Economists' Outlook

Housing stats and analysis from NAR's research experts.

Homebuilders' Local Opportunity Index

Measuring Market Conditions for Homebuilders

There can be little doubt that our country is dealing with an urgent housing shortage. Economists, academics, and policy makers have recognized and addressed the need to increase the supply of new homes in order to meet current and future housing demand and to ease price gains. With the pandemic and favorable demographics intensifying even further the demand for housing, the widening gap between supply and demand for housing is resulting in multiple offers, bidding wars, and record high home prices.

Meanwhile, rising material and labor costs, labor woes, and increased competition are some of the main challenges that homebuilders are facing. For instance, 1.1 million jobs in the construction industry were lost during the first couple of months of the pandemic. Sixteen months later, we are still missing 232,000 construction jobs. It's important to also keep in mind the U.S. construction industry has already been struggling with a skilled labor shortage for the last decade as its workforce has gradually aged out. Furthermore, lumber prices are still nearly 50% higher than last year and lumber costs twice as much now than any time in the last 30 years. Thus, even though we are building more homes than the historical average, it's not enough to accommodate current housing demand.

To keep track of all of these factors, the National Association of REALTORS® created the Homebuilders' Local Opportunity Index (HLOI), which measures both short-term and long-term opportunities for homebuilders at the local level. As all real estate is local, the ultimate purpose of this index is to identify the areas where homebuilders can build more homes with less risk for their business. To do so, NAR assessed local market conditions at the metropolitan area level including indicators related to:

  • 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 HLOI has two components: a) Core HLOI, short-term and long-term housing supply conditions, and b) market conditions HLOI, which includes 10 factors that capture the local market conditions. The index takes a value in the interval between 0 and 100, where a lower value means better opportunities for homebuilders.

Here are the top 20 metro areas with great opportunities for homebuilders:

U.S. Map: Areas With Great Opportunities for Homebuilders
Descriptive

The HLOI tracks 130 metropolitan areas in the United States using the indicators listed above, and more.

This index will be updated monthly.

If you are interested in purchasing the HLOI monthly report on a one-time basis or as an annual subscription, please contact Caroline Van Hollen at: cvanhollen@nar.realtor.

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