Custom homes have always been a part of any real estate market and will continue to be. The number of homes being built on an owner’s land with either the home owner or builder acting as the general contractor jumped significantly in 2014. Is it that we are all watching too many home improvement shows and the mystery of building is being simplified or is it because the demand has risen so dramatically? I would say it could be a little bit of both.
The National Association of Home Builders (NAHB’s) analysis of Census Data from Quarterly Starts and Completions survey indicates the number of starts built on an owner’s land totaled 162,000 for 2014 which is a growth rate of 20% from the 2013 total of 135,000. The current market share of custom home builders is 24.8% down from an industry high of 31.5% in the second quarter of 2009. This number does not include homes intended for sale but rather homes intended to be lived in by the owner of the land.
Prior to the recession there was a trend moving away from building custom homes on owner’s land, although the credit crunch and subsequent new home start slowdown caused the uptick in 2009. Now as the market continues to recover and in many areas is seeing multiple offers the trend is moving towards custom home building. The reasons for this are very simple; owners of land can now get custom home construction loans because their areas have improved in value and they have increased equity in their land. Additionally with such a lack of inventory, lot owners are deciding to build rather than sell their lot and buy resale. Buyers also want to live in space that suits them; often they can’t find what they want in the marketplace.
You can read the report and see an informational graph here: http://eyeonhousing.org/2015/02/growth-for-custom-home-building/
While the trend is definitely moving to a robust custom home market there is the dangerous trend of non-experienced homeowners choosing to be their own general contractor on their new home project. If the owner does not have any prior experience and if home construction is not their primary occupation, liability issues that could arise and they run the risk of making so many custom changes without an eye for resale down the road that they could erode future equity.
This upward trend will most certainly affect land sales as more buyers will be opting to buy land and to build custom homes. Therefore, if you don’t know enough about land options, zoning, and the land purchasing process in your area, now may be a great to get more familiar as this could be an opportunity coming to a location near you in the very near future. You may also want to get familiar with a few local builders in the event you have a buyer who wants additional information on either building new or renovating. Building a relationship like this may also connect you with a builder who may need your help in the future if they have a buyer looking for a lot.