Jim Kouns

A group of developers from Cincinnatti plans to turn the former Roberts Hotel in downtown Muncie, IN into an 83 apartment complex for senior citizens. A recent article in the Muncie Star-Press announced that the IN Housing Authority has granted $1.33 million dollars in tax credits and an additional $250,000 in other financing for this project. According to the article, the developers claimed this was a major step in financing the $16 million dollar project. As of now, neither the city or county appears to have committed any additional funds.

A couple of years ago, the owner at that time decided to convert the hotel into up-scale condos. After nearly a year of interior destruction and few takers, the project died in a wave of litigation. The losses, however, were to the investors and to the deposits of a few potential condo buyers. I don't believe any public money was involved.

In a way it seems like "deja vu all over again" only this time there will be a significant investment of public funds. I can't help wondering if it's a multi-million dollar boondoggle or if it will be an economic boost to downtown Muncie, IN. I suspect the former, and here's why. The developers say they’re going to create 83 apartments for sr. citizens yet the low-maintenance segment of the real estate market is one of our poorest performers. By low maintenance. I mean condos, villas, duplexes and patio homes that should be very attractive to our aging population. As of today there are 48 such units for sale in Del. Co. ranging from a modest $64,500 up to a high of $239,900 with 16 units for sale in Halteman Villas alone. Sales over the past 7 years have been flat with the exception of the height of our building boom in 2006 & 2007 and based on average sales per year, there is currently over a 12 month inventory, compared to total residential market inventory of just over 7 months. I have no way of checking on occupancy in existing apartment homes (not the nursing or assisted living portions) like Westminster Village and Ash Grove but I sense they are not at capacity.

I think there are several factors contributing to this. One is that people are healthy longer than ever before and are able to stay in their existing homes. Second, we have a large supply of one-story and ranch-style homes that are easier for older people to live in and maintain. Third, a high percentage of the folks in this category have their homes paid for and are hesitant to move to a product where there are rents and maintenance fees that they don’t control.

I think all these factors apply to the proposed Roberts project. In addition, I’ve heard no plans for any kind of sheltered parking and I can’t envision a lot of older folks battling inclement weather to get to their cars and then having to clear them of snow and or ice once they get there. Many will go to warm places in the winter, but many do not and we can have nasty weather in all seasons. Garages are not just a convenience, they also protect from weather deterioration and damage to the vehicles. I hope someone is looking at this project from the taxpayer’s standpoint as there seems to be a lot of public money involved.

We're just into 2012 and already there's talk from Washington of a new program to "fix" the housing problem, with today's papers carrying a story about a modification of the Home Affordable Modification Act. While I've read conflicting reports its contents, it seems to focus on a refinancing plan to help people with good credit and current payments who are upside down on their current mortgages. Without getting into the specifics of the HAPA at this time, I couldn't help wondering how the previous plans had affected the housing market in Muncie and Delaware County, IN.

The previous federal stimulus programs were as follows.

2008-The Economic Stimulus Act of 2008- First-time homebuyers were offered a tax credit of up to $7500 as a no-interest loan to be repaid at $500/yr for 15 yrs.

2009-The American Recovery and Reinvestment Act of 2009 (ARRA)- First-time home buyers were offered a tax credit of up to $8,000 which did not have to be repaid. Non-first-time buyers were offered up to $6,500.

2010- ARRA was extended to buyers under contract by May 31 and closed by Aug. 31.

Looking at sales and prices from 2006 -2011, I saw no significant effect on our market. Here's the data.

Except for a property tax issue in Aug. of 2007, the sales and price increses reflect the normal seasonal cycle of our business. I'd be interested in hearing what effect the stimulus programs had on your markets. Maybe the 2012 plan will have positive results, but I doubt it. The only good thing is that given the current political climate, there's little chance anything will be passed.

2011was a challenge for the real estate market in Muncie and Delaware Co., IN. Terrible weather depressed business in the first quarter of the year. Second quarter results were also quite disappointing with nearly every measurement at or near all-time lows. However, there was a turn-around in the third quarter with overall sales better than the same period in the previous year for the first time in 12 months and we ended the year with 836 homes sold, down 6% from 2010.

Repos remained steady at about 29% of sales, averaging around $33,000 each. 80% of the repos were sold for cash indicating they are being bought by investors. Since most of these units are below $40,000 threshold being required by lenders, buyers are having difficulty obtaining financing unless they have large downpayments. This will further delay the absorbtion and depress the prices of this segment of the market. On the plus side, this will mean continued opportunites for investors with cash.

The overall inventory of homes for sale in Del. Co. remains low for this time of year and at 2011 sales levels there is just over 6 months supply at $75,000 and below ranging up to a 13.5 month supply of homes over $300,000. Altogether, we have just under an 8 month supply. More high-priced homes were sold in 2011 and overall sale prices moved up 1%, the first annual increase since 2008.

2012 looks to be a little brighter year. Interest rates remain at all-time lows and seem likely to continue at present levels at least throughout the first half. There is a continued lack of new construction so existing inventory should be absorbed at a greater rate and prices should hold. The property tax caps enacted by the legislature three years ago seem to be working and assessment values appear to be following sale prices as intended. We still have a "lack of confidence" mode and buyers will remain hesitant to commit until there is an increase in positive economic news, both locally and nationally. 2012 is a state and national election year with all the mixed messages that creates, so I doubt there will be any confidence-builders coming from the public sector. For 2012 in general, I expect unit sales here in our area to increase around 8% and for prices to gain modestly ending the year up 1%.

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Muncie and Delaware Co, IN is a small market and I do both residential and commercial brokerage. On the commercial side we're usually dealing with business professionals and attorneys who have broad experience in these transactions. "Due Dilligance" is done prior to entering into the process of negotiating an offer and then there is an additional period after an offer is accepted. This gives the buyer time to investigate details such as environmental issues, inspections, zoning, governmental approvals, permits and the like.

In residential transactions the buyers look at a number of properties and make an offer on the one they like best. Their "Due Diligence" usually involves personal viewing, investigation of schools, and a CMA prior to making an offer and then finalizing financing and inspections after the offer is accepted. Since most buyers are not seasoned professionals, they can overlook some details that can have a big effect on their quality of life in the new home.

Residential buyers rely on their agents, Sellers' Disclosures and their home inspector for discovering problems, but agents must be careful about making neighborhood statements because of Fair Housing and possible lack of first-hand knowledge. Disclosures can be misleading, even if unintentional, and inspections have a host of disclaimers covering areas that are impossible to check. There are legal remedies but these can be costly and lengthy. What about intangibles? You can go on line and check for sex offenders, but those searches may not be current and may have unacceptable provisions like a 200 ft. tether when the next house is only 100 ft away. Even in upscale subdivisions, what's the neighborhood like at different times of the day and night? Does a nearby neighbor have an annoying hobby or barking dogs?

I could list many more possibilities, but the point is to have home buyers learn from commercial transactions and go further with their "Due Diligence." Visit the prospective neighborhood at various times of the day. Park along the street for 20-30 minutes each time and see what goes on. Knock on the doors of nearby neighbors and talk with them about the neighborhood. What do they like? What don't they like? Most will be open and honest and you may start a valuable new friendship. Real estate is not liquid and when buyers become sellers it's a whole different ball game so a little more "Due Dilligence" can help insure a happy outcome in the purchase of a new home.

As we come to the end of 2011 I want to look forward to 2012 and make some predictions about the real estate market in Muncie and Delaware Co, IN. 2011 was a very difficult year and when the final tallies are in, we're probably going to see unit sales down about 10% from 2010 and average sale prices about equal to 2010.The good news is that most of the problems were in the first half of the year and that 5 of the last six months have been better than their 2010 counterparts.

Looking ahead, I think 2012 will remain relatively flat with some improvements in the second half. There are more optomistic predictions beginning to appear in the media, but many of those predictions are based on improvements from very dismal prior years. If you look at the formerly "hotmarkets" like CA, NV and FL, many areas lost 50% or more of their previous values so it's not to hard to show improvements. In Muncie and Del. Co. our average sale price only dropped about 10% from 2006 levels and has been increasing over the past 6 months.

Market conditions are excellent, with low interest rates and attractive prices favoring buyers and low inventories favoring sellers. Our biggest problem remains the lack of confidence generated by all the negative financial news and especially by the lack of policy direction from Washington. Added to that is the uncertainty resulting from an presidential election year. Locally, we have a new and untried city administration and a governor election coming up. When faced with uncertainty people put off major financial decisions like home purchases.

On balance, I think our unit sales will rise in 2012 to somewhere in the 900 range, up from just over 800 this year.

Interest rates will rise slightly as the national economy improves, but will still remain below 5%.

Average sale prices will rise 8-10% as a result of low inventory and increased buyer activity.

New construction will remain slow but should improve from the very low levels of the past few years.

Best wishes to everone for a prosperous 2012.