Eye On Housing
Looking at single-family homes started in 2018, the median prices per square foot, excluding improved lot values, range from $154 for contractor-built homes in New England to $89 for homes built for sale in the East South Central division. While the median sale and contract prices per square foot are up across most of the nation, some of the most expensive divisions registered declines. The median square foot sale price came down in New England and Pacific – the two most expensive divisions in the country. The median square foot price for custom homes came down in the Pacific and Mountain divisions – the second and third most expensive areas. This was most likely a result of builders foregoing costly new home features, such as basements, to keep the construction costs down in areas where affordability issues reached the crisis levels.
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 homes built for sale. To make comparison more meaningful, the cost of lot development is excluded from sale prices in this analysis.
Looking at the custom and for sale starts and excluding improved lot values reveals a similar geographic pattern. The highest median square foot sale and contract prices are registered in the West and Northeast. The most economical custom and for sale 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 for sale homes above the national medians.
New contractor-built single-family homes in New England are most expensive to build. Half of custom homes started here in 2018 registered prices in excess of $154 per square foot. Despite being the only two divisions that registered square foot contract price declines, the Mountain and Pacific divisions in the West region claim the next top spots on the list with the median prices of $138 and $137 per square foot, respectively.
In the for sale market, the Pacific and New England divisions continued to register the highest square foot prices, $147 and $143, paid on top of the most expensive lot values in the nation. At the same time, these were the only two divisions with the declining square foot sale prices. Most likely, the price decreases per square foot in the costliest areas are the result of builders foregoing expensive new home features, such as basements, to bring the construction costs down and improve new homes’ affordability.
The East South Central division is home to the least expensive for sale homes. Half of all for-sale single-family homes started here in 2018 registered square foot prices of $89 or lower, paid on top of the most economical lot values in the country. The neighboring two divisions in the South – West South Central and South Atlantic – also registered median square foot sale prices below the national median of $104. Their corresponding median sale prices are $95 and $100 per square foot, excluding improved lot values.
The West South Central division is where most economical custom homes were started in 2018 with half of new custom homes registering prices at or below $94 per square foot. The remaining two divisions in the South – East South Central and South Atlantic – recorded similarly low median square foot contract prices of $98 and $95 – all below the national median of $114.
Since square foot prices in this analysis exclude the cost of developed lot, highly variant land values cannot explain the regional differences in square foot prices. However, overly restrictive zoning practices, more stringent construction codes and higher other regulatory costs undoubtedly contribute to higher per square foot prices.
Typically, contractor-built custom homes are more expensive per square foot than for sale 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 2018, the two Midwest divisions registered the largest differences between median contract and sale square foot prices – $127 vs $102 in the East North Central division, and $131 vs $109 in the West North Central division. However, some of the costliest divisions – Pacific and Mid-Atlantic – have sale square foot prices exceeding contract square foot prices – $138 vs $127 in Mid-Atlantic, and $147 vs $137 in Pacific.
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.
Leave a Reply