David Hoppe

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:: Forever blowing bubbles

One more thing not to worry about

By David Hoppe

Here's the latest strategy to combat the brain drain: make the value of a house in Indianapolis less than it would be in almost any other urban market in the United States . According to the Office of Federal Housing Enterprise Oversight, the value of a home in Indianapolis grew at a rate of 19 percent over the past five years, which was almost the slowest rate of growth in the nation - second only to Memphis , TN.

The average rate of growth over the past five years in America 's top 50 real estate markets was 56 percent.

But don't worry: this is supposed to be good news. Last week, the Star ran a front page story under the headline, "What Bubble?" that went on to say that the chance of housing prices here declining in the next two years is 5.9 percent. While homeowners in the rest of the country, especially on those decadent, blue-state coasts, are perched on a real estate bubble that seems likely to burst and send their inflated home values plummeting, we here in Indianapolis can rest assured that our property values are comparatively solid. That is, they have nowhere to go but up.

Of course, in the Hoosier scheme of things, this is just one more example of how a lemon is merely the raw material for lemonade. Thank heaven we're not Boston , where appreciation over the past five years has been 76.6 percent, but the risk of falling home prices over the next two years is 55.3 percent. And aren't you glad you're not living in San Jose , where the value of your home has gone up 52.4 percent? The risk of its price falling in the next two years is 51.3 percent.

The Star talked to a guy who moved here from San Francisco "for employment reasons." He traded his 2,300 square-foot house in the Bay Area for a 3,000 square-foot home and 22 acres of land . He'll be able to start his own suburb if he wants to.

Don't get me wrong: I'm glad that housing here isn't totally out-of-sight the way it is in some markets where teachers and police officers can't afford to live in the communities where they work. If you want a definition of obscenity, that's a place to start. But other markets have seen their housing appreciate significantly without the rampant inflation - and risk - associated with the coasts. Five-year home appreciation in Chicago has been 45.1 percent, but the risk of prices falling there in the next two years is just 9.2 percent. Appreciation in Pittsburgh over the same period has been 31.1 percent and the risk of a decline in the next two years is less than it is here, just 5.6 percent.

I'm a homeowner myself. Like most people I know, my house is my biggest investment and my biggest asset. I'm glad to hear that I don't have much to fear from something that hasn't happened yet, the bursting of that so-called bubble. But you can't tell me that my house's slow rate of appreciation compared to other markets is cause for celebration.

That reminds me of what Mitch Daniels had to say about Indiana just before he got on a plane to try and drum up business in Taiwan and Japan . He said he thought people over there would be attracted to Indiana because it was affordable and had a central location. In other words, all we've got going for us is an accident of geography and the fact that things here have been so depressed for such a long time that labor and property are really cheap.

" Indianapolis isn't land-locked like some of the cities on the coasts are." Jerry Conover, director of the Indiana Business Research Center , was quoted in the Star , thereby becoming the first adult to ever make this assertion. Of course, Conover wasn't talking about navigable waterways. He was talking about how sprawl works to keep housing prices here "affordable." Conover said: "Here, there is farm after farm being turned into development."

So we have an abundance of housing supply in an " Indianapolis " that includes Brown, Boone, Hamilton , Hancock, Hendricks, Johnson, Morgan, Putnam and Shelby Counties . But, it seems, low demand - in spite of low prices. Let's face it, houses (and more besides) have higher value in places like Boston , Chicago and even Pittsburgh because people are willing to pay to live in those places. And they're willing to pay because of what those places have to offer.

"As long as Hoosiers are planning to stay in Indiana , which most Hoosiers do," said Conover in the Star, "Home prices in other areas might not make a lot of difference to homeowners here. But if they move elsewhere, they'll find they can get little house for the money."

When I signed my mortgage it didn't occur to me that I was signing away the opportunity to trade up to any other town, save Memphis , in America 's top 50 markets. What did I say about nipping that brain drain? Buying a home in Indianapolis may be easy, but the way our market works, getting out is hard.