Each month, the NAHB/Wells Fargo Housing Market Index (HMI) tracks the sentiment of homebuilders nationwide. Rated from 0 to 100, a rating better than 50 signifies builders are optimistic.
Beneath is a graph of this sentiment rating since 2015:
You’ll be able to visually see that the rating has oscillated because the second half of 2022 (when rates of interest hiked). This, mixed with extra provide coming on-line, has dampened builder optimism. And all of the headlines round tariffs haven’t helped both.
So why does this matter? If homebuilders are extra pessimistic in regards to the market, they’ll construct fewer housing items. This isn’t so good for these attempting to get into the market, as costs of single-family properties aren’t more likely to go down. Nonetheless, that is doubtless excellent news for present buyers, as decrease provide doubtless means extra appreciation.
As a result of actual property is hyperlocal, let’s drill down and see which markets have essentially the most optimistic builders.
New Constructing Allow Knowledge
Each month, the U.S. Census publishes how a lot provide was permitted in each market within the Builder Permits Survey (BPS). This can be an excellent indication of how assured builders are available in the market’s demand for housing items.
To gauge builder confidence on the market degree this yr in comparison with final yr, I checked out what number of items have been permitted yr so far (so, all items permitted for Q1 2025) and in contrast this to the year-to-date items permitted on the identical time final yr. In English: I in contrast the provision permitted in Q1 2025 to Q1 2024.
Sure, I do know. Simply because provide was permitted in a given quarter doesn’t imply that it was the identical quarter that builders supposed to construct. I feel it’s positive to ignore these semantics and simply concentrate on evaluating apples-to-apples information.
Check out the markets with the largest distinction in provide permitted in Q1 of this yr to final yr:
The markets that stood out to me essentially the most had been:
- Orlando, Florida
- Lafayette, Indiana
- Columbus, Ohio
Orlando, Florida, has permitted nearly double the quantity of items in Q1. Check out this housing unit absorption graph:
Given how a lot we’re listening to about Florida markets experiencing greater vacancies and lease declines, some builders seem to nonetheless be assured in demand development for Orlando housing items.
Let’s transfer on to Lafayette, Indiana. It’s a pretty small school city/analysis market, however builders look like popping out of Q1 with excessive expectations of development, with 1,779 items already permitted. For reference, essentially the most items permitted on file had been simply over 2,000 in all of 2023:
This means 2025 could be the yr with the best variety of items ever permitted for Lafayette. Time will inform if the market will have the ability to soak up such a lot of items.
Lastly, we transfer on to Columbus, Ohio. Builders have caught on to the Ohio capital’s development:
Simply over 4,000 items have already been permitted for 2025. If that tempo continues, it is going to surpass 2024 with essentially the most provide permitted. This means buyers needs to be aware: The phrase is out, and alternative brings competitors.
Extra Markets With Q1, 2025 Optimism
Utilizing information from CoStar, I took the variety of new items underneath building in Q1 per market and divided that quantity by the overall quantity of items in a given market to get the proportion of whole new provide underneath building. Theoretically, markets with a better share of recent items underneath building needs to be extra optimistic than markets with a decrease share.
Apparently, Lafayette is on this checklist. (Maybe their permit-to-groundbreak time is lower than one quarter?) However most of those markets are small.
Let’s check out solely the most important markets (over 600,000 inhabitants):
It’s attention-grabbing to see 5 widespread Florida markets right here, given most markets in Florida have cooled into purchaser’s markets, with many properties seeing value declines. And permit-to-ground break occasions don’t look like that lengthy (on common) in Florida. There have to be just a few builders within the state that suppose the long-term demographic developments of housing wanted within the Sunshine State are of their favor.
Provo, Utah, doesn’t shock me, given it’s one of many hottest and most appreciating markets within the nation. Kansas Metropolis, Missouri, does shock me, because it’s not a market I usually hear being referred to as “scorching.” Nonetheless, it did expertise a few of the highest lease development within the nation in 2024 attributable to stable demand and never as a lot provide being constructed (till now, it seems like).
And it’s attention-grabbing to see Richmond, Virginia, on the checklist. It appears builders are fairly assured on this market’s capacity to soak up provide, given it additionally permitted extra items in Q1 2025 than in Q1 2024.
Ultimate Ideas
In conclusion, whereas it’s exhausting to make broad strokes about builder optimism on the market degree, some markets within the Midwest and Florida seem to presently have extra builder optimism than different markets, in addition to just a few different scorching markets (demographically talking), resembling Provo and Richmond.
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