Could the Inventory Crunch Worsen?
February 7, 2018
Housing permits, a gauge of new-home activity, slipped in the final quarter of 2017, which could worsen a housing shortage already shaking many markets across the country.
Single-family permits are running at only 56 percent of normal activity, according to the National Association of Home Builders/First American Leading Markets Index.
“We are concerned with the sluggish permit activity,” says Robert Dietz, chief economist at the National Association of Home Builders. “The weak permit numbers indicate that builders may be hesitant to start projects as they contend with supply-side hurdles, such as rising material prices and labor shortages.”
Permit levels are at or above normal in only 62 of the 337 metro areas tracked in the NAHB/First American Index, which is a drop of 7.5 percent compared to the third quarter of 2017.
Despite sluggish permits, the index showed that many markets are showing a stronger recovery in their economy and home prices. Housing markets in 195 of the 337 metro areas tracked nationwide returned to or exceeded their last normal levels of economic and housing activity in the fourth quarter of 2017. The LMI measures three components: housing permits, employment, and home prices.
Employment is at 98 percent of normal activity, while home price levels are well above normal at 158 percent. Single-family permits were the only of the three components to see a decline in the fourth quarter of 2017.
Overall, the index shows the fastest-growing new-home metro areas are in the South and West, says NAHB Chairman Randy Noel.
The major metros scoring the highest on the LMI—meaning they are performing at the highest levels compared to their historic normal market level—are Baton Rouge, La.; Austin, Texas; Honolulu; Oxnard, Calif.; and Provo, Utah. Among smaller metro areas, the metros scoring the highest in besting their own previously normal market levels are: Odessa, Texas; Midland, Texas; Walla Walla, Wash.; Florence, Ala.; and Gadsden, Ala.
Updated: February 21, 2020