Declines for Custom Home Building

2024-02-20T08:18:40-06:00

By Robert Dietz on February 20, 2024 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates a slowing market for custom home building after a recent gain in market share. There were 44,000 total custom building starts during the fourth quarter of 2023. This marks a more than 2% decline compared to the fourth quarter of 2022, consistent with weakness experienced throughout the home building sector. Over the last four quarters, custom housing starts totaled 178,000 homes, a nearly 13% decline compared to the prior four quarter total (204,000). After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until recently. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has fallen back to just under 19%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009. Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction. ‹ Strong Quarter for Single-Family Built-for-Rent ConstructionTags: custom, custom building, economics, home building, housing, single-family

Declines for Custom Home Building2024-02-20T08:18:40-06:00

Strong Quarter for Single-Family Built-for-Rent Construction

2024-02-19T08:17:04-06:00

Single-family built-for-rent construction accelerated at the end of 2023, as builders sought to add additional rental housing in a market facing elevated mortgage interest rates. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 22,000 single-family built-for-rent (SFBFR) starts during the fourth quarter of 2023. This is more than 29% higher than the fourth quarter of 2022. Over the last four quarters, 75,000 such homes began construction, which is almost a 9% increase compared to the 69,000 estimated SFBFR starts in the four quarter prior to that period. The SFBFR market is a source of inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. However, investor demand for single-family homes, both existing and new, has cooled with higher interest rates. Nonetheless, builders continue to build smaller projects of built-for-rent homes for their own operation. Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (7.9%) is nonetheless higher than the historical average of 2.7% (1992-2012). Importantly, as measured for this analysis, the estimates noted above only include homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another five percent of single-family starts based on industry surveys. The Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging more than 5% over recent quarters. Some, but certainly not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on a single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring. Nonetheless, demand by investors for single-family rental units, new and existing, has cooled in recent quarters as financial conditions have tightened. This will act to lower the share of homes sold to investors. With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share even as the sector cools in the quarters ahead. ‹ Residential Building Material Price Increase to Start 2024Tags: economics, home building, housing, SFBFR, single-family

Strong Quarter for Single-Family Built-for-Rent Construction2024-02-19T08:17:04-06:00

Single-Family and Multifamily Permits Down in 2023

2024-02-14T09:14:59-06:00

Over 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 909,227. On a year-over-year (YoY) basis, this is 6.5% below the December 2022 level of 972,180. Year-to-date ending in December, single-family permits declined in all four regions. The range of permit decline spanned 5.0% in the South to 9.7% in the West. The Northeast declined by 7.1% and the Midwest declined by 7.6% in single-family permits during this time. For multifamily permits, the percentage decline spanned 14.6% in the South region to 28.5% in the Northeast. The West declined by 15.2% and the Midwest declined by 21.1% in multifamily permits during this time. Between December 2022 YTD and December 2023 YTD, except for Hawaii (+16.7%), Maryland (+8.7%), Nevada (+5.8%), West Virginia (+4.7%), Virginia (0.8%), North Carolina (0.7%), and Alabama (0.0%), all other states and the District of Columbia reported declines in single-family permits. The range of declines spanned 0.1% in Idaho to 59.4% in the District of Columbia. The ten states issuing the highest number of single-family permits combined accounted for 63.9% of the total single-family permits issued. Texas, the state with the highest number of single-family permits issued, declined 6.5% in the past 12 months; The succeeding highest state, Florida saw a decline of 6.9% while the next highest, North Carolina, posted an increase of 0.7%. For 2023, the total number of multifamily permits issued nationwide reached 561,369. This is 17.4% below the December 2022 level of 679,898. Between December 2022 YTD and December 2023 YTD, 15 states recorded growth in multifamily permits, while 35 states and the District of Columbia recorded a decline. Delaware (+96.3%) led the way with a sharp rise in multifamily permits from 562 to 1,103, while Wyoming had the greatest decline of 74.2% from 1,044 to 269. The ten states issuing the highest number of multifamily permits combined accounted for 63.2% of the multifamily permits issued. Over the last 12 months, Texas, the state with the highest number of multifamily permits issued, experienced a decline of 24.0%. Following closely, the second-highest state in multifamily permits, Florida, saw a decline of 12.4%. California, the third largest multifamily issuing state, declined by 3.4%. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. Top 10 Largest Single-Family Markets Dec-23 (# of units YTD, NSA) YTD % Change (compared to Dec-22) Houston-The Woodlands-Sugar Land, TX                                         50,014 5% Dallas-Fort Worth-Arlington, TX                                         42,543 -2% Phoenix-Mesa-Scottsdale, AZ                                         24,810 -8% Atlanta-Sandy Springs-Roswell, GA                                         23,972 -9% Charlotte-Concord-Gastonia, NC-SC                                         19,088 1% Orlando-Kissimmee-Sanford, FL                                         17,035 5% Austin-Round Rock, TX                                         16,738 -22% Tampa-St. Petersburg-Clearwater, FL                                         14,827 -5% Nashville-Davidson–Murfreesboro–Franklin, TN                                         14,169 -7% Jacksonville, FL                                         12,402 -14% For multifamily permits, below are the top ten local areas that issued the highest number of permits.  Top 10 Largest Multifamily Markets Dec-23 (# of units YTD, NSA) YTD % Change (compared to Dec-22) New York-Newark-Jersey City, NY-NJ-PA                                         28,226 -39% Dallas-Fort Worth-Arlington, TX                                         24,014 -29% Austin-Round Rock, TX                                         21,861 -4% Phoenix-Mesa-Scottsdale, AZ                                         20,827 1% Los Angeles-Long Beach-Anaheim, CA                                         18,881 -13% Houston-The Woodlands-Sugar Land, TX                                         18,322 -35% Miami-Fort Lauderdale-West Palm Beach, FL                                         15,947 21% Atlanta-Sandy Springs-Roswell, GA                                         14,617 -30% Washington-Arlington-Alexandria, DC-VA-MD-WV                                         12,189 -41% Denver-Aurora-Lakewood, CO                                         11,651 -13% ‹ Inflation Remains Sticky due to Persistent Housing CostsTags: home building, multifamily, single-family, state and local markets, state permits

Single-Family and Multifamily Permits Down in 20232024-02-14T09:14:59-06:00

Which Local Markets Track National Trends the Most: Correlations of Metro Single-Family Permits to U.S. Data

2024-02-09T09:27:02-06:00

New NAHB analysis of single-family permits shows which Metropolitan Statistical Areas (MSAs) have been trending in the same direction as U.S. single-family permits. Using single-family permits from 2012-2022, five-year and ten-year correlations are used to create an association index for each MSA that describes how similar, or dissimilar, particular MSAs are when compared to the national trend. The post focuses on single-family permits, a similar analysis of multifamily permits will be posted in the coming weeks. NAHB’s purpose in developing this set of statistics, which will be updated annually, is to give local industry leaders a statistic to describe whether or not their local market typically matches overall macroeconomic conditions. And as a set of statistics, the MAI provides forecasters another variable to scale and distribute local market forecasts for home building. The Market Association Index (MAI) is created by using the average of the five-year correlation and ten-year correlations between the U.S. single-family permit level and the respective MSA. With this method, the five-year trend is weighted more than the ten-year trend because the five years overlap within both variables. The MAI correlation coefficient that is calculated for both years can range from a negative one to a positive one and measures the strength of the linear relationship between the respective MSA and the U.S. A correlation of negative one would mean there is a perfect inverse linear relationship between the two geographies, while zero means no linear relationship and a positive one represents a perfect positive linear relationship. After taking the average of the five- and ten-year correlations, the MSA percentile rank of correlation is determined amongst all MSA. This way, the MAI provides simple reading of which metro areas have single-family home building trends that look the most like national dynamics in terms of growth and contraction. The scatter plots above illustrate MSAs on opposite ends of the distribution of correlations, where Raleigh, North Carolina has the highest degree of association with the national trend while Dubuque, Iowa had the most negative correlation with respect to the national trend. In the middle of the distribution, the average correlation for Anchorage, Alaska was zero, with the graph showing no linear relationship between the two variables. Of the 383 metro areas, the average correlation is 0.495. In total, 314 MSAs had a correlation greater than a zero and 69 MSAs had less than zero. This is expected as historically in aggregate MSAs have on average, accounted for 90.4% of all single-family permits in the U.S. between 2012 and 2022. Therefore, a majority of the MSAs should follow the national trend. The map below displays the percentile rank of each MSA. Hovering over a particular MSA will display its percentile rank. MSAs in the southeast tended to have a much higher percentile rank when it comes to the MAI. MSAs in the northeast were more likely to have a lower percentile rank compared to other regions. The ten highest ranked MSAs trending to the national level are below. The ten lowest association index MSAs which are least likely to follow the national trend are below. The full single-family MAI file for 2022 can be downloaded here. ‹ Housing Affordability Remains Near Historic Low LevelTags: building permits, MAI, MSA, single-family, single-family construction

Which Local Markets Track National Trends the Most: Correlations of Metro Single-Family Permits to U.S. Data2024-02-09T09:27:02-06:00

Builders’ Top Challenges for 2024

2024-01-24T12:17:19-06:00

According to the January 2024 survey for the NAHB/Wells Fargo Housing Market Index, high interest rates were a significant issue for 90% of builders in 2023, and 77% expect them to be a problem in 2024. The second most widespread problem in 2023 was rising inflation in US Economy, cited by 83% of builders, with 52% expecting it to be a problem in 2024. The cost and availability of labor was a significant problem to only 13% of builders in 2011. That share has increased significantly over the years, peaking at 87% in 2019.  Due to the pandemic, fewer builders reported this problem in 2020 (65%), but the share rose again in 2021 (82%) and 2022 (85%).  Not surprisingly, given the increase in construction job openings, the share eased slightly in 2023 to 74%.  A similar 75% expect the cost and availability of labor to remain a significant issue in 2024.In 2011, building materials prices was a significant problem to 33% of builders.  The share has fluctuated over the years, from a low of 42% in 2015 to a peak of 96% in 2020, 2021, and 2022.  The slowdown in single-family construction in 2023 made this less of a problem for builders last year, as ‘only’ 63% reported it as a significant issue.  Fewer expect it to face it in 2024 (58%). Compared to the supply-side problems of materials and labor, problems attracting buyers have not been as widespread, but builders expect many of them to become more of a problem in 2024. Buyers expecting prices or interest rates to decline if they wait was a significant problem for 71% of builders in 2023, with 77% expecting it to be an issue in 2024.  Negative media reports making buyers cautious was reported as a significant issue by 56% of builders in 2023, and 54% expect this problem in 2024. Concern about employment/economic situation was another buyer issue for 48% of builders in 2023, but 55% anticipate this issue in 2024. Gridlock/uncertainty in Washington making buyers cautious was a significant problem for 42% of builders in 2023, but a larger 54% expect it to be a problem in 2024.  Less than 30% of builders experienced problems in 2023 with buyers being unable to sell existing homes, potential buyers putting off purchase due to student debt, and competition from distressed sales/foreclosures. For additional details, including a complete history for each reported and expected problem listed in the survey, please consult the full survey report. ‹ Employment Situation in December: State-Level AnalysisTags: builders, Building Materials, construction, hmi, home building, housing trends report, inflation, interest rates, labor, single-family

Builders’ Top Challenges for 20242024-01-24T12:17:19-06:00

Immigrant Share in Construction Highest on Record

2023-12-18T08:16:51-06:00

After years of being unable to ratchet up the number of new workers coming from outside the U.S. to help with persistent labor shortages, the construction industry reversed this trend and managed to attract over 90,000 new immigrant workers, levels unseen since the housing boom of 2005-2006. Native-born workers remain reluctant and continue joining the industry at a slower rate, with their total count remaining over half a million below the record levels of the housing boom of the mid-2000s. As a result, the share of immigrants in construction reached a new historic high of 24.7%, according to the most recent 2022 American Community Survey (ACS). In construction trades, the share of immigrants is even higher, exceeding 31%. The latest ACS data show that 11.8 million workers, including self-employed and temporarily unemployed, comprised the construction workforce in 2022. Out of these, 8.9 million were native-born, and 2.9 million were foreign-born, the highest number of immigrant workers in construction ever recorded by the ACS. The construction labor force, including both native- and foreign-born workers, now exceeds the pre-pandemic levels but remains smaller than during the housing boom of the mid-2000s. As the chart above illustrates, it is the native-born workers that remain missing. Compared to the peak employment levels of 2006, construction is short 525,000 native-born workers and new immigrants only partially close the gap. Due to the data collection issues during the early pandemic lockdown stages, we do not have reliable estimates for 2020 and omit these in the charts. Typically, the annual flow of new immigrant workers into construction is highly responsive to the changing labor demand. The number of newly arrived immigrants in construction rises rapidly when housing starts are rising and declines precipitously when the housing industry is contracting. The response of immigration is normally quite rapid, occurring in the same year as a change in the single-family construction activity. Statistically, the link is captured by high correlation between the annual flow of new immigrants into construction and measures of new home construction, especially new single-family starts.  This connection broke in 2017 when NAHB’s estimates showed a surprising drop in the number of new immigrants in construction despite steady gains in housing starts. This link was severed further by pandemic-triggered lockdowns and restrictions on travel and border crossings, drastically interrupting the flow of new immigrant workers. The most recent data show that 2021 marked a new milestone with the flow of immigrants into construction returning to typical levels driven by home building activity. The overall rising trend as well as the noticeable uptick in the share of immigrants since 2021, are consistent with but slightly greater in construction compared to the changes observed in the rest of the US economy. Excluding construction, where the reliance on foreign-born workers is greater, the share of immigrants in the US labor force increased from just over 14% in 2004 to 16.6% in 2018, the highest level recorded by the ACS. The share of immigrants stabilized at these record high levels with no further increases in the post-pandemic market, returning to 16.6% in 2022. ‹ Single-Family Permits Down in October 2023Tags: economics, home building, housing, immigrant workers, immigrants in construction, labor shortages, single family starts, single-family

Immigrant Share in Construction Highest on Record2023-12-18T08:16:51-06:00

Single-Family Permits Down in October 2023

2023-12-15T09:19:06-06:00

Over the first ten months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 773,526. On a year-over-year (YoY) basis, this is 10.7% below the October 2022 level of 865,815. Year-to-date ending in October, single-family permits declined in all four regions. The range of permit decline spanned 8.6% in the Northeast to 16.1% in the West. The South declined by 8.7% and the Midwest declined by 11.2% in single-family permits during this time. For multifamily permits, the percentage decline spanned 12.0% in the South region to 26.0% in the Northeast. The West declined by 16.4% and the Midwest declined by 22.1% in multifamily permits during this time. Between October 2022 YTD and October 2023 YTD, except for Hawaii (+18.6%) and Maryland (+7.9%), all the other states and the District of Columbia reported declines in single-family permits. The range of declines spanned 1.6% in New Hampshire to 47.8% in the District of Columbia. The ten states issuing the highest number of single-family permits combined accounted for 63.8% of the total single-family permits issued. Texas, the state with the highest number of single-family permits issued, declined 11.0% in the past 12 months while the next two highest states, Florida and North Carolina declined by 10.2% and 2.9% respectively. Year-to-date, ending in October, the total number of multifamily permits issued nationwide reached 481,612. This is 16.3% below the October 2022 level of 575,671. Between October 2022 YTD and October 2023 YTD, 12 states recorded growth, while 38 states and the District of Columbia recorded a decline in multifamily permits. Delaware (+64.9%) led the way with a sharp rise in multifamily permits from 373 to 615 while Wyoming had the largest decline of 80.9% from 1,016 to 194. The ten states issuing the highest number of multifamily permits combined accounted for 63.7% of the multifamily permits issued. Texas, the state with the highest number of multifamily permits issued, declined 21.4% in the past 12 months while the next two highest states, Florida and California declined by 9.0% and 1.5% respectively. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. Top 10 Largest SF Markets Oct-23 (# of units YTD, NSA) YTD % Change (compared to Oct-22) Houston-The Woodlands-Sugar Land, TX                                         43,270 1% Dallas-Fort Worth-Arlington, TX                                         35,826 -8% Atlanta-Sandy Springs-Roswell, GA                                         20,519 -14% Phoenix-Mesa-Scottsdale, AZ                                         20,436 -16% Charlotte-Concord-Gastonia, NC-SC                                         16,241 -3% Orlando-Kissimmee-Sanford, FL                                         14,748 5% Austin-Round Rock, TX                                         14,390 -27% Tampa-St. Petersburg-Clearwater, FL                                         12,226 -11% Nashville-Davidson–Murfreesboro–Franklin, TN                                         12,083 -11% Jacksonville, FL                                         10,822 -14% For multifamily permits, below are the top ten local areas that issued the highest number of permits.  Top 10 Largest MF Markets Oct-23 (# of units YTD, NSA) YTD % Change (compared to Oct-22) New York-Newark-Jersey City, NY-NJ-PA                                         24,551 -39% Dallas-Fort Worth-Arlington, TX                                         21,484 -26% Austin-Round Rock, TX                                         18,753 -9% Phoenix-Mesa-Scottsdale, AZ                                         16,746 2% Houston-The Woodlands-Sugar Land, TX                                         16,727 -31% Los Angeles-Long Beach-Anaheim, CA                                         15,950 -14% Miami-Fort Lauderdale-West Palm Beach, FL                                         15,530 37% Atlanta-Sandy Springs-Roswell, GA                                         13,796 -19% Washington-Arlington-Alexandria, DC-VA-MD-WV                                         10,494 -38% Seattle-Tacoma-Bellevue, WA                                           9,577 -44% ‹ Share of Bedrooms in New Single-Family Homes in 2022Tags: home building, multifamily, single-family, state and local markets, state permits

Single-Family Permits Down in October 20232023-12-15T09:19:06-06:00

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