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Custom Home Building Slowdown

NAHB’s examination of Census Data sourced from the Quarterly Starts and Completions by Purpose and Design survey reveals a deceleration in the custom home building market following a recent increase in its market presence. Despite the subsector’s heightened dependence on cash buyers, it hasn’t been immune to the recent softening of the market, thereby exerting a downward influence on home builder sentiment.

According to the NAHB, 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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