Eye On Housing
Looking at single-family homes started in 2017, the median prices per square foot, excluding improved lot values, range from $155 for contractor-built homes in the Pacific division to $86 for speculatively built homes in the East South Central division. The median sale and contract prices per square foot are up across most divisions. The most significant gains are registered in the Mountain division where median contract prices increased 15%.
Contract prices of custom, or contractor-built, homes do not include value of improved lot as these homes are built on owner’s land (with either the owner or a contractor acting as a general contractor). Consequently, contract prices are typically lower than sale prices of spec, or built for sale, homes. To make comparison more meaningful, the cost of lot development is excluded from sale prices of speculatively built homes in this analysis.
Looking at the custom and spec starts and excluding improved lot values reveals a similar geographic pattern. The highest median square foot sale and most expensive contract prices are registered in the West and Northeast. The most economical custom as well as least expensive spec homes are started in the South region, where the median contract and sale prices per square foot are consistently below the national medians. The Midwest falls right in the middle, with square foot prices for both custom and spec homes slightly above the national medians.
New contractor-built single-family homes in Pacific are most expensive to build. Half of custom homes started here in 2017 registered prices in excess of $155 per square foot. The Pacific division also became home to the most expensive for sale houses with half of spec starts registering prices exceeding $153 per square foot (paid on top of improved lot values). Typically, custom square foot prices have been substantially higher than spec square foot prices in the Pacific division. However, in 2017, after median contract square foot prices came down a bit and spec prices rose noticeably, the differences became trivial in this division.
Similarly, median new spec and custom-built home prices converged in New England in 2017 with half of all single-family spec and custom starts registering prices in excess of $150 per square foot, paid on top of the most expensive lot values in the nation. This placed the division in the close second position on both lists of most expensive contract and sale prices per square foot (excluding improved lot values).
The East South Central division is simultaneously home to the most economical custom homes as well as least expensive spec homes. Half of custom single-family homes started here in 2017 registered square foot prices of $90 or lower, while the median price for spec homes was $86 per square foot, excluding improved lot values. The remaining two divisions in the South – West South Central and South Atlantic – also register median square foot prices below the national medians of $107 for custom homes and $100 for spec homes. Their corresponding spec home median prices are $92 and $96 and the median prices for custom homes are $93 and $94 per square foot.
Since per square foot prices in this analysis exclude the cost of developed lot, highly variant land values cannot explain the regional differences in per square foot costs. However, higher and rising regulatory costs undoubtedly contribute to higher per square foot prices.
Typically, contractor-built custom homes are more expensive per square foot than spec homes after excluding improved lot values, suggesting that new custom home buyers are not only willing to wait longer to move into a new home but also pay extra for pricier features and materials. In 2017, the Mountain division registered the biggest difference between median contract and sale square foot prices ($144 vs $115, respectively). The differences are also substantial in Midwest ($114 vs $101 in the East North Central division, and $118 vs $107 in the West North Central division). However, as mentioned above, the two costliest divisions – New England and Pacific – registered no significant difference between median square foot sale and contract prices in 2017.
The NAHB estimates are based on the Survey of Construction (SOC) data. The survey information comes from interviews of builders and owners of the selected new houses. The reported prices are medians, meaning that half of all builders reported higher per square foot prices and the other half reported prices lower than the median. While the reported median prices cannot reflect the price variability within a division, and even less so within a metro area, they, nevertheless, highlight the regional differences in square foot prices.
For the square footage statistics, the SOC uses all completely finished floor space, including space in basements and attics with finished walls, floors, and ceilings. This does not include a garage, carport, porch, unfinished attic or utility room, or any unfinished area of the basement.
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