Have you heard about the wild party that is going on?  It’s not one of those parties with wine, women and song.  It’s all about buying and selling, and making lots of money.  And, for some Americans, at least, it’s being done from the comfort of their own homes.

It’s called the housing market, and in some corners of the country, it’s a very rowdy affair.  In coastal California and Florida, the price of homes is going up so fast that it is turning even moderate income families into millionaires.  Last year the median sale price of existing single family homes in the Las Vegas market increased by an astounding 48.7 percent.  And in Arizona, just to name one example, condominiums and golf course homes are sometimes sold twice – for a profit – before the first spade is sunk into the ground to build them.

If that sounds like a game you want to get in on, then join the crowd.  New money pouring into the housing market has helped prop up returns for several years running, pushing prices in places like southern California up to levels that are almost three and a half times higher than the national average.  And like other markets, in other times in history, where abnormally high returns occur, many of the players are stretched to the limit – or beyond – to get in on the action.

Unfortunately for Hoosiers, there’s very little of that action in our part of the country.  In the Indianapolis metropolitan area, median home prices nudged up by an almost imperceptible 0.5 percent last year.  Of the 130 metro areas nationwide tracked by the National Association of Realtors, that paltry increase was better than only 8 other cities.

Fort Wayne and South Bend home prices stood up much better, rising by 3.6 and 2.7 percent in 2004, respectively.  But all three metro areas had less appreciation than the Midwest average of 5.4 percent, which was, in turn, lower than the median price growth of 8.3 percent experienced nationally.

That’s nothing new for us, of course.  If a time arrives when you see homes becoming more affordable in San Francisco than they are in Kokomo, pinch yourself.  You’re probably dreaming. 

Yet recent research by the Federal Reserve Bank of Chicago reveals that even among our peers in the more ordinary Midwest real estate marketplace, Indiana’s markets have been underperforming of late.

Their researchers constructed a measure of housing affordability that reflected home prices, household income growth, and mortgage rates, and tracked it over time for the largest markets in Illinois, Indiana, Michigan and Wisconsin.  Not surprisingly, overall trends have made housing less affordable in recent years, although after taking income and financing costs into account, the increase is fairly modest.

Yet, bucking the trend of rising or flat housing costs in cities like Chicago, Detroit, and Milwaukee, the trend for Indianapolis has been mostly downward.  In 2003 the average cost of servicing a home mortgage in Indianapolis fell below 10 percent of average income for the first time, and is significantly lower than both the national average and our peers in adjoining states.

But it that such a bad thing?  Low housing prices leave more money for everything else, and make the spending power of a salary offer given by an Indiana company more competitive, as every business owner will tell you.  Yet slower rates of appreciation also translate into slower wealth accumulation for households everywhere, which – to come full circle – lowers demand and reinforces slower price growth.

And what is it about Indiana that makes us so affordable, anyway?  That’s a question for another time.