Despite economic challenges and regulatory hurdles, a shortage of existing homes for sale has continued to propel single-family construction growth in all geographic regions last year. This is according to the National Association of Home Builders (NAHB) Home Building Geography Index (HGBI), which uses county-level information about single and multifamily permits to gauge housing construction growth in urban and rural geographies.
The single-family market has logged four consecutive quarters of growth across the index’s seven key geographic and high and low-density areas, NAHB said. Continued positive construction growth and potential Fed rate cuts this year could help spur new construction and normalize the pace of home building for that sector, said the association.
“Single-family construction has been holding remarkably steady, despite elevated mortgage rates and tight lending standards for construction and development loans,” said NAHB chief economist Robert Dietz. “Upside and downside risks will become clearer as the new year progresses.”
An easing regulatory environment and tax cuts could act as tailwinds for the single-family construction market, while tariffs and potentially higher deficits could drag down momentum, Dietz noted. In addition, return-to-office momentum could spur building activity in inner suburbs in the next few quarters.
During the fourth quarter, 29.1% of single-family home building took place in small metro core counties, followed by 24.7% in large metro suburban counties and 16.1% in large metro core counties. Ten percent of construction took place in small metro outlying areas, 9.4% in large metro outlying counties, 6.3% in micro counties and 4.2% in non-metro/micro counties, according to the index.
Meanwhile, multifamily construction was mostly negative across the largest segment of the market – high-density areas. Multifamily construction has contracted for seven quarters in these areas after expanding to record highs in 2022, said NAHB.
Large metro core counties accounted for 38.73% of multifamily construction during the third quarter, down 19.3% year-over-year.
The large amount of units under construction over the past year is expected to help alleviate some shelter inflation, which has remained higher than other components of inflation. Lending conditions should improve as inflation slows, which could help the multifamily market return to health, the report said.