Tracking Trends in Custom Homes

It’s mostly good news for those who design and build custom homes heading into the second quarter and the rest of 2007. Results of Residential Design & Build’s 2007 Market Trends survey reveal many positive market indicators, such as that average custom home square footage isn’t decreasing. Other noteworthy indicators are that more custom builders and architects are reporting higher profit margins, and that most custom home firms plan on hiring or maintaining staff in 2007, not firing employees.

Most importantly, almost everyone who responded to our survey has a positive outlook on the 2007 custom home market. When asked to categorize their outlook for the 2007 custom home market, 92 percent of readers said it was excellent, good or fair. Of those, 58 percent said excellent or good. Despite all the bad news the mainstream media reports on a steady basis about the housing market being in crash mode, those in the custom home market maintain their positive attitudes.

In fact, builder confidence continued to rise in February to the highest level since June 2006, according to the National Association of Home Builders. NAHB reports the demand side of the single-family market is improving, and housing starts should bottom out in the first quarter of 2007. NAHB further reports how quickly housing conditions stabilize will depend on how quickly investors pull out of the market.

As even more evidence of good things for custom home builders and designers, more than 90 percent of RDB magazine’s survey respondents say they plan on either hiring more staff in 2007 or maintaining current staff levels. Less than 7 percent plan on letting people go.

Our survey results reveal virtually no change in the number of homes designed or built annually by Residential Design & Build readers during the past three years and projecting into 2007. Most custom home building and design firms that responded to our survey (66 percent) design or build 10 homes or fewer annually since 2004.

Not only are the same number of custom homes being designed and built each year, the average square footage of homes designed or built either increased or remained the same for roughly 90 percent of RDB readers between 2005 and 2006. The concept of “smaller is better” may have received plenty of press coverage in recent years, but the reality in the custom market is the majority of homes are not getting smaller, and for some they are actually getting bigger.

Insulated custom market

During a time when the national media’s story has been the housing market’s sky is falling, custom home architecture and builder businesses are doing well. Results of our 2007 Market Trends survey support anecdotal evidence that the custom home market has been insulated from the overall housing market correction of 2006 and into 2007.

For example, since 2004 there has been virtually no change in the number of clients who pay cash vs. finance their new custom homes, according to our survey. Over the past four years, the number remains steady at 33 percent who pay in cash, indicating these clients are not being affected by the fluctuations of the national economy. The steady number of homes designed and built over the past four years also points to a wall around the custom sector, protecting it from the effects of the slowdown in the production market.

The results of the American Institute of Architects’ home design survey index in March, which computes percent of respondents reporting improving conditions minus those reporting weakening conditions, also point to a wall around the custom market. Architects reported the following numbers: Custom/luxury homes, 5.2; second/vacation homes, -7.1. These numbers might not break records, but compare them to the first-time home market at -40.8 and it’s obvious the custom home market is doing well.