Could New Builds Hurt Your Market? These Areas Are Most at Risk

New buildsHow confident are builders in today’s market? Every single month we get new data that tells us exactly that, and you might actually be surprised what the numbers say and the ways that they could impact you, even if you’re not a builder and never want to build a house in your life. Hey everyone, it’s Dave Meyer, host of On the Market, and today I am joined by BiggerPockets Data Analyst, Austin Wolf, to break down the latest builder sentiment report and what it means for buyers and investors. We’re looking at which markets are seeing surges and permits and where builders are betting big, and we’ll also dig into what this means for the future of prices, inventory, rent growth, and what’s happening in the new home market and with builders can actually spill into the broader housing market for buy and hold and flipping investors. So let’s get into it. Austin Wolf, welcome back to the podcast. Thanks for being here.Happy to be here, Dave.Alright, well we are going to be talking about builder sentiment, builder confidence, what’s going on in construction, but let’s be real, most of us are not builders. I have never built something from the ground up. I don’t think you have either. So tell us why does this even matter to the average real estate investor who’s probably just doing buy and hold? There may be some flip investing.I think it matters either if you are an existing investor or you’re trying to get your foot in the door. It matters both ways. If builders are optimistic, they’re going to be building more buildings, that means there’s going to be more supply coming your way. And if demand growth remains constant, but there is more supply, that puts a downward pressure on prices. There’s just more buildings for people to buy. I saw that personally when I was purchasing a house in Fayetteville. There is a lot of construction there. Builders are very optimistic in that particular market, so there was a lot to choose from, which means builders gave me concessions and so that was good for me to get my foot in the door. Conversely, now that I am an existing investor, I am now feeling the other side of that. Houses there aren’t going to appreciate as much as they are in other markets where they’re not building as much. So whether builders are optimistic or pessimistic nationally. And then of course in your local market, that’s going to affect price growth and if your houses are going to be appreciating faster or slower,And as you said, it’s going to be very regional. So we’re going to talk about today a lot of trends, but I think Austin’s prepared some really good research for all of us to understand sort of what’s happening on a national level because that of course matters. It does. A lot of the home builders are national. The big ones most are publicly traded companies, but obviously we’ll talk about some of the regions too. But why do we need to think about builder sentiment and confidence rather than just the data? It sounds a little fluffy or soft to talk about. It’s not like hard data. So why do we measure this and what’s important about this versus tracking permits or construction starts or something a little bit moreTangible I think is important to track the tangible metrics, but they don’t tell you everything. For example, one of the, I guess downsides of the data that I’ll be going over further, how much construction has actually started in Q1 of 2025. One of the downsides of that is it is possible that a market conditions have changed since the time they got their permit approved and the time that they broke ground. So even if they got a permit in middle of last year or the end of last year and they started construction this year, market conditions might have changed and they might be more pessimistic, but they already have the financing in place and they’re going to continue building anyway even though they are a little pessimistic. So they might build less in the future even though they’ve already started constructing right now.This is a classic example of a lead indicator. It’s something we talk about in economics data. It’s something that helps us predict future data. We don’t know exactly. It’s not a one-to-one ratio, but it gives you clues about what’s going to happen. So hopefully you can see from what Austin’s told us so far that the sentiment confidence data, it’s good for predicting what’s going to happen in construction. Construction really matters for every investor, whether you’re building or not. So maybe give us some historical context to what’s been going on with builder confidence over the last couple of years.So the index is rated from zero to a hundred, a hundred being the most optimistic, zero being the most pessimistic. Anything below 50 is on the side of pessimism. Anything above 50 is on the side of optimism. Now, from the middle of 2020 to the middle of 2022, we had builder sentiment of about 80. So builders were extremely optimistic during that time and they built a lot, which I’m sure is no surprise to anyone. And then when interest rates hiked in the middle of 2022, that builder sentiment dropped drastically. And ever since then it’s sort of been oscillating between, this is a rough estimate, but between 35 and 55, depending on seasons, depending on tariffs, depending on construction costs, depending on a lot of things, it’s really hard to pinpoint why it’s oscillating, but it is oscillating between 35 and 55. As of right now, the builder sentiment score is 40. So builders are a little more pessimistic, but they’re not completely pessimistic. They were when interest rates were first hiked in 2022.So 50 is normal, right?Yes. 50 is neutral.The long-term average, basically.Yes.Yeah. And so I guess the thing that always sort of confuses me about this, and I think obviously the answer is going to be macroeconomic conditions, but we hear so much that there’s this shortage of housing in the United States. So is it just interest rates like building costs that’s causing lower sentiment? Because it seems like sort of if you really zoom out to the broadest possible lens, builders should be feeling pretty good if they know that we need a lot of housing in the us.Yeah, affordability also matters. Yes, there’s demand for housing, but there is a lot of demand for affordable housing and if you are only able to build a building that is much higher than the median home price for your given metro, you’re going to have less demand for it. So things like interest rates affect people’s abilities to buy a house, things like inflation, and also things like tariffs can affect demand for these houses because prices will rise. So that affects builder optimism or pessimism.Alright. One question when you look at the sentiment, we have probably people on the show build a couple houses, build a couple multifamily. Is it that or is this really the big guys?These are mostly the big guys. If you’re a home builder and you were reached out to fill out this survey, I guess you would be considered one of the big guys. But if you build one home every single year, you’re probably not included in this survey. So these are primarily the big guys. I’m sure that there are middle size and potentially even small size builders in there as well, but it’s really just the big guys. SoJust keep this in mind, if you were talking to a smaller builder, maybe do urban infill one or two plots a year, maybe they’re a little more nimble, they can get deals more efficiently and that they’re doing better or maybe they’re doing worse. They don’t have the leverage to buy materials at cheaper costs and so they’re less efficient. So keep that all in mind. So when you’re looking at this data, Austin, it’s just an average, right? You don’t know which builders are confident, which are not, right?That’s correct.Ah, that’s too bad. I wish we could find out wondering if there’s just some people are really bullish and some people are really bearish. That just seems like the economy right now. Some people are really excited about the stock market these days. Some people are really pessimistic about it. And so I’m just wondering if the average doesn’t fully reflect the diversity of potential opinions fromBuilders. I’m happy you brought this up because that’s what I think is happening. When you look at the builder sentiment and it’s been oscillating over the past three years, that’s what I think is being reflected there. Builders being more confident and builders being less confident. Like you said, some builders are maybe thinking, okay, interest rates are what they are, but people still need a home to live in. People still want to buy. There’s still going to be demand, whereas other builders are less confident in that. So where you’ve been at over the past three years mentally when it comes to your real estate investing is likely a similar thought process that builders are having as well. Should I build right now? I don’t know about these macroeconomic conditions, maybe let’s wait it out another six months. Whereas maybe other builders are like, screw it, we’re building now. And so that’s I think potentially one explanation of why this builder competence has been oscillating between sort of 35 and 55 between pessimism and a more neutral stance.So let’s talk a little bit about some of the regional trends. I assume you can’t get that from sentiment data. So do you have to look at construction permits to understand and dig into sort of the regional differences?Yes. Yes. We don’t get the builder sentiment at the regional level. So instead what I looked at was first building permits.Okay,And then second, how many units started construction in Q1?All right, so what are you seeing in there? Biggest, broadest trends. We’ve talked a lot about the southeast, it was hot, now it’s slowing down. What are the big things you’reObserving? So if you look at the permits that were approved in Q1 of 2025, I then compare those to the permits that were approved in Q1 of 2024, same time last year. And what I found was really interesting, Orlando had the highest difference between permits approved this year and permits approved last year decline, right? Increase.Oh, they’re still building more in Orlando.Okay. They’re still permitting more in Orlando, which blows my mind. That isSurprising,Very surprising. What that tells me is at least a good number of builders there think that demand is going to continue to grow in this market and catch up.Well that’s actually interesting. Someone was telling me on one of the podcasts recently about how inland Florida is actually doing well because you hear these things about Florida in general and a lot of the people are being driven off the coast because of higher insurance premiums. The condo markets are falling apart and a lot of parts of Florida, but perhaps this is intrastate migration where people are moving off the coast, Orlando, which has less risk of natural disasters and probably doesn’t have the same insurance premium increases. Maybe that’s just doing well. Anyway, surprised to hear that regardless.Yeah, we’ll talk more about Florida at the end of this. Okay, very, very interesting dataThere. Yeah, yeah. I’m curious.Okay, so what else? Number two was Lafayette, Indiana and Lafayette Indiana. It’s about an hour outside of Indianapolis. It’s where Purdue University is and they’ve been growing like crazy, at least the metro area has, there is a large research park there. The college is continuing to grow and it’s just outside of Indianapolis, which is one of the fastest growing Midwest markets in America right now. They have had a record breaking number of permits approved over Q1. The most amount of units they’ve ever permitted in a given year was 2000. That was in 2023. They permitted 2000 units to be built Q1 of 2025. They’ve already approved 1800 units. Oh my god, almost their previous record in one quarter. So they’re on target to approve the most amount of units they’ve ever had this year.So how do you make sense of this? Because you hear a lot of people, especially on social media going out there and saying, oh, just follow what the builders are doing, follow what Starbucks is doing or Lowe’s is doing. I’ve never done that. I guess it makes sense to me in some respects that these people have a lot of research. They’ve probably entire analytics teams doing this, but when I hear that I’m run from that market, that just worries me. So how do you interpret that?Yeah, well bringing it back to the beginning of this conversation, when there is more supply, it puts downward pressure on prices. So maybe that’s good if you’re a completely new investor and you want to get your foot in the door, there’s about to be a wave of supply in these markets, which builders will likely have to offer concessions just to sell their properties.ButOn the flip side, your property is going to appreciate slower than it could if you invested in almost any other market with good demand.I just want to sort of explain maybe mechanically how some of these things could spill into the broader housing market. So just in this example that we’re talking about here, Lafayette, Indiana, maybe there’s enough demand to meet the supply knowing literally nothing about the city. I’m already skeptical based on just Austin telling us that they’ve already almost meet their record in the first quarter. But you might say, okay, I’m not interested in new builds. I already own rental properties there. The way it could spill over is basically that, like Austin said, a lot of those builders are going to start offering concessions and they are unlike other sellers that they’re not going to be patient. They’re going to try and be very aggressive in offering concessions and moving inventory because they have a lot of cash locked up into these deals. And so when that happens, it makes the relative value of existing homes go down.
Because I think generally speaking, for the majority of people, all things being equal, if you’re presented with a new home and an existing home with similar features in a similar location, you’re going to pick the new home. And so if you see new home prices start to fall, that can really spill into the existing market in normal times before the pandemic, new homes made up only 10 or maybe 15% of home sales. But since inventory is so low, that has really climbed. And that’s sort of why I am excited to talk to you about this Austin, is because the impact of new home sales on existing homes, in my opinion, has grown and is going to stay high as long as this construction data stays high. So that’s one thing. The second thing is if these home builders aren’t able to sell stuff, they might start renting them out and that could affect the rectal market. But unless you’ve seen any data about that, Austin, I think we’re probably still a few steps away from that.I think we’re a few steps away from that, but I’ll keep my eye on it. That would be very interesting.Okay, great. And I sort of went on this diatribe about Lafayette, Indiana. Tell us some other regional trends you’re seeing.Yeah, for sure. Columbus, Ohio was number three on the list, which is interesting. They permitted the most amount of units. Last year it was almost 14,000 new units they permitted in 2024. As of Q1, they permitted just over 4,000. So if they permit 4,000 per quarter for all four quarters, they’ll beat the record this year for an estimated 16,000 units. So that’s interesting. We’ll see if they beat the record this year for most amount of units permitted. But I think the story there is if you’re an investor, you’ve probably heard of Columbus, Ohio, and so have all the builders and so have all the people that are moving there. So I think it’s a great market with good fundamentals, but the word is out, so you’re going to face some competitionThere. Alright, well Austin, this has been a great overview of builder sentiment and some regional trends. I want to get into some questions about what investors should do with this data for their own portfolio and their own investing, but we do have to take a quick break. We’ll be right back. Welcome back to On the Market. I am here with Austin Wolf talking about construction data Before the break, Austin enlightened us with some sentiment telling us that although we’ve seen really oscillating varied consumer sentiment over the last couple of years, it’s relatively down right now at a 40 where 50 is normal. And so Austin, I’m curious if you could just tell us a little bit about are there markets that you think are ripe for opportunity or does this general construction environment give you pause about investing, not necessarily building, but just people investing when there is this risk of oversupply, at least in some of the markets you shared with us.First and foremost, I always think in terms of demand, are people moving? There are jobs going there. I like to think about that first. If the answer is yes, then I would also consider looking at supply. Okay, is the word out? How many builders are building houses here? How easy is it to get new supply online? How easy is it to build? For example, the easiest market I can talk of is Fayetteville, Arkansas. I lived there and bought a house there.
And the growth there that is happening is it’s intimidating. Large numbers of people are moving there and also it is very flat and it is so easy to build there that a large number of new homes are currently being built there to absorb that incoming demand. So what I would suggest investors do is when you’re looking at demand, okay, great population is rising, jobs are rising. But then I would also recommend either going to the building permit survey data, which you can just find by Googling building permit survey and then find how many units were permitted in your given market that year. Or if you want to make it easy on yourself, maybe do what I did. Just go to chat GPT and ask how many units are being permitted for your given market. And it’s not too unaccurate, I’ll put it that way. Just take a look at how many buildings are going up and then maybe look at a few other markets just to get a sense of, okay, Austin is building this amount of units. Orlando is building this amount of units. Where does my market fit into that? Are they even reaching those numbers?
St. Louis isn’t, okay, great, maybe they’re not building as much as Kansas City and maybe people are moving to the suburbs there. Maybe it shouldn’t dust in the suburbs. There appear to be a lot of jobs growing in that specific area. So that’s what I would recommend for investors. Keep an eye on demand, but also keep an eye on supply.That’s great. And honestly, it’s so easy now with chat GPT, it’s amazing that you could do this. I always have found absolute supply numbers a little confusing 2000 units. What does that mean? It’s like that could mean anything. So I know you and I have talked about this in the past, but I guess there’s ways to compare it. I’ve seen people compare number of new units to the number of existing units. That’s a common way to do it. I’ve seen people compare it to the number of new jobs that are created. I’ve seen it compared to population growth. Is there a way that you prefer to do it?When I ran this analysis, I initially did number of new units being constructed divided by the total amount of units.Okay,So what percent The total supply is coming onlineTo growth rate. Basically you’re just figuring out how quickly it’s growing compared to existing size.And I do really like your suggestion of comparing number of new units to the number of new jobs in the area. I think I’ll do that for my next analysis. That’d be very interesting to see what happens.Okay, great. So what did you look at this? Do you think there are markets with particular opportunities because they have some of these strong fundamentals, but relatively low levels of building?I first looked at the number of markets that have the highest percent of construction, and what I found blew my mind and I couldn’t believe it. And I think that there is a story there, but I’ll first talk about the markets that didn’t blow my mind. The markets that have had the most amount of new construction in Q1 of this year compared to their total amount of units are Provo, Utah, Kansas City, Missouri, and Richmond, Virginia. And if you’ve heard anything about Utah, it’s a fast growing market and Provo is where one of the big colleges is and they just simply don’t have enough housing units there. And so builders are trying to fix that. Kansas City is also growing, so no surprise there. And then Richmond, Virginia, capital of Virginia, and there’s a lot of finance jobs there. I haven’t done a deep dive into that yet, but it might be worth looking at if builders are quite confident in people moving there. I will say this data is just for multifamily data. The data I’m specifically talking about right now, this does not include single family homes. It only includes a multifamily properties.Is it just that the data is not available or just that’s what you looked at?Yeah, so with permit data, permit data, you can break it out by single family, multifamily, duplex, trying quadplex. I find that very, very helpful, which is why I always look there first. CoStar data is the one that I’m talking about. They only focus on multifamily.That’s just why. All right. Well, we do have to take one more quick break, but when we get back, we’re going to talk about the key takeaways for investors and what you should tactically be thinking about with your portfolio. We’ll be right back. Welcome back to On the Market. I’m here with analyst Austin Wolf talking about some of our new supply side data and what investors should be doing about it. So Austin, if you’re just a regular buy and hold investor and you own a property or two, let’s say in an average Midwest city, I’m going to pick Kansas City. If you’re thinking about buying, how would you use this information in data for your own portfolio?First off, I would just double check and make sure that there is population growth in the particular area that you’re interested in investing in or maybe job growth and also look at the supply data. So let’s say for example, you picked Kansas City because it’s a growing market. Well, Kansas City is also one of the top markets that has started construction on the most amount of units relative to its total supply in Q1 for multifamily. So if you buy a multifamily building, you’re going to have some competition from some other multifamily builders. However, single family buildings are a little bit different from multifamily. They’re a different type of renter.
These are people that want a yard. These are people that want airspace between their four walls and aren’t living next to a neighbor in the next wall over. So if you are considering that market, you would have to go a little more hyperlocal. Let’s say that they are constructing a lot of new multifamily buildings in Kansas City. Where are they actually constructing them? If you are looking for that single family or maybe even duplex, is it next to or is it going to be next to these new massive multifamily complexes that they’re building? If not, maybe this is going to work because the people that are going to be renting in those big multifamily buildings may not necessarily be the renters that you are going to be attracting and your single family house.And then let’s run through an example of a market perhaps with opposite dynamics. I’m not going to guess one. I’d probably guess wrong. So maybe you could provide us with what,Oh man, probably Los Angeles. They just make it so hard to build there. Okay, yeah, tell us about it. Yeah, the time it takes to get a permit approved and to start ground break and then maybe finish it is on average four years, which is one of the highest in the nation, at least for a large market using Los Angeles as an example, it’s hard to build there. Builders are going to be building less there. So maybe you want to pick a market with high demand, but it’s hard to build. If you’re able to get into that market, you are likely going to see much more appreciation in that market than you would in say a Kansas City or a place where it’s easier to buildLikeFayetteville, Arkansas. So places that are geographically constrained like Seattle for example, or they’re sandwiched between the ocean and hills and the mountains. I’m going to use Salt Lake City as an example too. Maybe it’s a little more friendlier to builders there, but it’s still sandwiched between a lake and a mountain. It will run out of room to build, and as long as there’s demand there, prices will appreciate. So I would look at geographic constraints and then how friendly is the metro to builders if they’re not that business friendly. Blue states mostly, if they’re not that friendly to businesses and to builders, it’s going to take longer for builders to build new supply, which means that as long as demand is there, prices are likely to appreciate faster than in red states that are easier to build.So that’s some great practical tips for what’s going on today. I’m curious, this is just sort of opinion. I’m wondering how you feel going forward given the situation with tariffs because we keep hearing that it’s going to raise the cost of construction. I’ve heard everything from 10 to 20% depending on the market, 10 grand, $20,000 per home, which is a lot. And if this was some great economic time where wages are growing up a lot and wages are going up, but they’re not growing up like crazy that maybe consumers could eat that cost. But I am a skeptical that consumers could eat that cost. Does that mean, do you think builders are going to build less or what do you think happens fromHere? I think it’s hard to say overall. On average, we should see prices increasing across the board, and then of course we’ll have those localized differences, market to marketConstruction prices will go up. But if you don’t know if people can absorb that, does that mean that builders will just take less margin or are they going to try? I guess that’s the question to me, right? This is sort of one of these fundamental questions about the future of the housing market is if prices go up permanently and we don’t know. We don’t know what’s going to happen, but if they do, if tariffs stay in place indefinitely, prices go up in construction after 2008, there’s this huge decline in construction, are we going to see something like that? Or do you think it’s likely that builders keep building and keep adding supply and just take less margin? Maybe?I think the more friction that is thrown at builders, the less likely they are to build as much as they are right now. That’s all I can speak on at this moment.Okay, fair enough. All right, that’s good to know. I’ll just say I don’t know either. I’m just speculating. These are kind of the big questions to me that I’m going to be really be paying attention to in the next couple of months is if we start to see some decline in building at a time where we might see inflation, that to me is the recipe for really rapid appreciation in the housing market. Again, I’m not saying that happens, but I could see a world where that happens in the next couple of months. I could see a world where tariffs aren’t as bad as the original announcement, aren’t as intense as the original announcement. Prices don’t go up that much, and maybe there’s not that much inflation and maybe building costs stay under control. So I think you could see both sides of it. But I just want to share sort of why I’m thinking about this is because this supply lever really matters and which way it’s swinging back and forth does matter for the housing market in the short term and the long term.
It is just a super important element to the housing market, which is why we’re so happy to have you on here today, Austin. Thank you. All right. That wraps up our deep dive into builder confidence with Austin Wolf. If you are looking to stay ahead of market trends and all the latest headlines, make sure to follow on the market wherever you get your podcasts, and also subscribe to our YouTube channel where we share exclusive content and analysis. You can also actually subscribe to our weekly newsletter as well. We have all these things. We don’t talk about it all that much on the podcast, but we have this YouTube channel. We have a newsletter where Austin keeps you updated and informed on everything happening in the market today. So make sure to subscribe to these things that’re totally free, and we have a ton more information to keep you on top of everything that matters. For real estate investors, I’m Dave Meyer. Thanks for listening. We’ll see you next time.