Custom Home Building Posts Gain for 2019

NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building expanded during the fourth quarter of 2019, supported by low mortgage interest rates.

There were 44,000 total custom building starts during the fourth quarter of 2019. This marks a 16% gain over the final quarter of 2018 total of 38,000. Over the last four quarters, custom housing starts totaled 177,000. Due to weakness during the first half of the year, this represents only a 3% increase over the 2018 total (172,000) but a solid gain nonetheless.

As measured on a one-year moving average, the market share of custom home building in terms of total single-family starts is now 20%, down from a cycle high of 31.5% set during the second quarter of 2009.

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

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. As housing production slowed in 2006 and 2007, the market share of this not-for-sale new housing increased as the number of single-family 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.

Declines in market share in recent years are due to an acceleration in overall single-family construction, especially in spec home building. However, as the most recent NAHB HBGI indicates gains for home construction in some rural areas, there was some strength recorded for custom building that is built in areas outside of metro markets.

Article written by Robert Dietz on February 21, 2020 for NAHB Eye on Housing