Following the Great Recession, the National Association of Home Builders created the Leading Market Index (LMI) to track the recovery of the housing market based on three factors: employment, house price indices, and housing construction. As the recovery transitioned into a period in which supply-side elements (land, labor, lumber, lending and laws) were limiting factors and housing affordability declined, the LMI was retired and a new index, the Home Building Geography Index (HBGI), was created as its replacement. As this is the first time the HBGI is being unveiled, this post will illustrate what the HBGI covers and go into detail about one of its aspects for the first quarter of 2019, the most recent quarter for which data are available.
The HBGI uses single- and multifamily, county-level building permit data, as published by the Census, to segment the United States housing market. As such, the most granular unit of measurement in the HBGI is the count of single- or multifamily permits for a county. With every quarter, beginning with the first quarter of 2019, HBGI-related posts will cover a different classification of analysis through which to view the county-level permit information. Each “cut” will have several, mutually exclusive categories into which the 3,221 counties are methodically delineated. The first cut is a region-based delineation of the counties, with each region differentiated from each other by population density
There are 7 regions in this first cut of the HBGI and they are: Large Metro – Core County, highly urbanized areas; Large Metro – Suburban County, inner and outer suburbs of larger metropolitan areas; Large Metro – Outlying County, exurbs of larger metropolitan areas; Smaller Metro – Core County, urbanized areas and inner suburbs of small metropolitan areas; Smaller Metro – Outlying County, outer suburbs of small metropolitan areas; Micro county, small towns; and Non Metro/Micro County, rural areas.
This post focuses on the trends in single- and multifamily construction as they occurred in outlying counties of large metro areas, i.e., exurbs. Exurbs are outskirts of major metropolitan areas and lie beyond the suburbs. Most exurbs serve as commuter towns and enable more affordable construction due to greater availability of land. As might be expected, single-family permit activity has consistently exceeded multifamily permit activity in exurbs. Though single- and multifamily activity in exurbs have only taken small shares of permit activity across all examined geographies, their quarterly growth rates are the highest for the first quarter of 2019. At 5.6%, the year-over-year growth rate in single-family permit activity of exurbs was the highest among the regional geographies in the HBGI.
The increase of interest rates in the second half of 2018 caused a decline in housing affordability, as reflected in the 10-year low of the NAHB/Wells Fargo Housing Opportunity Index. Being lower priced, housing in areas such as exurbs tend to be less sensitive to price changes and therefore were not as affected as suburbs of large metro areas by higher rates. As land is more freely available and cheaper in exurbs than suburbs, building permit activity in this regional geography increased in an otherwise challenging quarter.
Regardless of the geography examined, it is important to consider where we are in comparison to the time prior to the expansion of the housing boom that preceded the financial crisis of 2008 and the subsequent Great Recession. For that reason, the first quarter of 2003 is a good point in time to compare the current single- and multifamily national permit levels. As of the first quarter of 2019, single-family permit activity, adjusted for population, registered at 57% of the 2003 first quarter level. This share of single-family permit activity remained unchanged from the fourth quarter of 2018, where it rounded to 57% of the 2003 first quarter level, as well.
Additionally, multifamily permit activity, adjusted for population was at 99% of the first quarter of 2003 level. This was a significant increase from the 2018 fourth quarter level since it was then at 96% of the first quarter of 2003 level.
Forthcoming HBGI-related posts will expound upon the trends in the other regional geographies and, in forthcoming quarters, the posts will expound upon other cuts of analysis besides regional types.