NAHB: Single-Family Still Stronger Outside Cities

The national homebuilders’ 1Q report finds continued relative strength in small towns and rural areas as higher interest rates impact affordability.

WASHINGTON – Single-family home building slowed significantly from pandemic-fueled highs because of higher interest rates and construction costs, but the slowdown is less pronounced in lower density markets, according to the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the first quarter of 2023.

Meanwhile, multifamily market growth remained strong throughout much of the nation.

“The pace of single-family construction in the first quarter of 2023 has slowed from pandemic-induced highs, but a turning point is coming into view with a rebound led particularly in more affordable, lower density areas,” says NAHB Chairman Alicia Huey. She says the “multifamily building market remains strong with risks of slowing later this year.”

“Higher interest rates and construction costs, along with shortages of key materials such as transformers and concrete, have contributed to all single-family markets posting a negative year-over-year building growth rate, but this particularly true for the largest, densest metro areas,” said NAHB Chief Economist Robert Dietz.

The HBGI is a quarterly measurement of building conditions across the country. It uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural geographies.

Year-to-year comparisons

The lowest single-family year-over-year growth rates in the first quarter of 2023 occurred in large metro core counties, which posted a 25.6% decline – but all large and small metro areas had double-digit negative growth rates. Meanwhile, rural markets (defined as micro counties and non-metro counties) also recorded negative growth rates, but those were only in the single digits.

Over the past four years rural markets have exhibited particular strength. The rural single-family home building market share has increased from 9.4% at the end of 2019 to 12% by the first quarter of 2023.

1Q HBGI market shares in single-family home building

  • 15.7% in large metro core counties
  • 24.5% in large metro suburban counties
  • 9.5% in large metro outlying counties
  • 28.6% in small metro core counties
  • 9.7% in small metro outlying areas
  • 7.5% in micro counties
  • 4.5% in non-metro/micro counties

In the multifamily sector, outlying counties near large metros had the highest year-over-year growth rate in the first quarter of 2023, up 24.5%.

Meanwhile, large metro core counties had the lowest growth rate at 3.2%.

But in a sign that multifamily building is returning to densely populated areas, the market share for this sector increased by 0.8 percentage points to 37.5% between the fourth quarter of 2022 and first quarter of 2023.

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