Indiana’s Market

May be on a Slow, Gradual Recovery

      By Danyella Davis

December 2007 marked the beginning of an economic recession that has continued to cripple many sectors of the United States economy, according to The National Bureau of Economic Research. Economists say the current economic decline has been one of the worst in U.S. history with staggering similarities to the Great Depression. Amongst these sectors,
the real estate market has been dramatically affected. 

Surveys conducted by the Housing Predictor say more than
half of the nation’s housing markets are at a standstill. From
the real estate meltdown, dismal home property values have decreased, foreclosure properties escalated, and consumer confidence evaporated, nationally and locally.

And though Indiana is not amongst top contenders for the most troubled sectors in the country, such as California, Florida, Michigan and Nevada, the economic downturn has still managed to affect Hoosiers and take its toll on the real estate market, both residentially and commercially.

According to Indiana Association of Realtors President Rudy Koch, Indiana’s residential market sales were down 10-12 percent in 2007 and 2008, respectively. Koch says until the state has more jobs available and consumers have confidence in the market, it’s going to be a very long, slow recovery. He calls the recession and its affect on Indiana’s real estate market the “perfect storm.”

“When you look at what we have been through in the last 18 months with the bank, mortgage, auto industry meltdowns, and the Bernie Madoff scandal, this has completely destroyed consumer confidence, and the underlying issue at this moment is jobs and consumer spending,” Koch says.

If Hoosiers don’t have jobs, they are reluctant to spend, let alone invest in purchasing a new home. In fact, recent statistics show that Indiana’s unemployment numbers increased from 9.6 percent to 9.9 percent. According to the December 2009 Unemployment Report, this 0.3 percentage jump demonstrates a growth in claims after a decline of eight consecutive months.

What does this mean? Well, according to CNBC.com, 70 percent of the U.S. economy is based on personal consumption. If people are unemployed, there tends to be a reduction in consumer spending, which results in further unemployment   consequently leading to fewer residential sales and declining prices, which in turn causes home values to drop.

So how did we get here? What has been the general consensus for this real estate blooper that has caused record foreclosures in Marion County and in the surrounding counties to jump, accounting
for an overall 29 percent of sales compared
to last year’s 27 percent?

 

Jeff Douglas Fisher, director of the Benecki Center for Real Estate at the Kelly School of Business, says lenient lending practices and a lot of capital available at low interest rates turned the real estate market upside down.

“The growth of the sub-prime mortgage industry lent to people that normally wouldn’t qualify for home mortgage lending; this led to a rapid rise of home prices, and the same thing happened with commercial real estate,” Fisher says.

He notes that the real estate market began to fall apart when Hoosiers started defaulting on their sub-prime mortgages. As those default rates increased, home prices fell and some turned into foreclosure properties. In some instances, Hoosiers found themselves with home prices that fell below their loan balance.

The commercial real estate market also contributed to mortgage delinquencies. 

Dan Fasulo, managing director at Real Capital Analytics, says commercial real estate is very sensitive to the general economic environment. With corporations, retailers and apartment dwellers leasing office space, it is the renters whose health is contingent upon the overall economic health of the country. 

“We saw a massive decline in property values to the tune of around 40 percent nationally across all the major commercial property sectors,” Fasulo says.

He says from the height of the market during the first six months in 2007, commercial property transaction activity is down more than 90 percent. These numbers are on a national scale and they are proof of the massive hit the commercial market has taken.

“Anytime you have uncertainty in any marketplace, it causes transaction activity to go down because buyers and sellers can’t agree on price,” notes Fasulo.

One thing most economists and brokers do agree on is the extensive effect Indiana jobs have on its real estate market. Stan Evans, president of RSE Reality Inc, says, in general employment and job creation drives real estate.

“When you start losing jobs, offices need to constrict so there is less demand for our services as brokers, less demand for our facilities as property owners, and landlords. So, it hits on all fronts statewide,” Evans explains.

He adds that when there is not the demand and growth in numbers of square feet needed, construction stops, and there is relatively no new development or construction. Evidence of this is the December 2009 Indiana Employment Report notes the decline of 4,200 construction jobs.

Monica Sharp, residential agent of Sharp Realty LLC, has been a real estate broker for 10 years. She admits that while the general market suffered at the beginning of the economic downturn, she did relatively well.

“Ironically, my sales in 2007 and 2008 were very good. My sales dropped in 2009, but in the last six months, they have improved,” says Sharp.

According to Sharp, prior to the downturn Indiana had an advantage over other regions in the country.

“Indiana did not have unrealistic pricing on our homes, so the loss in terms of home values that our market is experiencing is less than other areas,” Sharp says. “For example, if a homeowner purchased their property four years ago for $100,000, in today’s market, that same home may only be worth $85,000 to $90,000.”

Some areas of the state have managed to maintain their values, including Evansville and much of the southern region of Indiana, says Chris Dickson, broker associate for ERA First Advantage Realty and president-elect of Evansville’s Area Association of Realtors.

Dickson says Evansville has managed to stay afloat while maintaining property values over the last year, attributing its success to the diversified business base in Evansville from Bristol Myers to General Electric and others.

Though Dickson believes that Evansville fared well compared to other counties, neither Howard nor Elkhart counties have been as fortunate.

Located in northern Indiana, Howard County had a 20 percent unemployment rate in February, the highest in the state, and not far behind was Elkhart with an 18 percent rate.

Though it may seem that some counties in Indiana have been impacted more dramatically than others, the Indiana Real Estate Market Report’s year-to-date filing in December 2009 said there is no region in the state that has been dramatically impacted more than the others. Overall, the numbers are fairly consistent.

“The number of homes on the market is probably as low as it has been in the last two years,” Dickson, the Evansville realtor, says. “Our real estate business was down in 2008 and during the first six months in 2009, we were 14.5 percent off from our average year.”

But Dickson says since the latter half of 2009, there was a tremendous upswing in this area of the state, which he thinks was largely affected by the federal tax incentives.

 

And according to the real estate market report, this has been the general consensus throughout the state.

 The report states that within the last three months of 2009, statewide there has been an increase in sales over the previous year. Though October and November findings may be attributed to the original deadline for the first-time homebuyer tax credit, there was a 4.1 percent increase in residential sales in December 2009 from the same month in 2008.

Even the commercial real estate market is beginning to show glimpses of improvement. According to Moody’s/REAL Commercial Price Index, not only was there a significant increase in transaction volume in December, but this also marked the first time in 2009 that the year-over-year transaction dollar volume growth was positive - just under five percent. 

“I don’t see any deviation that things won’t continue to improve gradually as they have been doing the last few months,” says Koch. “However, until we have some jobs available and until consumers have confidence in the market, I don’t see us jumping back completely anytime soon.”

  

LIBBY CYMAN 

    For 23 years, RE/MAX Ability Plus, the first RE/MAX franchise in Indiana, has been helping Hoosiers find the perfect home - a home that specifically matches each client’s needs. Such needs are what Libby Cyman, independent agent for the agency, caters to daily.

    Cyman says her main objective is to continue to strive to make each client happy. “I never make decisions for my client nor tell them what home to buy. I want them to make that choice, to buy the home they fall in love with,” she says.

    Bringing 10 years of real estate broker experience to the industry, Cyman hasn’t always been a real estate guru. In fact, prior to moving back to Indiana, she was in retail management in New York City.

    But after receiving the news that she was expecting her first grandchild, and of her father’s illness, she knew that even after 20 years of being away it was time to go home.

    According to Cyman, she credits her son, Jimmy Dulin, owner of RE/MAX Ability Plus offices in Carmel, Zionsville and Fishers, for her dramatic career change.

    “I trusted him completely, and he was right,” Cyman says. “Though the change was taxing, going from a management position to commission, like anything else you do you have to fully commit and just go for it.”

    It has been this type of commitment and dedication to her industry and clients that have Cyman selling an average of 22 homes a year while consistently maintaining repeat business.

    Mike Earlywine, a quality assurance representative for Elanco, and his wife, Dawn, say Cyman’s illuminating characteristics, extreme patience and eagerness to aid her clients is the No. 1 reason they’ve used Cyman for multiple transactions within the past several years. Cyman has assisted the Earlywines to sell and purchase three homes.

    “We had previously terminated a contract with a realtor due to their lack of oversight,” says Mike Earlywine. “But when we met Libby, she seemed eager to help us, and made it a personal priority to provide her services and manage our real estate needs.”

    Cyman never thinks twice about going the extra mile for her client.

    “I’m helping people to make the most important financial decision in their lives, and I don’t take that lightly,” Cyman says.
John Hamm, associate broker at RE/MAX Ability Plus, says Cyman is never motivated by dollar signs, but by creating the best living situation for her clients.

    “I have the utmost respect for her ability as a real estate agent. She treats all of the clients she works with as though they are family,” Hamm says.

    Though Cyman is a seasoned real estate agent, she admits that she still faces hardships from being a woman in the industry, and an unstable economic outlook. However, despite what others might think, she welcomes the obstacles.

    “I think you face challenges every day. That is what keeps us all going,” Cyman says. “I don’t see them as difficulties. They are just challenges that you must work through.”

    Although these recession-led challenges have been difficult for some, causing a number of realtors to opt out of the business, Cyman, who serves Marion County and its surrounding counties, has not wavered from this industry. She continues doing what she loves.

    Cyman says she’s not exempt from the pressures of the market and faced one of her most challenging years in 2008. But even during the hard times, she maintains an optimistic perspective. “When things are slow, I just use my savings,” she chuckles.

    Congruent with the sluggish but steady increase in residential sales in Indiana, Cyman says she had a terrific year in 2009 and projects much of the same in 2010. She credits some of her success to first-time homebuyers and referrals.

    “Yes my job is hard and tedious, but I love helping my clients find the right home. I love creating my own hours, and at the end of the day, I’m so fortunate to do what I do,” says Cyman.

    In an attempt to educate Hoosiers about the real estate market, Cyman offers her insight on everything from the home-buying process to obtaining a career in real estate.

What advice would you give to first
time homebuyers?

    Make sure you have absolute trust and confidence in your realtor and lender. People need to be able to pick up the phone and get questions answered. The minute the lender or the realtor doesn’t answer or take their calls, they need to get another realtor. If they don’t have those two people on their side, it’s going to be a very difficult transaction.

Any tips for finding a realtor?

    Ask friends and family who they used and who they’d refer you to. Call the realtor and speak to him or her. Is it important that your realtor be connected to the community that you want to buy in? Drive to that community, see what signs are out, and talk to those people. Go to open houses. Check on the Web to see what brokers are out there.

 Summarize the home buying process.

    First thing you should do, in my opinion, is find yourself a realtor that you can work with. Then that realtor in turn is going to help you get pre-approved for a mortgage. Make sure you have a pre-approval letter with your offer, which in turn is the strength of your offer. Make sure you talk to a bank, find out what you are approved for and then start shopping for homes once you know where you want to live. Next, you are going to write an offer. The client needs to know what kind of financing is on the contract, and have the property inspected. After that, you’re going to go to the closing table.

Explain the importance of a strong offer.

    As a buyer, your offer has strength the less contingence is tied to it. If you do not pull out a pre-approval letter, more than likely the seller is going to ask you for one since they are advising their client to accept or not accept your offer. The more inclination you are able to give that seller about your ability to close that loan, the better off you are.

How long is the process?

    If you’re buying a property from the seller, or a foreclosure owned by the bank, it usually takes 30 to 45 days. During a short sale, you could wait four-to-five months before you are approved from the bank, let alone get to the closing table.

Any words of wisdom for those interested
in the industry?

    You have to figure out what you are good at in this business and concentrate on that.

    For the last 10 years, Cyman has done just that by finding a career in the Indiana real estate market that has garnered her much success. But more important than that, Cyman has effectively managed to help hundreds of people achieve happiness and fulfill their dreams of homeownership.