Of the 848,000 single-family homes started in the U.S. in 2017, roughly 79,000 were nonmetropolitan—that is, they were built outside one of the officially-defined metropolitan areas—as reported in a recent NAHB study, At 79,000, nonmetropolitan single-family starts were up 40 percent from the trough in 2011, compared to a 97 percent for single-family starts overall.
The NAHB study is based on territory outside Metropolitan Statistical Areas (MSAs), which are aggregations of counties defined by the Federal Government based largely on commuting patterns. This is the way the Census Bureau/HUD Survey of Construction, and a lot of other data, are organized.
The term rural, at least as used by the Federal Government, means something entirely different—territory outside of densely settled urban areas that tend to be much smaller than entire counties. The map below shows metropolitan areas in shades of blue, and urban areas in dark colors. So the dark blue is urban territory inside metros, and the dark maroon is urban territory outside of metros. Urban areas outside of metros appear as very fine dots that may be difficult to see without magnifying the image. It is easy to see, however, that the vast majority of land in the U.S. is rural. As the light blue shows, there is a lot of rural territory even within metropolitan areas.
One of the distinguishing features of home building in nonmetropolitan America is the relatively high share of custom homes—that is homes built one at a time on the home owner’s land. These include homes classified by the Census Bureau as “contractor built” if the owner employs a builder; and “owner built” in cases the owner his- or her-self serves as the general contractor. Inside metropolitan areas, only 11.5 percent of the homes started in in 2017 were contractor built and 5.4 percent were owner built. The vast majority (over 80 percent) were built for sale (or, rarely, for rent), usually in tracts or subdivisions.
Other differences between homes built inside and outside metro areas include size and price. The average size of a single-family home built in the nonmetropolitan part of the U.S. in 2017 was 2,148 square feet, compared to 2,639 inside metropolitan areas. The average price of a single-family home built for sale in the nonmetropolitan part of the U.S. was $245,552, about a third less than in metropolitan areas. The lower price outside metros is due partly to a lower price per square foot, but more to the smaller home size.
Another interesting difference is in how buyers pay for their new homes. Irrespective of location, a strong majority of buyers take out a conventional mortgage. However, inside metropolitan areas, a fifth of buyers relied on an FHA (insured by the Federal Housing Administration or VA (guaranteed by the Department of Veteran Affairs) loan, compared to only 4.4 percent of new home buyers in the nonmetropolitan part of the country.
A relatively high share of new single family homes in nonmetropolitan America are purchased for cash, which may in part be a result of more limited financing options. This, along with the relatively slow recovery and tendency of the homes to be smaller, suggests that housing in nonmetropolitan America faces particular challenges and needs targeted support from programs like the Department of Agriculture’s single-family programs.
For information on additional home characteristics and a more complete descriptions of the data, please consult the full study.
This post brought to you by NAHB Eye on Housing – March, 2019.