The custom home building market is beginning to slow after capturing market share over the past several years, according to an NAHB analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey. Approximately 50,000 custom homes were started during the third quarter, which represents a 17% decline on a year-over-year basis.
Over the last four quarters, custom housing starts totaled 179,000 homes, a 14% decline compared to the prior four quarter total (208,000).
After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until recently. 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 20%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009.
In separate analysis of the single-family built-for-rent sector, the NAHB notes BTR has stagnated due to a pullback in investor interest. According to an analysis of the same Census Bureau survey, approximately 17,000 single-family BTR units were started during the third quarter, a 6% increase on a year-over-year basis. The 70,000 units started over the past four quarters is essentially flat compared to the 68,000 units started in the prior four quarter period.
Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (7.8%) is nonetheless higher than the historical average of 2.7% (1992-2012).
Demand by investors for single-family rental units, new and existing, has cooled in recent quarters as financial conditions have tightened. This will act to lower the share of homes sold to investors.
With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of single-family BTR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the single-family BTR market will likely retain an elevated market share even as the sector cools
