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Growth for Single-Family Built-for-Rent Construction

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Single-family built-for-rent construction posted year-over-year gains for the third quarter of 2024, as builders sought to add additional rental housing in a market facing ongoing, elevated mortgage interest rates.

According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 24,000 single-family built-for-rent (SFBFR) starts during the third quarter of 2024. This is 41% higher than the third quarter of 2023. Over the last four quarters, 92,000 such homes began construction, which is a more than 31% increase compared to the 70,000 estimated SFBFR starts in the four quarters prior to that period.

The SFBFR market is a source of inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. However, investor demand for single-family homes, both existing and new, has cooled with higher interest rates. Nonetheless, builders continue to build projects of built-for-rent homes for their own operation.

Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (9%) is nonetheless higher than the historical average of 2.7% (1992-2012).

Importantly, as measured for this analysis, the estimates noted above include only homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another three to five percent of single-family starts based on industry surveys. However, this investor market has cooled somewhat in recent quarters due to higher interest rates.

The Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging more than 4% over recent quarters. Some, but certainly not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on a single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring.

With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share even as the rest of the building market expands in the coming quarters.

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Home Price Growth Continued to Slow in August

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Home price growth continued to slow in August, growing at a rate just above 4% year-over-year. The S&P CoreLogic Case-Shiller Home Price Index (seasonally adjusted – SA) posted a 4.24% annual gain, down from a 4.82% increase in July. Similarly, the Federal Housing Finance Agency Home Price Index (SA) rose 4.25%, down from 4.72% in July. Both indexes experienced a sixth consecutive year-over-year deceleration in August. The year-over-year rate peaked in February 2024 when the S&P CoreLogic Case-Shiller stood at 6.57% and the FHFA at 7.28%.

By Metro Area

In addition to tracking national home price changes, the S&P CoreLogic Index (SA) also reports home price indexes across major metro areas. Compared to last year, all 20 metro areas reported a home price increase.  There were 12 metro areas that grew more than the national rate of 4.24%. The highest annual rate was New York at 8.07%, followed by Las Vegas and Chicago both with rates of 7.22%. The smallest home price growth over the year was seen by Denver at 0.68%, followed by Portland at 0.82%, and Dallas at 1.57%.

By Census Division

Monthly, the FHFA Home Price Index (SA) publishes not only national data but also data by census division. All divisions saw an annual increase of over 2% in August. The highest rate for August was 6.31% in the East South Central division, while the lowest was 2.36% in the West South Central division. As shown in graph below, all divisions saw a slow in rates compared to June. The FHFA Home Price Index releases their metro and state data on a quarterly basis, which NAHB analyzed in a previous post.

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The U.S. Economy Posted Another Solid Growth in Third Quarter

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The U.S. economy grew at a solid pace in the third quarter of 2023, boosted by strong consumer spending and government spending. According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) expanded at an annual rate of 2.8% in the third quarter of 2024, following a 3.0% gain in the second quarter of 2024. This quarter’s growth matched NAHB’s forecast.

Furthermore, the data from the GDP report suggests that inflation is cooling. The GDP price index rose 1.8% for the third quarter, down from a 2.5% increase in the second quarter of 2024. The Personal Consumption Expenditures Price (PCE) Index, which measures inflation (or deflation) across various consumer expenses and reflects changes in consumer behavior, rose 1.5% in the third quarter. This is down from a 2.5% increase in the second quarter of 2024.

This quarter’s increase in real GDP primarily reflected increases in consumer spending, exports, and federal government spending.

Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 3.7% in the third quarter. It marks the highest annual growth rate since the first quarter of 2023. The increase in consumer spending reflected increases in both goods and services. While goods spending increased at a 6.0% annual rate, expenditures for services increased 2.6% at an annual rate.

The U.S. trade deficit increased in the third quarter, as imports increased more than exports. A wider trade deficit shaved 0.56 percentage points off GDP. Imports, which are a subtraction in the calculation of GDP, increased 11.2%, while exports rose 8.9%.

In the third quarter, federal government spending increased 9.7%, led by a 14.9% surge in national defense outlays.

Nonresidential fixed investment increased 3.3% in the third quarter. Increases in equipment and intellectual property products were partly offset by a decrease in structures. Meanwhile, residential fixed investment decreased 5.1% in the third quarter and dragged down the contribution to real GDP by 0.21 percentage points. Within residential fixed investment, single-family structures declined 16.1% at an annual rate, multifamily structures decreased 8.7%, while improvements rose 13.9%.

For the common BEA terms and definitions, please access bea.gov/Help/Glossary.

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Home Price Growth Slowing

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Home prices remain elevated but price growth continues to decelerate, according to the S&P CoreLogic Case-Shiller Home Price Index (HPI) recent release. The S&P CoreLogic Case-Shiller HPI (seasonally adjusted) reached its 14th monthly consecutive record high in July 2024. The index increased at a seasonally adjusted annual rate of 2.15%, down slightly from a revised June rate of 2.19%. This rate has slowed over the past six months, from a high of 6.53% in February 2024. The index has not seen an outright decrease since January of 2023 (nineteen months).

Separately, the House Price Index released by the Federal Housing Finance Agency (FHFA; SA) posted its sixth monthly consecutive record high, after having decreased slightly in January of this year. The FHFA HPI recorded a 1.57% increase in July, upward from a revised 0.03% rate in June.  

Year-Over-Year  

Home prices experienced a fifth consecutive year-over-year declaration in July, tabulated by both indexes. The S&P CoreLogic Case-Shiller HPI (not seasonally adjusted – NSA) posted a 4.96% annual gain in July, down from a revised 5.50% increase in June. Meanwhile, the FHFA HPI (NSA) index rose 4.56%, down from a revised 5.37% in June. Both indexes have seen yearly growth rates slow since February 2024, when the S&P CoreLogic Case-Shiller stood at 6.54% and the FHFA at 7.23%. 

By Metro Area

In addition to tracking national home price changes, the S&P CoreLogic Index (SA) also reports home price indexes across 20 metro areas. At an annual rate, only one out of 20 metro areas reported a home price decline: San Francisco at -3.10%. Among the 20 metro areas, 15 exceeded the national rate of 2.15%. Seattle had the highest rate at 13.78%, followed by New York at 6.11%, and Las Vegas at 5.76%. The monthly trends are shown in the graph below.  

Monthly, the FHFA HPI (SA) releases not only national but also census division house price indexes. Out of the nine census divisions, three posted negative monthly depreciation (adjusted to an annual rate) for July: South Atlantic at -7.88%, West South Central at -6.80%, and East South Central at -0.66%. The divisions with positive home price appreciation ranged from 2.02% in West North Central to 11.57% in East South Central. The FHFA HPI releases its metro and state data on a quarterly basis, which NAHB analyzed in a previous post. 

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Price Growth for Inputs to Residential Construction Slows in August

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Prices for inputs to new residential construction, excluding capital investment, labor and imports decreased 0.1% in August according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. Compared to a year ago, this index was up 0.8% in August after a 1.8% increase in July. The inputs to new residential construction price index can be broken into two components­—one for goods and another for services. The goods component increased 0.2% over the year, while services increased 1.9%. For comparison, the total final demand index increased 1.7% over the year in August, with final demand goods flat and final demand services up 2.6% over the year.

Input Goods

The goods component has a larger importance to the total residential inputs price index, around at 60%. The price of inputs to residential construction, goods, remained flat in August after increasing 0.1% in July. The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less foods and energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index. Prices for inputs to residential construction, goods less food and energy, were up 1.6% in August compared to a year ago. This year-over-year growth has come down since April, when it was at 2.5% and remains well below the growth in August of 2022, when it was at 14.7%.

The graph below focuses on the data since the start of 2023 for residential goods inputs. Energy prices have retreated over the past year, with only two periods of growth in 2024.

Input Services

Prices of inputs to residential construction, services, fell 0.2% in August after remaining flat in July. The price index for service inputs to residential construction can be broken out into three separate components, a trade services component, a transportation and warehousing services component, and a services less trade, transportation and warehousing component. The most vital component is trade services (around 60%), followed by services less trade, transportation and warehousing (around 29%), and finally transportation and warehousing services (around 11%).

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HBGI Q2 2024: Single Family Growth vs. Multifamily Decline

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Despite high mortgage rates, the lack of resale homes and pent-up demand drove solid growth in single-family permits across nearly all regions in the second quarter. In contrast, multifamily construction permit activity experienced declines across all regions for the second quarter of 2024. These trends are tabulated from the recent release of the National Association of Home Builders’ (NAHB) Home Building Geography Index (HBGI).

Single-Family

All markets for single-family construction saw higher growth in the second quarter compared to the first quarter. In contrast to the second quarter of 2023, which experienced declines across all markets, this year shows a clear reversal. Large metro core counties had the largest growth rate for the second consecutive quarter at 17.6%, while micro counties continued to have the lowest for the third straight quarter, at 3.4%.

Looking at single-family HBGI market shares, small metro core counties continued to have the largest market share at 28.9%. Large metro suburban counties are the only other market with over 20% market share, at 25.0% in the second quarter. The smallest market share continued to be non metro/micro counties at 4.3%. However, this market remains almost a percentage point higher than what it was pre-pandemic in 2019.

Multifamily

In the multifamily sector, the HBGI year-over-year growth continued to post declines for all markets in the second quarter. This can be contributed to high levels of multifamily units under construction and tighter financial conditions. Only two markets had larger declines than the first quarter, with large metro suburban counties down 21.1% and non metro/micro counties down 14.8%. Notably, non metro/micro counties were the last market to experience a decline in multifamily construction. These counties were an area of growth in the second, third and fourth quarters of last year while all other markets experience declines or negligible growth.

Multifamily market shares in the HBGI remained similar to the first quarter, with large metro core counties having the largest market share at 40.1%. The smallest market was non metro/micro counties, with a 1.1% market share.

The second quarter of 2024 HBGI data along with an interactive HBGI map can be found at http://nahb.org/hbgi.

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Building Material Price Growth Tracking Closely to 2023

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Inputs to residential construction, goods less foods and energy, decreased 0.04% over July according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics (BLS). The index for inputs to residential construction, goods less food and energy, represents building materials used in residential construction. Compared to a year ago, the index is up 2.01% in July, marking the sixth straight month of above 2% growth.

Just past the midpoint of 2024, the year-to-date (YTD) increase in the index is at 0.47%. This is slightly higher yet similar to the YTD growth rate for 2023, which was 0.44%.

The seasonally adjusted PPI for final demand goods increased 0.62% in July, after decreasing a revised 0.36% in June. In July, the PPI for final demand energy increased 1.90%, final demand food also rose 0.61% and final demand goods, less food and energy, rose 0.24%. The BLS producer price indices measure the average change in selling prices that domestic producers receive for their output.

The seasonally adjusted PPI for softwood lumber fell 1.04% in July after rising 3.29% in June. Softwood lumber prices were 13.12% lower than July 2023.

The non-seasonally adjusted PPI for gypsum building materials increased 0.08% in July after no increase in June. Compared to last year, the index was up 4.25%, the highest yearly increase since April 2023 when the index was up 12.14%.

The seasonally adjusted PPI for ready-mix concrete rose 0.03% in July after falling 0.15% in June. Monthly growth in prices for read-mix concrete has been relatively flat for four consecutive months after prices peaked in March. Over the year, ready-mix concrete prices were 5.05% higher than July 2023.

The non-seasonally adjusted PPI for steel mill products fell for the second straight month, down 3.29% in July. Steel mill product prices are 13.99% lower than last year. Overall, steel mill product prices have fallen 36.99% since peaking back December of 2021.

The non-seasonally adjusted special commodity grouping PPI for copper rose 0.56% in July after falling 2.79% in June. Over the year, the index was up 14.26%. This special commodity grouping of copper includes the following commodities: copper and nickel ores, copper cathode and refined copper, copper base scrap, secondary copper (alloyed and unalloyed), copper and brass mill shapes, copper wire and cable, and copper base castings (excluding die-castings).

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Residential Building Wages See Fastest Growth in More Than Five Years

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Residential building workers’ wage growth accelerated to 9.0% in June. This marks the fastest year-over-year (YOY) growth rate since December 2018. After a 0.3% increase in June 2023, the YOY growth rate for residential building worker wages have been trending upward over the past year.

The ongoing skilled labor shortage in the construction labor market and lingering inflation impacts account for the recent acceleration in wage growth. However, demand for construction labor is weakening as interest rates remain elevated. As mentioned in the latest JOLTS blog, the number of open construction sector jobs shifted notably lower from 366,000 in May to 295,000 in June. Nonetheless, the ongoing skilled labor shortage continues to challenge the construction sector.

According to the Bureau of Labor Statistics report, average hourly earnings for residential building workers* was $32.28 per hour in June 2024, increasing 9.0% from $29.62 per hour a year ago. This was 16.2% higher than the manufacturing’s average hourly earnings of $27.79 per hour, 10.6% higher than transportation and warehousing ($29.18 per hour), and 11.1% lower than mining and logging ($36.33 per hour).

Note: *Data used in this post relate to production and nonsupervisory workers in the residential building industry. This group accounts for approximately two-thirds of the total employment of the residential building industry.

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