Building permits for single-family homes are increasing significantly: NAHB

Mortgage interest rates remain relatively high and the stock of existing homes is therefore low. This offers housebuilders a golden opportunity.

The National Association of Home Builders (NAHB) reported Tuesday that the Home Building Geography Index (HBGI) showed growth in the number of building permits during the second quarter of 2024 in every region of the country.

“Despite the high interest rate environment, single-family home construction continues to move at a better pace than in 2023 and is led by a recovery in construction activity in high-density areas,” NAHB Chairman Carl Harris said in a statement.

The HBGI uses single-family permit data to measure construction growth, which is broken down into seven geographic regions.

Permits for single-family homes have increased the most in what NAHB calls “large urban core counties,” where the four-quarter moving average has increased 17.6% year over year. Permits increased 17% in suburban counties in major metro areas, while activity in core counties in small metro areas increased 16.7%. “Micro” provinces recorded the slowest growth at 3.4%.

The growth in permits comes at the same time that for-sale inventory for builders has steadily increased, but that’s by design. Builders have increasingly shifted to a business model based on spec building – that is, building a house without a buyer lined up.

Analysts say builders will continue to hold more spec inventory than before, and they will aggressively mark down it if they have to hold it longer than they want.

NAHB’s data is bolstered by a strong new home sales report from US Census Bureau. In July, new home sales rose 10.6% compared to June and were up 5.6% year over year. The figures were a pleasant surprise compared to expectations.

The HBGI grew by 17.5% in areas where second homes are common – defined as a county where at least 10.3% of the total housing stock is second homes.

While single-family home construction continues to grow, multi-family home construction is slow. According to NAHB, multifamily permits declined in all seven regions in the second quarter due to limited financing options and high inventory levels, among other factors.

“Multifamily construction continues to slow as builders face higher rates, worker shortages and supply chain concerns for some building materials,” Harris said.