NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates a slowing market for custom home building after a recent gain in market share. The subsector’s greater reliance on cash buyers has not shielded it from recent market softening, which in turn is putting downward pressure on home builder sentiment.
There were 34,000 total custom building starts during the first quarter of 2024. This marks an almost 3% decline compared to the first quarter of 2023, which runs counter to many of the gains seen in other home building subsectors. Over the last four quarters, custom housing starts totaled 177,000 homes, a a more than 8% decline compared to the prior four quarter total (193,000).
After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until 2023 and then entered a period of weakness. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has fallen back to just under 18%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009 and a 21% local peak rate at the beginning of 2023.
Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.
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