Single-Family Construction Slowdown Hitting Large Metro Areas Hardest
September 05, 2023, from Floor Focus FloorDaily News
Washington, DC, September 5, 2023 – Rising mortgage rates and elevated construction costs have taken a toll on the pace of single-family construction in markets across the nation, with the slowdown most pronounced in large metro areas. Multifamily market growth also fell in most areas of the country, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for Q2 2023.
“While the pace of single-family construction posted a year-to-year decline in all the small and large geographic markets measured by the HBGI between the second quarter of 2022 and 2023, we expect these levels have bottomed out,” said NAHB chairman Alicia Huey, a custom homebuilder and developer from Birmingham, Alabama. “Single-family production should register growth in the months ahead as the Federal Reserve nears the end of its tightening cycle and mortgage rates begin to stabilize.”
“The latest HBGI data continue to show a changing geography for home construction,” said NAHB chief economist Robert Dietz. “Multifamily and single-family construction have shifted to lower-density markets, with market share gains for those types of markets. This is especially true for apartment construction, which has seen a segment share decline for large metro areas as development shifts to the suburbs and exurbs.”
The HBGI is a quarterly measurement of building conditions across the country and uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural geographies.
The lowest single-family year-over-year growth rates in Q2 2023 occurred in large metro core counties, which posted a 24.8% decline. All large and small metro areas also had double-digit negative growth rates, while rural markets (defined as micro counties and non-metro counties) recorded negative growth rates in the single digits.
As single-family building levels have declined, the most pronounced drop-off has been in the combined market share of large metro areas (defined as core, suburban outlying). The total market share for these areas is 49.8%-a data series low-after falling for seven consecutive quarters prior to remaining unchanged from the first quarter of 2023.
Breaking down the seven metro and county areas, the Q2 HBGI shows the following market shares in single-family homebuilding:
* 15.8% in large metro core counties
* 24.6% in large metro suburban counties
* 9.4% in large metro outlying counties
* 28.5% in small metro core counties
* 9.9% in small metro outlying areas
* 7.2% in micro counties
* 4.5% in non-metro/micro counties
In the multifamily sector, only three markets had positive growth rates in the second quarter of 2023:
* 26.6% in non-metro/micro counties
* 15.9% in large metro outlying counties
* 3.1% in micro counties
Meanwhile, large metro core counties posted the lowest multifamily production growth rate of any market at -10.6%. This marks the third consecutive quarter where this geographic area registered the lowest growth rate.
In terms of marketshare in the multifamily arena, the large metro core counties fell from 42.2% in Q1 2020 before the pandemic hit to 37.4% in the second quarter of 2023.