Indianapolis Real Estate Matters

F.C. Tucker Company's Market Watch.  The following article is compiled by Jim Litten, President of the F.C. Tucker Company. 

Indianapolis - Residential real estate in central Indiana slowed in August as the peak buying season is coming to an end. Pended home sales in August were down 14.2 percent when compared to August 2006. Year-to-date pended home sales were down 6.1 percent when compared to the same time period in 2006, according to data compiled by F.C. Tucker Company.

Boone County was the only county to record an increase in pended sales from August 2006 with a 2.4 percent increase. Madison County showed the largest decrease in pended sales compared to last year, with a 25.7 percent decrease.

Year to date, Shelby County saw a 1.4 percent increase in pended activity, while Boone County experienced a nearly 1 percent increase. Hendricks County experienced the largest decrease in pended home sales with a 9.6 percent decrease for the year.

“In July we saw a slight upturn in activity and pended sales which made us optimistic for August. August’s numbers show we are still in a recovery time period and continue to experience a buyers’ market,” said H. James Litten, president of F.C. Tucker Company’s Residential Real Estate Services Division.

Pended single-family and condominium home sales

According to the National Association of Realtors, the pended home sales index for the Midwest dropped 13.1 percent in July and is 15.8 percent below 2006.*

Available inventory in central Indiana continues to rise, up 6.3 percent from 2006. Four of the nine counties saw the inventory of available homes drop in August. Madison County experienced the largest drop with 10.9 percent less inventory than August 2006. Marion County saw the largest increase in available homes with an 11.2 percent increase from August 2006.

Active listings, August 2006 vs. August 2007

“As we enter fall, home buying activity will likely continue to slow and available inventory will drop as fewer home owners decide to put their homes on the market,” Litten said. “We anticipate the landscape to continue to level off and the return to a more equal market in 2008.”

Editor’s Note: All statistics were compiled by F.C. Tucker Company from a report drawn from MIBOR statistics on September 10, 2007.

*The pended home sales index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Property Tax Update - Indiana

As you know, several groups are looking at alternatives to the current property tax system. Having been to 3 briefings and sitting on 2 Task Forces, I wanted to summarize what I have heard and/or observed. This admittedly will include my editorial comments.

While many groups are open minded and creative, there clearly are others who are advocating the status quo. I have heard on more than one occasion and from at least one legislator and others that many legislators are focused only on the homeowner and homestead credits since these homeowners represent the vast majority of those who vote. In other words, please the homeowner and I will be re-elected regardless of the impact on non-homeowners and the impact on residential and commercial real estate investors – and regardless of doing what is right/fair.

Another large group continues to focus on the status quo – mostly assuming government spending will continue to grow and expand. You most likely know the Governor has appointed a bi-partisan efficiency task force in an effort to curtail this “business as usual”/run away spending.

Without attempting to totally bore you, here are some interesting facts:

1. One-half of the State’s revenue already is returned to local government to reduce property taxes by $2.5 billion, including
1. 3-cents of the 6-cent sales tax
2. 20% of personal income tax collected

These dollars are sent back based upon budgets and assessed values, resulting in

monies being collected from one county being used to subsidize other counties.

2. In Marion County, 40.5% of the real estate in Center Township is tax exempt, pushing burden on the other property owners – a large piece of this is state government buildings. 15.2% of real estate in Washington Township is tax exempt.
3. The “fair market value system” went into effect in 2002, pay 2003. Many townships never implemented it, others did it incorrectly. Both of these issues compounded the problem with 2006, payable 2007.
4. The current assessed values are based upon 2005 values – 3 years old by 2008.
5. The net property tax levy for 2007 is $6.2 billion. One study reflects that to reduce this by 50%, sales tax would have to increase from 6% to 9.5% and individual income taxes from 3.4% to 6%.

These estimates fail to consider reducing the $6.2 billion or other alternative taxes such as:

1. eliminate tax exempt properties, or require a payment in lieu of taxes for services rendered. (Exempt properties are not based upon ability to pay, but rather on the “classification” of the owner, e.g. credit unions, “educational” facilities, government buildings, religious facilities, etc.)
2. a sales tax on services (no exceptions – if Indiana continues to emphasize a service based economy, most “business” growth will come here.)
3. a real estate transfer tax (only effects buyers and sellers – not all users of services)
4. employment taxes based upon where one works, not where on lives
5. others

In order to reduce dependency on property taxes, a replacement tax or taxes are

needed. Getting consensus on the trade-offs is difficult.

6. The 4 basic groups from which revenue can be generated are:
1. Consumption (sales)
2. Income
3. Property
4. Gaming

One goal would be to find balance among the first 3.

7. It would seem to be fair to tax all citizens of Indiana for certain services since each citizen benefits from those services, not just property owners. For example, all citizens are entitled to free K-12 public education, but school funding is only paid for by property owners. (As many of you know first hand as owners of investment properties, the last 2 increases in property taxes have been absorbed by the landlord and not passed on to the tenant). The same can be argued for many other services dependent on property taxes for support, such as police and fire – should these safety services fail to respond to calls for assistance from a credit union that has been robbed or a church fire since the credit union and church exempt from real estate taxes? Tax all users, not just non-exempt property owners.

Whether consensus can be reached by any of these groups remains uncertain, but given the current fiasco, this is the best time to make systemic changes to an archaic system and to spread the costs among all users, not just property owners. Stay informed and let your legislators know how you feel and/or are affected. None stand for re-election until the May, 2008 primaries, but they need to know the concerns are real and are not going away – it is time to act.

September 7, 2007