Mortgage rates are still relatively high and existing-home inventory remains low, creating a favorable environment for homebuilders.
The National Association of Home Builders (NAHB) recently released its Home Building Geography Index (HBGI) for the second quarter of 2024, showing growth in building permits across all regions of the country.
NAHB Chairman Carl Harris stated, “Despite the current interest rate environment, single-family construction is progressing well, especially in high density areas, outpacing the previous year’s pace.”
The HBGI utilizes single-family home permit data to assess construction growth in seven geographic regions.
Notably, single-family permitting saw significant growth in “large metro core counties,” with a 17.6% increase year-over-year in the four-quarter moving average. Suburban counties in large metros also saw a 17% increase, while core counties of small metros experienced a 16.7% rise. “Micro” counties had the slowest growth at 3.4%.
Builders have been focusing on spec building, constructing homes without pre-existing buyers, leading to an increase in for-sale inventory. Analysts predict that builders will continue to hold more spec inventory, offering aggressive discounts if needed.
The positive data from NAHB is complemented by a strong report from the U.S. Census Bureau, indicating a 10.6% increase in new-home sales in July compared to June and a 5.6% year-over-year growth.
The HBGI also showed a 17.5% growth in areas with prevalent second homes, defined as counties where at least 10.3% of housing stock consists of second homes.
While single-family construction flourishes, multifamily construction faces challenges with decreasing permit rates in all regions due to financing limitations and high inventory levels, among other issues.
Harris explained, “Multifamily construction is slowing down due to higher rates, labor shortages, and supply chain disruptions in building materials.”