As the housing market cooled further during the fourth quarter of 2022, homebuilders also continued to pull back on single-family construction. In Q4 2022, the year over year growth rate for single family construction fell across all geographic areas, according to the National Association of Home Builder’s (NAHB) Home Builder’s Geography Index published Tuesday.
The COVID-19 pandemic pushed the annual growth rates in most counties for single-family building from mid-single digit annual growth rates to yearly rates in the teens and even high-30% range. However, growth began to slow drastically in the second quarter of 2022 as the Federal Reserve began raising interest rates to combat inflation.
“Due to aggressive federal reserve monetary policy and high mortgage rates, all submarkets in the HBGI posted lower single-family growth rates in the fourth quarter of 2022 than a year earlier,” Robert Dietz, the NAHB’s chief economist said in a statement.
The HBGI is a quarterly measurement of building conditions across the county. It uses county-level data for single and multi-family permits to gauge housing construction growth in both urban and rural metros.
Large metro outlying counties again recorded the largest 12-month decline in single-family construction, dropping from 23.6% in Q4 2021 to -12.1% in Q4 2022. Small metro outlying counties also took a sizable hit, falling from a growth rate of 19.6% a year ago to -11.7%.
Both large and small core counties and suburban counties took a hit as well, dropping to growth rates in the low to mid-teens to posting yearly declines in the mid-teens.
Despite the decreases and negative yearly growth rates, metro core counties and metro suburban counties still account for the largest market shares of single-family homebuilding, with 28.5% of projects occurring in small metro core counties, 24.7% in large metro suburban counties and 16.0% in large metro core counties. However, these market shares are down compared to pre-pandemic levels.
Single family building also slowed in micro counties and non metro/micro counties dropping from 19.6% and 26.5% in Q4 2021 to 6.8% and -1.0%, respectively. Of all the geographic areas analyzed, micro counties were the only the type to post a yearly positive growth rate in Q4 2022.
“While the largest single-family market continues to be core counties of large and small metropolitan areas, the urban core market share has fallen compared to pre-Covid levels,” Alicia Huey, the NAHB chairman, said in a statement. “During the fourth quarter of 2019, urban core markets of small and large metro areas represented 47.2% of the single-family market. This share declined to 44.5% in the fourth quarter of 2022, representing a persistent shift in buyer preferences to live outside of densely populated areas.”
In comparison, single family market share grew from 9.4% in Q4 2019 to 11.8% in Q4 2022 for rural markets (micro counties and non-metro/micro counties).
In the multifamily construction sector, however, things look a bit different. Annual growth rates for multi-family construction all remained positive in Q4 2022, with six out of the seven submarkets analyzed experiencing growth rates about 15%, with the yearly growth rate for micro counties rising from 14.8% in Q4 2021 to 17.9% in Q4 2022. The notable exception, however, was large metro core counties, which registered a growth rate of just 1.5% in Q4 2022. This suggests that not just single-family construction, but all residential construction is declining in large metro core markets.
Regardless of location, this slowdown in construction is bad news for the housing market, which is 6.5 million single-family housing units short, according to a recent study from Realtor.com.