Custom Home Market Continues to Increase Despite Rising Housing Costs

Despite a growing focus on entry-level homes, the custom home building market is continuing to expand. The demand for custom homes has been steady in recent years due to home price gains that allowed for a boost in homeowner wealth. Despite this, the custom home market is expected to grow more slowly than the rest of the single-family home sector.

During the one-year interval between the third quarter of 2016 and the end of the second quarter of 2017, data showed an astounding 171,000 custom homes started construction. The prior four-quarter period tracked 167,000 construction starts, showing a 2.4% increase. Even though this increase is significant, the market share of custom homes has declined corresponding with speculative home building.

Due to tight ADandC lending conditions after the recession, construction of spec homes was constrained. The same market share of 21% has been recorded from 2000 to 2007.

With the growing demand for custom homes, an increase in pricing has been seen as well. According to NAHB analysis of Census data, in 2016 the average price of a custom home was $379,000, a substantial increase from $260,000 in 2002. In fact, last year 21% of custom homes had a contract price of at least $500,000.

Along with this increase, there has been a noticeable rise in cost for building materials and labor, which continue to negatively impact housing affordability. Despite that, the custom home market is better able to handle these rising costs.

The majority of custom home buyers are already homeowners, meaning the price gains have increased their wealth. Recent data shows homeowners have a combined $13.9 trillion equity in their homes.

Because of this increased wealth, the custom home outlook remains positive. Although the market will expand at a slower growth rate than the overall single-family market, homeowners will continue to expand the custom home market.

A recent interview with Sheila Marler, founder of custom home agency Owner Builder Network, shed some light on the custom home market.

Marler said that people choose to build custom homes for a variety of reasons. These can include not liking their neighborhood or school district, or maybe wanting more land. Custom home buyers know what they want, and they know they’re going to have to build their home to get what they want. Custom homes allow for adding amenities other homes may not offer. For example, according to the 2016 U.S. Houzz and Home survey, 68% of homeowners plan to incorporate some kind of recreational area in their custom home.

“The only other avenue is, ‘Let’s find a piece of land in the area that you’re interested in, and let’s design the home the way you want it,’” said Marler.

While custom homes may be pose homeowners with more difficulties, like the site-development process, having a custom-built home gives the owner more opportunities, according to Marler.

In fact, more and more custom homeowners are adding guest quarters to their homes for a caregiver to stay in so they don’t have to go to a retirement home when they’re older. Custom homes allow homeowners to choose which amenities they include in the home design. Many custom homes opt for green technology, or it can be something as simple as choosing to install a septic system, which one quarter of U.S. homes use.

Custom homes may be more expensive, but it’s a surefire option that will allow homeowners to get exactly what they want with their new home.

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