Single-Family Home Construction Sees Turnaround in Urban Markets, Multifamily Declines in Coastal Areas
The housing construction landscape is shifting, with recent data from the National Association of Home Builders (NAHB) indicating a gradual turnaround in single-family home construction, particularly in larger urban metro markets. The fourth quarter of 2023 saw a modest rebound in these areas, driven by moderating mortgage rates and a persistent shortage of existing homes on the market. This shift comes despite a backdrop of broad declines across various market segments earlier in the year.
According to the NAHB Home Building Geography Index (HBGI) for Q4 2023, the improvement in single-family construction was notable in smaller metro outlying counties, which experienced a growth rate of 0.4%. “While all urban, rural, metro, and county area single-family markets saw double-digit production declines in the third quarter, construction began to turn the corner in the final quarter of the year,” explained NAHB Chairman Carl Harris. He attributes this positive trend to the easing of interest rates and a mortgage “lock-in” effect, where homeowners with low mortgage rates are hesitant to sell, thus reducing existing home inventory.
NAHB Chief Economist Robert Dietz also highlighted the recovery in single-family construction, contrasting it with the multifamily sector. “New multifamily building in large, metro suburban counties posted a negative growth rate of 20% in the fourth quarter, reflecting the tail end of an apartment building boom that reached its highest level in more than 50 years,” Dietz said. This downturn in multifamily construction was most acute in large metro areas, whereas more rural and outlying areas showed stronger performance.
The HBGI, a quarterly measurement using county-level data on housing permits, shows that single-family home building market shares varied significantly across different types of metro and county areas in the fourth quarter:
– Large metro core counties: 16.0%
– Large metro suburban counties: 25.0%
– Large metro outlying counties: 9.6%
– Small metro core counties: 28.7%
– Small metro outlying areas: 10.0%
– Micro counties: 6.5%
– Non-metro/micro counties: 4.2%
In terms of geography, approximately 25% of single-family construction consistently occurs in U.S. coastal counties, with these areas accounting for about one-third of new multifamily building. The market share for coastal counties in single-family construction has remained remarkably steady since 2014, with a slight decrease in multifamily construction market share in coastal regions from 36.6% in 2014 to 30.3% in 2023.
This ongoing shift in multifamily building toward non-coastal areas, particularly since the Covid pandemic, reflects broader trends in housing demand and development, with many people moving away from dense urban centers to more spacious suburban and rural settings.
As we move into 2024, the housing construction industry appears poised for continued adaptation, responding to shifts in demographic preferences, economic conditions, and the availability of construction resources. The recovery in single-family home building, especially in metro areas, is a promising sign for potential homebuyers looking for new opportunities in a challenging market.
