Record-low housing supply is causing home prices to soar. Here's where home builders may concentrate their efforts moving forward.
A new index from the National Association of Realtors® (NAR) may give homebuyers a better sense of where housing inventory will rebound and lead to more stable home prices.
The Homebuilders’ Local Opportunity Index (HLOI) uses 11 market conditions to measure how favorable homebuilding conditions are in a given market. By scoring 130 metro areas on a scale of 0-100, the NAR identified the 20 metros with the greatest opportunity for homebuilders and, by extension, homebuyers.
While home building is a lengthy process -- especially during a pandemic -- the list may be especially helpful to people in the early stages of the homebuying process.
What's in this Article?
According to the HLOI, the following metros present the greatest opportunity for homebuilders. A lower value indicates greater opportunity.
Top 20 metros by HLOI
- Spartanburg, SC -11
- North Port, FL - 12
- Knoxville, TN -12
- Wilmington, NC - 13
- San Antonio, TX - 13
- Raleigh, NC - 14
- Greenville, SC - 15
- Kennewick, WA - 16
- Columbia, SC - 16
- Houston, TX -18
- Austin, TX - 19
- Pittsburgh, PA - 20
- Orlando, FL - 20
- Tampa, FL - 20
- Deltona, FL - 21
- Charlotte, NC - 23
- Reno, NV - 23
- Portland, ME -28
- Colorado Springs, CO - 28
- Jacksonville, FL - 29
With 16 metros in the Top 20, the South – especially the Texas, Florida, and the Carolinas – presents the most favorable conditions for home builders. The West chipped in three markets and the Northeast two.
Notably, the Midwest did not have any metros in the Top 20.
This doesn’t mean that the Midwest is not a good place to look for a home. In fact, it may be a smart place to look. That’s because the HLOI spotlights areas where existing home supply is ultra-low, giving homebuilders an almost-guaranteed buyer base. Some cities not appearing on the list may have decent inventory, presenting a lower opportunity for builders but better opportunity for those looking to buy now.
The metros were assessed based on the following market conditions.
- Months of housing supply
- Single-family home construction
- Employment creation
- Housing vacancy rate
- Share of investors
- Forbearance rate
- Net migration of people and businesses
- Creation of construction jobs
- Wages for construction workers
- Qualifying income
- Affordability for millennial renters
The NAR averaged these indicators across the top 20 markets, giving a better sense of what makes for favorable homebuilding conditions.
|Market condition||Average for Top 20 metros|
|Months of supply||1.3|
|Share of inbound moves for businesses||50%|
|Share of inbound moves||51%|
|Share of millennial renters that can afford to buy the typical home||42%|
Low housing supply (6 months is considered balance) and steady population/employment growth are especially attractive to home builders. It’s also interesting that the index focuses on prospective millennial homebuyers as an indicator. This shows the influence this demographic has and will continue to have on the housing and homebuilding market.
A year of heavy demand coupled with difficult building conditions has left the nation’s housing supply at record lows and home prices soaring. The competitive market has sidelined many homebuyers and caused others to seek out more affordable markets.
Homebuilders are key to bringing more inventory online, stabilizing home prices, and expanding homeownership opportunities. After a year and half into the pandemic, they are still facing labor shortages and supply chain issues that make homebuilding take longer and cost more.
In 2021, home builders are on pace to spend $225 billion more to build 700,000 less homes than they did in 2006.
Given these conditions, it would be more shocking if home builders didn’t concentrate on markets that provide the greatest opportunity. These metros may be the first to see prices stabilize as a result of a more balanced inventory.
Cities at the top of the HLOI should be especially favorable for those looking to buy in a few years. Rent is affordable and job prospects are increasing. Plus, there may be a healthy amount of options for those wanting newly-built homes in coming years.
Home building takes time and conditions in these metros won’t improve overnight. But paying attention to HLOI may give early stage homebuyers an edge in finding affordable housing in the future.