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Market Share of Custom Home Construction Holding Firm

Market Share of Custom Home Construction Holding Firm

In a recent entry in NAHB's Eye on Housing blog, economists examined the market share of non-spec home building, and particularly custom home building, which increased as housing production slowed in 2006 and 2007. This not-for sale single-family housing construction is classified in Census housing starts data as either owner or contractor-built. Economists explain that, as the credit crunch made it more difficult for builders to obtain AD&C credit and more difficult for buyers to obtain mortgage financing, custom building gained ground because such construction does not require a sale of real estate from a builder to a home buyer.

Now that housing starts have been trending upward again, these experts wanted to know whether the share of single-family owner and contractor-built housing remains elevated - and apparently it does. However, that share is declining slowly as spec home building comes back in markets where home buyer demand is growing again. For the third quarter of 2012, Census data indicate that the number of owner or contractor-built housing starts was virtually unchanged at 37,000, placing the one-year moving average of the share of  total single-family starts at 26%. 

This is down somewhat from the cycle high of 31.5% set during the second quarter of 2009, with recent declines in market share driven by the overall increase in housing starts. Nonetheless, these data illustrate that custom home building played an important role during the depths of the Great Recession. While total spec housing starts fell by 85% from the second quarter of 2005 to the final quarter of 2010, the biggest decline experienced by custom home building was a smaller, but still significant, 68%.

Builder Confidence Rises for Eighth Consecutive Month

Builder confidence in the market for newly built, single-family homes rose for an eighth consecutive month in December to a level of 47 on the NAHB/Wells Fargo Housing Market Index (HMI), released on Dec. 18. This marked a two-point gain from a slightly revised November reading, and the highest level the index has attained since April of 2006. Two of the HMI’s three component indexes are now above the critical midpoint of 50. The component gauging current sales expectations rose two points to 51 in December, while the component gauging sales expectations in the next six months slipped one point, to 51.
The component measuring traffic of prospective buyers increased one point, to 36. Looking at the regional picture, the three-month moving average of HMI scores gained in all but the West, where it held even at 47 in December. The Northeast posted a four-point gain to 35, while the Midwest and South each posted three-point gains, to 48 and 46, respectively.
Commenting on the latest HMI readings in NAHB's press release, Chairman Barry Rutenberg said, “Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward and a shrinking number of vacant and foreclosed properties on the market. However, one thing that is still holding back potential home sales is the difficulty that many families are encountering in getting qualified for a mortgage due to today’s overly stringent lending standards."

New-Home Sales Hit Highest Rate Since April 2010

Sales of new single-family homes increased 4.4% in November to a seasonally adjusted annual rate of 377,000 units, according to figures released by HUD and the U.S. Census Bureau on Dec. 27. This was the fastest monthly sales pace since the federal home buyer tax credit expired in April of 2010. Rebounding from declines in the previous month, both the South and the Northeast showed improvement in sales activity in November, with respective increases of 21.1% and 12.5%. Meanwhile, new-home sales in the Midwest dropped by 12.5% and the West posted a decline of 17.8%.

The inventory of new homes for sale increased slightly to 149,000 units in November, which is a 4.7-month supply at the current sales pace. Commenting on the latest data, NAHB Chief Economist David Crowe called the November sales gain "consistent with NAHB’s member surveys, which show increasing confidence in the market." He's projecting a total of about 365,000 new-home sales in 2012, an increase of almost 20% over the previous year, and says that the year ahead will see a similar gain as more people who have been sitting on the sidelines decide that it's time to purchase a new home.

Today's home photos are those of Archival Designs' Luxury House Plan, Hepplewhite

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  • Joanne Loftus
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