Custom Home Building Market Expanding

The custom home building market has recorded two consecutive quarters of strong production.

NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates that the number of starts of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, held at 47,000 for the third quarter, after a post-recession high of 48,000 for the second quarter. Over the last four quarters, total custom home starts reached 154,000, compared to 133,000 for the four quarters prior.

Note that this definition of custom home building does not include homes intended for sale, so this is a narrow definition of this sector.

As measured on a one-year moving average, the market share is now 23.8%, down from a cycle high of 31.5% set during the second quarter of 2009. During 2012, as the rest of the single-family construction market expanded, the market share (as a percentage of total single-family starts) of owner and contractor built housing declined. However, over the last year the market share for custom home building has been rising.

custom home mkt

The onset of the housing crisis and the Great Recession interrupted a 15-year long trend away from homes built on the eventual owner’s land. However, as housing production slowed in 2006 and 2007, the share of this not-for-sale new housing increased as the number of starts declined. The share increased because the credit crunch made it more difficult for builders to obtain AD&C credit, thus producing relatively greater production declines of for-sale single-family housing.



3 replies

  1. I would like to know the relationship between the increase in custom homes and CP loans. Are the banks more willing to enter into these type of loans, under reasonable terms.

    • Mike –

      Good question. We’ll be publishing updates on AD&C lending on Thursday and Friday of this week. Drilling down to loan types is on the to-do list, but it is certainly the case that lending conditions are having an impact of the type and form of home building in the post-recession period.

  2. These are a really good set of questions to ask yourself when building a home. I especially like the question about what features you really need. If you are building a custom home on a budget, this can help you narrow down what you really need. Thanks for the great advice for home building!

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