Affordability is reshaping where America builds new homes
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The slowdown in US single-family construction is not being felt evenly across the country, and the latest data suggest that the economics of home building are steadily pushing development away from the largest metropolitan cores. Large metro core counties recorded a 13.9% decline in single-family construction in the second quarter of 2026, the steepest contraction among the seven geographic categories tracked by the National Association of Home Builders’ Home Building Geography Index. Their share of single-family construction slipped 1.3 percentage points to 14.6%, extending a longer period in which the country’s densest housing markets have lost ground to smaller and less densely populated areas.
The contrast with smaller markets is becoming harder to overlook. Outlying counties of small metropolitan areas recorded 0.9% growth during the second quarter, making them the only category to move into positive territory after four consecutive quarterly declines. The increase was modest and does not yet represent a sustained recovery, but the direction matters because it comes at a time when much of the single-family market remains under pressure from financing costs, expensive building materials and strained household affordability. Those conditions are changing not only how much housing gets built, but where builders can make the economics of a project work.
High costs are pushing single-family construction outward
The movement of single-family construction toward smaller markets predates the latest quarterly figures. In the first quarter of 2026, large metro core counties accounted for 14.7% of single-family permits, down 4.1 percentage points from a decade earlier. Large metro suburban counties had lost another 3.3 percentage points over the same period, showing that the redistribution has extended beyond central cities into some of the larger suburban markets surrounding them. By the second quarter, large metro core counties held a 14.6% market share, compared with 29.4% for small metro core counties and 10.9% for small metro outlying areas.
Land economics are one explanation for the difference. Builders operating in high-density metropolitan areas face a relatively constrained supply of developable land, stronger competition for sites and project economics that often require higher sales prices to generate an acceptable return. Smaller metropolitan and outlying counties can offer more available land at lower cost, giving developers greater flexibility to adjust home sizes, lot configurations and price points when buyers are highly sensitive to monthly payments. Lower land costs can also give builders more room to manage increases elsewhere in the development budget.
Construction inputs are adding further pressure. Residential building material prices excluding energy were 5% higher in July than a year earlier, marking the largest year-over-year increase since December 2022. Softwood lumber prices rose 17.3% over the same period, including a 7.4% increase in July alone. These increases can affect projects in every geography, but the consequences are particularly difficult in markets where land, labor and financing expenses already leave builders with limited room to absorb additional costs without raising home prices.
The result is not a simple migration from cities to rural America. Small metro core counties remain the largest individual geographic category for single-family home building, with a 29.4% market share in the second quarter, while purely non-metro and non-micro counties accounted for just 4.5%. The more meaningful change is occurring within the broader metropolitan system, as development becomes relatively more attractive in smaller cities and their surrounding counties than in the urban cores of the country’s largest metropolitan areas.
A wider housing slowdown is accelerating the geographic shift
The geographic redistribution is taking place against a weak national backdrop. Single-family housing starts fell to a seasonally adjusted annual rate of 808000 in July, down 9.9% from the revised June rate of 897000, according to federal housing data. Overall housing starts declined 12.4% from June and 13.5% from July 2025, although single-family building permits moved in the opposite direction, increasing 2.5% from June to an annual rate of 894000.
Sales conditions provide another indication of why builders remain cautious. New single-family home sales reached an annualized rate of 607000 in July, down 10.5% from June and 6.3% from July 2025. The number of new homes available for sale reached an estimated 488000 at the end of the month, equivalent to 9.6 months of supply at the current sales pace. The median sales price was $393800, down from $403100 in June, illustrating the difficult balance builders face between protecting margins and keeping newly built homes within reach of buyers.
For developers, those conditions increase the importance of location and cost structure. A project that appeared viable when borrowing costs were lower and home buyers could support higher prices may become much more difficult when sales slow, incentives rise and carrying costs stretch over longer periods. Lower-cost markets do not eliminate those problems, but cheaper land and greater development flexibility can provide a larger financial cushion. That helps explain why small metro outlying counties were able to post limited growth during a quarter when every other single-family geography remained in decline.
The longer record points in the same direction. In the fourth quarter of 2025, large metro core counties recorded a 12.8% decline in single-family construction, while micro counties increased 1.6% and posted their seventh consecutive quarter of growth. By the first quarter of 2026, single-family construction was declining across every geographic category, showing that smaller markets are not insulated from national affordability and financing pressures. Their advantage appears to be relative rather than absolute, with lower-density markets losing less ground or recovering sooner when market conditions soften.
Multifamily construction is following a different urban path
The same large metropolitan areas losing single-family construction share remain central to the multifamily market, complicating any argument that residential development is simply abandoning major cities. Multifamily construction expanded in six of the seven geographic categories during the second quarter of 2026, with large metro core counties recording 11.6% year-over-year growth. Those counties accounted for 35.4% of multifamily construction, while large metro suburban counties held another 27.3%, giving the two categories a combined 62.7% market share.
The divergence reflects two housing markets responding differently to the same affordability constraints. High mortgage costs and elevated home prices can suppress demand for ownership while supporting rental demand from households that postpone purchasing a home. Dense metropolitan areas can remain attractive for multifamily developers because greater unit density allows high land costs to be distributed across more homes, while established employment centers and transportation networks can support demand for rental housing. Single-family builders have fewer ways to offset expensive land when buyers are reaching the limits of what they can afford.
That distinction carries implications well beyond home builders. Manufacturers, building material suppliers, logistics providers and construction contractors may increasingly need to account for different geographic patterns across residential segments rather than treating housing as a single national market. Single-family demand may place greater emphasis on smaller metropolitan areas and their surrounding counties, while multifamily activity continues to concentrate heavily in larger metropolitan cores and suburbs. The product mix, delivery requirements, project scale and customer base can vary materially between those markets.
The second-quarter data do not establish that smaller markets will consistently outperform large metro cores, particularly when one quarter of growth in small metro outlying counties followed four consecutive declines. They do show that the geography of single-family construction has been changing for years and that the latest downturn is reinforcing that movement. If land prices, financing costs and buyer affordability remain restrictive, the next phase of US home building may depend increasingly on where developers can reduce the cost of delivering a home rather than where housing demand is theoretically greatest.
Source:
National Association of Home Builders
