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 further intensifying the demand for housing, the widening gap between supply and demand is resulting in multiple offers, bidding wars and record-high home prices. 

Meanwhile, builders are facing rising material and labor costs, labor shortages and increased competition. During the first couple of months of the pandemic, 1.1 million jobs in the construction industry were lost. Sixteen months later, we are still missing 232,000 construction jobs. It’s important to keep in mind that, apart from the pandemic, the U.S. construction industry has been struggling with a skilled labor shortage for a decade as its workforce has gradually aged out. Furthermore, lumber prices are still nearly 50% higher than last year; lumber costs twice as much now as it has any time in the last 30 years. Even though homebuilding now exceeds 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 purpose of this index is to identify areas where homebuilders can build with less risk for their business. To create the index, 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:
1. Core HLOI, short-term and long-term housing supply conditions
2. 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 less risk, and thus better opportunities, for homebuilders.

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






































The HLOI tracks 130 metropolitan areas in the United States using the indicators listed above, along with other data points. 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, cvanhollen@nar.realtor.

Nadia Evangelou is senior economist and director of forecasting for the National Association of REALTORS®.

Back to The Power Broker Report Newsletter >>