Statistically Speaking: Low Housing Inventories and Building Permits Hitting Some Markets Harder

September 7, 2018  by HFBusiness Staff in Business Strategy, Industry   

Once a problem faced mainly by big cities like San Francisco and New York, the demand for housing is far outweighing construction in both big and smaller-sized cities. Inventories are low almost everywhere impacting furniture and home furnishings purchases. Table A shows the downturn in homes for sale from 2011 when the housing market bust was in full swing to 2018 (Q2 YTD). During that period inventories among all metropolitan areas fell 56 percent. Among MSAs with housing unit populations over 500,000 inventories this year dropped below 1.0 home for sale per 100 households. As the economy and housing market began to improve, the table shows the slight upswing in inventories in 2015, but a continual decline since. Note: Homes for sale include both single-family homes and multi-family condominiums.

Table B graphically shows the top 5 states with lowest housing inventories and Figure 1 expands that graphic to a list of the top 10. California leads the way with only 0.44 homes for sale per 100 households, followed by District of Columbia with 0.47 and Massachusetts with 0.53. Washington State had the most dramatic decreases – inventory dropping 68 percent from 2011 to 2018 Q2 YTD.

Figure 1 Top 10 States With Tightest Housing Markets Number of Homes for Sale Per 100 Households 2011 to 2018 Q2 YTD
State*	2011	2013	2015	2017	2018 Q2 YTD
Total U.S.	1.70	1.19	1.12	0.94	0.88
CA	1.13	0.50	0.56	0.43	0.44
DC	0.78	0.35	0.39	0.40	0.47
MA	1.46	0.94	0.84	0.57	0.53
WA	1.67	1.07	0.90	0.60	0.54
NE	0.93	0.75	0.65	0.55	0.54
OH	1.36	1.05	0.96	0.74	0.68
MN	1.43	0.88	0.99	0.76	0.70
NY	1.38	1.07	1.00	0.77	0.74
KY	1.33	1.23	1.06	0.82	0.77
CO	2.19	1.44	1.08	0.85	0.78
Source: Zillow Inventory Data; Census Bureau Housing Units Note: 2018 housing units have been estimated *Data is unavailable for Nevada and Indiana

 

While housing inventory has fluctuated among the states with the highest ratio of homes for sale, no state has maintained above a ratio of 2.0 homes for sale per 100 households through June of this year. At the highest, Vermont has 1.6 homes for sale per 100 households – down from 2.4 in 2015 (Table C and Figure 2).

Figure 3 shows the how the largest metro areas have been affected by the housing shortage and highlights the problems being faced, especially by our big cities. The top three largest markets with the tightest homes for sale inventories are located in the West -- San Francisco, Seattle, and Los Angeles. And by far, the Seattle area has been hit the hardest – inventory plummeting 76.7 percent down to a ratio of 0.34 homes for sale per 100 households in the past seven years. Metro areas with high inventories in 2011 – Atlanta and Miami – have fallen 62.9 percent and 44.5 percent, but both markets are still in better shape than other major cities.

New Residential Building Permits

While many metro areas are suffering with tightening housing inventories, some areas are having better luck with building permits and new housing construction in an attempt to turn the tide. Furniture retailers should pay close attention to the markets where building is picking up and where building is slowing. Overall building permits grew 6.6 percent in the U.S. 2017 Q2 to 2018 Q2 annualized. Interestingly, it is the smaller markets where building permits have increased the most especially for single-family units. The larger MSAs, 500,000 to 1.5 Million and Over 1.5 million housing units, had the smallest growth over last year, 4.8 percent and 5.8 percent respectively. Mid-size range 250,000 to 500,000 increased the most at 9.4 percent, while the smallest range available (50,000 to 100,000) had the second highest growth at 9.3 percent. of 4.6 (Figure 4).

Looking at state increases in building permits this year, Table D shows that Hawaii had the highest growth in residential building permits since the second quarter of last year —jumping 32.6 percent followed closely by New Hampshire at 30.9 percent. Idaho, Utah, and North Carolina all had over a 20 percent increase. Note: Data includes all states.

Building permits declined in many states. Montana had the lowest growth in residential building permits declining 23.7 percent this year compared to 2017, followed by Mississippi, down 20.5 percent, and Illinois falling 15.7 percent (Table E).

Among the largest metro areas (over 1.5 million housing units), Houston leads the way with 21 percent growth last year. Boston and Atlanta both have over 15 percent growth, while Phoenix and Los Angeles have over 10 percent. By far, Chicago and Detroit are experiencing the worst negative growth in residential building – down 23.8 and 23.9 percent from 2017 Q2 to 2018 Q2 (Table F).

Some smaller MSAs made the list of metro areas with the largest unit growth in residential building permits with Houston, TX topping the list at 5,032, followed by Orlando, FL with 4,319. Certainly Hurricane Harvey last year is contributing to some of Houston’s housing permit growth. Charlotte, N.C. is third on the list with 3,788 permits. Phoenix, AZ, Austin, TX, and Salt Lake City, UT are also smaller cities that are showing growth in residential building (Table G).

For single family units only, Phoenix leads the way with 1,509 building permits added from 2017 Q2 to 2018 Q2, followed by Santa Rosa, CA with 1,007. Denver, Charlotte, and Atlanta all had above an 800 unit growth over the same time period (Table H).

From the 2^nd quarter of 2017 to the 2^nd quarter of 2018, Houston tops off the list for MSAs with the largest growth of multi-family units at 4,525, followed by Orlando with 3,767 and Charlotte with 2,892. Los Angeles, Atlanta, and San Diego all exceeded 1,500 units over the same year (Table I).

Furniture retailers in these high and low housing growth areas are paying attention to current housing inventories and future building growth in their specific marketing areas. Sluggish building and tight markets often equate to slower industry sales.