Indianapolis, Indiana
The “Crossroads of America” Gears Up for a Busy 2024
By Carole VanSickle Ellis
In January 2023, Zillow analysts released their much-anticipated “hottest housing markets” list. Not surprisingly, last year’s list was dominated by the south and southeast; only two midwestern cities even made the list. This year, however, Indiana’s “Crossroads of America,” Indianapolis, catapulted to number four on the list, leaping over all of last year’s frontrunners to snag the spot. Zillow analysts placed only three markets ahead of Indy: Buffalo, New York; Cincinnati, Ohio; and Columbus, Ohio.
“2024’s hottest markets all boast solid economic fundamentals, relatively fast-moving for-sale housing inventory, plentiful likely buyers, and expectations for stable home values,” observed Zillow economic analyst Anushna Prakash. She added, “[The top 5] should stand out as strong in a housing market still buffeted by low inventory and relatively high mortgage rates and prices.”
The real estate data giant bases its rankings on analysis of forecast home value growth, recent housing market velocity, and projected changes in the labor market, home construction activity, and number of households, Prakash noted.
For investors already active in Indianapolis and the surrounding area, the news that the market is heating up is nothing new. However, investors like Dustin Malloy, CEO and founder of Cash4Homes and an active wholesaler in the area, are thrilled by the activity and insist that rising demand in the area is affecting their businesses positively despite relatively low inventory.
“There is always someone in a situation you can help sellers out of while making great income on the transaction,” Malloy explained, adding, “There are lots of buyers, and many will buy
your deals with only one call.”
Malloy, who is active throughout central Indiana, noted there is a substantial demand not only for larger three- or four-bedroom properties, but also smaller two-bedroom units to serve as rentals in the area.
Many developers have reported seeing falling demand for smaller single-family rental (SFR) properties elsewhere in the United States, which makes the steady demand in Indianapolis intriguing and somewhat unusual.
Bruce McNeilage, co-founder and CEO of Kinloch Partners, a real estate investment company specializing in SFR development and management in the southeast, noted, “We have been following growth patterns outside the urban core [in southeastern markets] because the value is better for us and our residents and fits their lifestyle.”
While this trending demand for larger properties may emerge in the Midwest a year or more down the road, demand for all sizes of rental stock has skyrocketed so dramatically in the past 12 months that competition in Indianapolis has nearly doubled for each rental unit. According to the U.S. Census Bureau, nearly two-thirds of Gen Z renters in the Indianapolis area are spending one-third or more of their annual income on rent.
While rents in many major metro areas around the country have eased off or even fallen in recent months, the Harvard Joint Center for Housing Studies reported midyear 2023 that Indianapolis had posted 7.7% rent growth year-over-year. However, the center predicted rents in still-warm markets would “likely also slow in the future… [based on] softening of other rent indicators.” Until this happens, Indianapolis renters may find smaller, older properties more affordable and attractive.
So far, however, all systems (and rental investments) appear to be “go” in the Indianapolis area. “We consider Indianapolis to be an excellent destination for cash-flow rental properties,” said Marco Santarelli, founder and CEO of Norada Real Estate Investments. “Indianapolis has a record of being one of the best long-term real estate investments in the U.S. over the past 10 years.”
A Growing Economy Going Full Speed Ahead
As the home of the famous Indianapolis 500, Indianapolis gets its fair share of speedway jokes and “full speed ahead” references. The Indianapolis Motor Speedway, itself, is an incredible economic engine for the area, generating $1 billion in annual economic activity as a result of events and operations at the venue itself.
“Of this total, more than half — $566.4 million — is attributed to the Month of May and the world-famous Indianapolis 500 Mile Race,” observed Forbes contributor Bruce Martin in October 2023. Martin was reporting results from a newly published study by the Indiana University Public Policy Institute that focused on breaking down economic activity related to the speedway. In the report, the researchers credited the speedway alone with 8,440 “direct and indirect full-time equivalent jobs, totaling and estimated $360 million in labor income.”
Investors should note short-term rental activity in the area spikes during speedway events, with Airbnb reporting hosts in the Indianapolis area collectively made more than $1 million in the two weeks leading up to the race in 2021. A “typical host” earns more than $1,000 over the race weekend, Airbnb representatives said.
The speedway is only one facet of Indianapolis’s accelerating economic momentum, however. Statewide, the Indiana Economic Development Corporation (IEDC) is leveraging a variety of investor- and business-friendly programs to incentivize economic growth in the area. In Lebanon, Indiana, a suburb of Indianapolis roughly 20 minutes from the city center, Eli Lilly and Company recently broke ground on a $3.7 billion investment that will ultimately bring in a projected 700 direct jobs. The manufacturing operations center is part of the LEAP Research and Innovation District in Lebanon. The district consists of 9,000 specially designated acres on the Indiana I-65 Hard Tech Corridor and boasts, according to the IEDC, “an experienced workforce of 1 million+ within a radius of 60 minutes.”
The Indianapolis Chamber of Commerce notes there are many local and municipal programs designed to keep the Indy economy growing, also. In a recently published report on the topic, the chamber reported average hourly wages of $44/hour, $134.7 million in active tax abatement projects, and a “land strategy” incorporating public land, Opportunity Zones, and remediated properties in order to “catalyze investments” from developers and target businesses. The program is part of an evolving initiative that has already created a highly attractive industry ecosystem in the area with the top six industries (directly employing 272,000 as of the end of 2022) registering as:
» Logistics (109,000)
» Manufacturing (88,000)
» Information Technology (22,000)
» Life Sciences (21,000)
» Agribusiness (16,000)
» Sports (16,000)
A Pendulum Swinging in a Positive Direction
Of course, as more jobs and, by extension, more employees move into the area, buyers may be increasingly inclined to rent until they can see more clearly in which direction the Indy market is headed. At the end of 2023, Axios warned data indicated owner-occupants purchasing homes in the Indianapolis metro area are not breaking even on their purchases for decades. While these calculations are based on buyers paying high prices and making relatively low downpayments, this trend could spook buyers unless interest rates fall in the coming months and, depending on the rate of inflation in 2024, could spook them anyway. For investors, this represents an opportunity in the Indianapolis metro markets and surrounding areas as the need for housing continues to intensify.
“The pendulum has swung toward renting as the most effective housing choice, at least in the short term,” wrote Axios Indianapolis contributors James Briggs and Brianna Crane in November 2023. For Indianapolis investors, this swing could make 2024 a highly productive year.
SIDEBAR
By the Numbers
4 — ranked as Zillow’s 4th-hottest market in 2024
8 — ranked 8th on the Forbes “Top Housing Markets to Watch” in 2021
$236k — median home price in Indianapolis in December 2023
0.5% — year-over-year increase of median home price in Indianapolis in December 2023
-7% — YOY decrease in median price of homes with 5 or more bedrooms in Indianapolis in December 2023
-2% — YOY decrease in median price of four-bedroom homes in Indianapolis in December 2023
-9.7% — month-over-month decline in housing inventory in Indianapolis in December 2023
56.7% — Number of homes that sold or were pending sale below asking price in December 2023 (N.B. most homes sold for about $14,000 below asking price).
$82k — income needed to afford a “typical, Indianapolis metro-area home” in August 2023
24% — increase in income needed to afford a typical metro-area home in 2023
64 — median number of days on market in Indianapolis in December 2023
