on the marketplace. Senate Bill 382 was amended in the final weeks to include new tax credits for affordable housing construction, hopefully a precursor to a more comprehensive push on this issue.
We also played defense on a policy that at first glance seemed deceptively pro-growth. Community Infrastructure Improvement Districts (Senate Bill 370) appeared to be a new tool for residential development. Actually, they were a mechanism to spread the upfront costs of new development among surrounding homeowners through special assessments – up to 30% of a home’s value, which is a type of new tax levied outside the property tax caps.
Protecting a more vulnerable market segment, House Bill 1214 ensures that eviction records can be expunged if circumstances are beyond the renter’s control while pushing the state to deploy remaining rental assistance. These common-sense actions help keep the door to future homeownership open to renters working through these challenging times.
Who runs the world?
On all these issues and a litany of others, IAR’s Senior Vice President of Government Affairs, Maggie McShane, was an aggressive, well-informed champion of pro-housing policies around the Statehouse – a role she’s played since November 2010.
It made me think about and appreciate anew our association’s exceptional group of professionals, especially during this Women’s History Month. Along with Maggie’s leadership on the legislative, political, and regulatory fronts, I’m surrounded by an all-female senior staff, including:
- Richelle Mossler, General Counsel
- Stacey Hartman, Vice President of Communications
- Janet Haley, Controller
- Janice Childress, Vice President of Data Analytics
And I’ll highlight Senior Vice President Kathy Harbaugh, who’s been an indispensable member of IAR’s executive team for more than a decade, bringing invaluable institutional knowledge and professional insight as a Broker and former association executive. Kathy also represents an intergenerational commitment to the profession – her mother, Patricia ‘Pat’ Pencek, was IAR’s first female president in 1983. We’ve had eleven women in the top spot since, and our 12th – Carmel’s Lynn Wheeler – is on deck for 2023.
Indeed, nearly 60% of IAR’s members are women, reflecting the ranks of REALTORS® nationally. Real estate has been a source of professional opportunities for women since the early 1900s, often outpacing the broader push for gender equality: More than a decade before the 19th Amendment, women were voting members of NAR. And female REALTORS® were successfully closing deals for decades before the Equal Credit Opportunity Act of 1974 assured women the right to apply for mortgage loans regardless of marital status or without their husband’s permission.
We still have work to do elevating women’s voices in leadership roles throughout the real estate and extending homeownership to more female-led households. But we represent a pioneering profession, and I’m confident from my own daily experiences here at the office and meeting members across the state that no glass ceiling is sturdy enough to resist being shattered by the determined efforts of Indiana REALTORS®.
Inside IAR: 2/23/2022
Equity, opportunity – and inventory – in Indiana real estate
In January, the data made it official: 2021 was another record-setting year for local housing markets in Indiana, with closed home sales just a few properties shy of 100,000 and frenetic activity pushing average prices up almost 13% versus 2020. It was a great year to be a REALTOR®.
But we need to take an off-ramp from our victory lap to acknowledge the other side of this boom: Low housing inventory has fueled competitive conditions across the nation, and Indiana hasn’t seen a year-over-year increase in inventory since 2014. We’ve welcomed more than 210,000 new Hoosiers in those eight years, adding pressure to the marketplace.
When you combine determined buyers, tight inventory, and historically low-interest rates, you get the fierce competition and median price increases we’ve experienced for 60 consecutive months (and counting). That’s welcome news for sellers and current homeowners building wealth, but it’s a challenging climate for first-time buyers and those without the savings or equity needed to get into a home. Rising interest rates will keep eroding their buying power.
Ultimately, this residential market is leaving too many Hoosiers behind, and not all the reasons are as straightforward as supply-and-demand.
Fair play and equitable policies in housing:
It’s important to highlight this reality as we conclude Black History Month. As we honor the contributions, accomplishments, and sacrifices of African Americans, let’s recognize that housing discrimination is an undeniable chapter in the unfinished struggle for justice and equality.
More than fifty years after the passage of the federal Fair Housing Act, there’s more work to be done. REALTORS® are proudly part of the solution as the most vocal champions of expanding housing opportunities.
A home is the biggest investment most Americans will ever make and the best for building long-term wealth. Racial disparities in homeownership reflect wider economic inequality and longer odds for upward mobility and financial security. Individual REALTORS® are on the front lines of closing these gaps by guiding new buyers through the process as their advocate and advisor.
And collectively, we’re working to fulfill the first policy statement among IAR’s 2022 legislative platform – “ensure the benefits of homeownership accrue equally across races.” Our longstanding commitments to fair and transparent practices, high professional standards for property appraisals and assessments, and defending consumers against fraud also support a more equitable housing market for all Hoosiers.
Building a buyer’s market:
I opened with the observation that low inventory has been a reality of Indiana’s real estate sector for years. We pride ourselves on being a state that offers “more house for the price,” but last year’s research from NAR shows that while 78% of white Hoosier households can afford our typical home, only 53% of Black households have the same purchasing potential. (The 2022 Snapshot of Race and Home Buying in America report yesterday issued by NAR did not include this particular statistic.)
This ratio is no better than the rest of the nation, and we need to aim higher. Inventory and affordability are tied together – any blueprint for opening our market to new buyers starts with new residential development. National data also suggests that Black homeownership rates are higher in metro housing with more building permits and housing starts per capita. Our advocacy agenda includes impact analyses to discourage anti-growth ordinances, tax incentives for new construction, and other policies to promote workforce and affordable housing.
The outlook for new state housing tax credits (Senate Bill 262) is uncertain in the Indiana General Assembly this year, but a statewide housing task force (House Bill 1306) will likely be empaneled to focus on these challenges before next year’s budget session, including a REALTOR® representative.
Protecting affordability in the tax code:
Taxes are another affordability factor, and we’ve been weighing the long-term implications of legislative debate over business personal property tax (PPT) reform. Last week, the $1.4 billion House tax cut plan (House Bill 1002) collided with a skeptical Senate Tax & Fiscal Policy Committee, which stripped most of the bill (including its PPT provisions).
In taking a more cautious approach, Senate budget leaders cited the local impact of lowering the depreciation floor on business personal property (which accounts for more than 17% of statewide property tax collections). HB 1002 uses state tax credits to deliver part of this relief but would still eventually result in over $100 million lost annually to cities, counties, and school districts.
We support a competitive tax climate, but also value fiscal responsibility and preserving the local quality of life (and state programs like READI) without putting an undue burden on homeowners.
That’s another urgent concern about business PPT reductions: Reducing assessments for business equipment reshuffles the total tax liability among other types of property under Indiana’s property tax caps. REALTORS® fought hard to cap residential tax bills to 1% of assessed value and bring certainty to homeowners and buyers but narrowing the overall tax base undercuts this successful push.
A recent report for the Association of Indiana Counties by former Senate fiscal analyst David Reynolds and retired Purdue economist Larry DeBoer confirms that residential property is already shouldering more of the burden as rising home values create more capacity under the 1% cap. Residential properties accounted for 42.5% of all collections in 2017; that rose to 45.6% last year, and the authors project homeowners will be responsible for half the total tax liability by 2026.
Residential tax bills are already rising more than 6% a year; any reduction in PPT assessments will accelerate this trend. We’ll continue to fight for the integrity of the tax caps and against other threats – for example, rallying to help defeat a short-lived plan to extend the state sales tax to services, including real estate transactions (House Bill 1083).
These issues are interconnected: Increasing equity, access, and affordability in housing, adding new inventory to expand our market, and advocating fair tax policies that balance homeowner protections, economic development, and local livability. These priorities demand a full-court press from IAR, and you’ll read more about how we’re picking up the pace with home buying season right around the corner.
What’s going on at IAR:
- The Legal department is producing video #8 in our series on IAR forms. It will cover the new Notice of Termination and is expected to be out next week.
- Attorneys are proactively enforcing the copyright of IAR forms by way of cease-and-desist demand letters. Reminder, IAR forms are for use by IAR members only.
- Professional standards training is scheduled for March 17 & 18. It will be led by Diane Disbrow over Zoom. Courses include Understanding the Role of the Grievance Committee, Professional Standards Committee Training, and Role and Responsibility of the Board of Directors.
- Attorneys are updating the online legal library, as well as revising and recording certain modules in the RECP post-licensing course.
- Delegation Days have wrapped up. Delegation Days is a series of meetings with REALTORS® from one of IAR’s governance regions and state legislators from that area. Discussions were tailored to the local associations attending and the strategic legislative priorities for the week, though partnerships, fair housing, and market activity were consistent discussions. Taking a group of members to the Statehouse weekly has made an impression with many legislators remarking, “REALTORS® are always here!” That’s exactly what we were going for and plan to bring this program back next year.
- Congratulations to past IAR presidents Bruce Bright and Bernice Helman who will this year be inducted into the RPAC Hall of Fame because of their $25K lifetime investment.
- The filing deadlines for the 2022 primary election have passed and we are excited to see several more REALTORS® running for office. We look forward to an even bigger presence in “The Room Where It Happens.” Any Hamilton fans out there?
- We’ve secured exclusive access to the National Museum of African American History and Culture for Indiana REALTORS® attending the NAR Legislative Meetings. We’ll gather for a reception, dinner, and access to all exhibits either on your own or by docent-led tour. Mark your calendar for Wednesday, May 4 from 6:30 to 9:30 p.m. ET. See the entire advance message we sent last week here.
- Membership appears to be returning to its normal pattern in 2022 with a slight dip in February. Totals are expected to rebound in March, following the same pattern observed before the beginning of the pandemic. Overall, membership for this time of year remains at a more than 10-year high.
- Year #2 of Member Benefit CE is underway. This means that if you need to complete CE you can do so online/on-demand and for FREE through our school, RECP. Since this is Black History Month, we’re featuring the following 2-hour Broker CE class – Fair Housing: History and Current Events. This class is one of four classes you can take to earn up to 12 hours. Click here to see the other three class titles and learn how to access your Member Benefit CE. Reminder, newly licensed Brokers do not need to complete CE right away. See what you need to do instead.
Inside IAR: 1/20/2022
Message from CEO Mark Fisher:
State of Growth
I recently read a survey that reported far fewer Americans made New Year’s resolutions for 2022. Bad news for gym owners and diet gurus, but I suppose the reluctance is understandable after the tumult of the last two years.
I don’t share this attitude, however. I’m excited to start my first full year with Indiana’s REALTORS®, representing thousands of successful entrepreneurs dedicated to helping their fellow Hoosiers realize the American dream. Their example inspires my resolve to think big about the year to come, especially as we pivot from a pandemic-influenced marketplace into the future.
Building on the Basics:
Housing has been the most dynamic sector of the U.S. economy through COVID as ‘stay-at-home’ imperatives prompted many of us to rethink how (and where) we live and work. Indiana was already coming off a record-setting year for home sales in 2019, and closings surged more than 10% over the next twenty-four months.
We expect the market to stabilize in 2022, but Indiana’s residential sector remains fundamentally strong. Our homeownership rate has outpaced the nation for decades, an advantage that’s now nearly 10%.
And with overall lower cost of living and a property tax burden roughly 30% below the 50-state average, we have the appeal of affordability even as tight inventory has pushed prices higher.
But growth is the catalyst for building on these basics – wage growth, growth in housing options and overall supply, and sustained population growth that brings more buyers to the market.
Wanted: More Hoosiers
These thoughts came to mind as I joined past IAR President (and Howard County Commissioner) Paul Wyman in attending Governor Holcomb’s State of the State last week. The Governor had invited the two of us to watch from the gallery as he touted Indiana’s successes through these challenging times:
- Surging revenues pushing the state surplus towards $5 billion projected by the end of June, while maintaining one of the nation’s lowest tax burdens;
- Putting $3.6 billion into planned 2022 road projects, $350 million in broadband expansion, and $150 million for trails and greenways (the infrastructure of livability); and
- Leveraging this growth to boost K-12 spending by $1.9 billion over two years (and we know that the quality of local schools is a key factor in homebuying decisions);
- An aggressive economic development effort driving GDP and personal income growth above our Midwestern neighbors, with unemployment dropping to 3% as the job market rebounds.
This litany of data points make a compelling case for Indiana as a great place to call home, and the Governor also cited our best-in-the-Midwest population gains, noting a recent U-Haul survey showing Indiana jumping from #12 to sixth on its migration-based ‘Growth Index’ for 2021.
But our population trends aren’t all positive. Indiana ranks 29th in overall growth since 2010, our third consecutive decade of slowing population gains. The majority of our 92 counties are steadily losing people.
For that reason, the Regional Economic Acceleration and Development Initiative (READI) was a welcome highlight of the State of the State. Governor Holcomb and the General Assembly created the $500 million grant program in 2021 to support quality of life and talent attraction partnerships.
READI encourages cooperation across city and county lines, engaging public, private and non-profit partners in transformative projects designed to recruit new residents, employers and investment. After a frenetic planning process over the summer, the first READI awards went to seventeen regions spanning every county in Indiana. Based on the overwhelming response, Governor Holcomb has already signaled his intent to seek “READI Round Two” in the next state budget.
We support forward-thinking investments in stronger communities: In recent Census data on reasons behind residential moves (the American Housing Survey, 2015-2021), “housing options & community attributes” were the most important factors for a plurality of respondents (37%).
REALTORS® are among the most effective ‘quality of life’ ambassadors, passionate about promoting our unique small towns, thriving cities and family-friendly suburbs – each of the nearly 100,000 home sales recorded last year represents a vote of confidence in Indiana. But less than a third of current READI funding is targeted to housing-related plans; we need to be ready (no pun intended) to push innovative strategies for residential development in the next round.
Programs like READI and the Destination Development Corporation’s ‘Hoosier by Choice’ campaign put Indiana on offense in the competition for human capital. But IAR is also focused on protecting past wins – and playing tough defense – on issues like private property rights, a pro-homeowner tax climate, fair annexation and eminent domain policies and many more.
Inventory is clearly an issue, and we’re working with lawmakers on workforce housing incentives and ways to demolish hurdles to residential construction. We’re also keeping an eye on plans to reduce business property taxes, promoting economic development while guarding against higher residential tax bills.
The list goes on; a legislative session is one place where careful appraisals and inspections are a must.
New Year, New Challenges:
As you keep reading, you’ll find plenty more positive news – expanding professional development opportunities for members, strong financial support for political advocacy, even the profitable management of REALTORS® headquarters office space in downtown Indianapolis.
It’s my privilege to work with the team behind these accomplishments, to inherit a legacy of success from Karl Berron with the guidance of tremendous volunteer leadership.
But to paraphrase Mark Twain, “Standing still is falling behind.” REALTORS® don’t passively wait for listings or potential buyers…they proactively pursue new opportunities. You can count on the same attitude from IAR, and I can’t wait to see what the next twelve months will bring.
- On November 15th, IAR co-hosted a Housing Summit for new legislators with Habitat for Humanity and the Indiana Builders Association. Freshman legislators from across the state participated in a half-day session, which included a special presentation by the NAR Senior Policy Representative for Fair Housing, Alexia Smokler; an economic update from Elliot Eisenberg, “The Bowtie Economist;” and a panel discussion of lobbyists representing the three host organizations. The summit focused on homeownership. The objective of the summit was to provide legislators with a solid understanding of policy issues impacting housing inventory in Indiana and to share housing market data in advance of the 2022 legislative session. Legislative leaders from both Houses also joined the new members. We hope to reprise the Housing Summit each year to serve as an idea exchange for solutions to meet the growing needs of both existing Hoosier homeowners and prospective homeowners.
- Federal Political Coordinators for 1st CD Congressman Frank Mrvan, Jr. (D-Hammond) and 5th CD Congresswoman Victoria Spartz (R-Carmel) organized meetings with their Members of Congress and local associations in their respective districts. REALTORS® shared recent markets reports and concerns about housing inventory, rental assistance, and maintaining tax advantages for investors, such as 1031 like-kind exchanges. Many thanks to the staff at GNIAR and MIBOR Realtor Association for helping arrange these important meetings.
- Will host a series of Delegation Days for local associations beginning January 24th and continuing each Monday through the end of February. Local association leaders and staff will attend the half-day event at the REALTOR® Building. Delegation Days represent a shift in our advocacy effort at the Statehouse, enabling us to bring members together with legislators in smaller, more intimate group settings. These smaller meetings will also us to connect our grassroots with policymakers in a much more targeted and strategic fashion.
- Started the popular forms video series in 2021, answering the most frequently asked questions and sharing the need-to-knows about seven of our forms
- Hosted the Legal Update + Legislative Outlook CE event on January 10th that covered lawsuits, competition, E&O insurance, fair housing, forms changes, Code of Ethics changes, the Attorney General’s complaint investigation process, and a state legislative session preview
- Planning a two-day Grievance and Professional Standards Committee training on March 17 & 18 featuring Diane Disbrow
- Launched year number two of the Member Benefit CE program – 12 hours of online CE each year at no additional cost
- At a brief meeting in December, the IAR Board of Directors elected two vice presidents: Jennifer Parham of Merrillville and Kim Ward of Fort Wayne
- The next IAR Board of Directors meeting is February 1st which will kick off the association’s strategic planning
- Leadership Academy Class of 2022 convened for a day at the Statehouse in December and conducted a mock committee hearing and session
- Leadership Team has been traveling the state, helping local associations conduct their officer installations and giving IAR updates
- Volunteer Interest Profile remains open for those who want to get involved with IAR
- Launched two new monthly emails – Capitol and Market for the general membership and Inside IAR for leadership – averaging a 56% open rate, which is above industry standard
- Revamping IndianaRealtors.com for a better mobile experience and connection with member database