Fourth Quarter 2012 Custom Home Building

Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicate that while the growth in custom home building starts has been relatively flat by count, the market share for owner- and contractor-built homes has shrunk due to a rebound in other types of home building.

The onset of the housing crisis and the Great Recession interrupted a 15-year long increasing trend toward a growing share for spec home building. As housing production slowed in 2006 and 2007, the share of non-spec building, particularly custom home building, increased. This not-for sale single-family housing construction is classified in Census housing starts data as either owner- or contractor-built.

The share increased because the credit crunch made it more difficult for builders to obtain AD&C credit and more difficult for buyers to obtain mortgage financing due to falling prices. Thus, the market share of custom home building rose because such construction does not require a sale of real estate from a builder to a homebuyer.

While the share of single-family owner- and contractor-built housing remains elevated, that share is declining as spec home building comes back in markets where homebuyer demand is growing again.

For the fourth quarter of 2012, Census data indicate that the number of owner- and contractor-built housing starts fell somewhat to a total of 30,000, placing the 1-year moving average of its share of  total single-family starts at 24%.  This is down from the cycle high share of 31.5% set during the second quarter of 2009, with recent declines in market share driven by the overall increase in housing starts combined with relatively flat custom home building growth since 2009.