Page 18 - Builder Brief September 2025

E C O N O M Y
CUSTOM HOME BUILDING GROWS AS BROADER
HOUSING MARKET STRUGGLES
An analysis of Census Quarterly Starts and
Completions by Purpose and Design data by
NAHB economists shows that custom home
building posted year-over-year growth in the
second quarter of 2025 even as broader single-
family production remains weak. According to the
NAHB analysis, custom starts totaled 54,000 in
Q2 2025, a 4% increase from the same quarter
a year earlier. Over the trailing four quarters,
custom housing starts reached 184,000 units—
just over a 2% rise compared with the prior four-
quarter total of 180,000.
The results highlight a divergence within
the single-family housing sector. While overall
single-family starts have been constrained by
high mortgage interest rates and elevated home
prices that have dampened buyer demand for
move-in-ready, speculative (spec) homes,
the custom segment has shown resilience
and modest growth. Custom-built homes now
represent roughly 19% of total single-family starts on a
one-year moving average, the highest share recorded
since 2022. That figure remains well below the cycle peak
of 31.5% set in Q2 2009—when production home building
collapsed following the housing market crisis—and also
below the roughly 21% peak seen at the start of 2023
before spec building recovered some share.
NAHB Chief Economist Dr. Robert Dietz, writing in the
Eye on Housing blog, notes that the custom home market
reacts differently to macroeconomic forces than other
forms of home building. In particular, custom building
is less sensitive to the mortgage interest rate cycle and
more sensitive to changes in household wealth and equity
market performance. Put simply, many custom projects
are driven by homeowners or buyers who rely less on
conventional mortgage-financed speculation and more on
accumulated savings, home-equity extraction, or portfolio
gains. As a result, when stock markets rally and household
net worth rises, demand for higher-end, custom-designed
homes tends to strengthen even if borrowing costs remain
elevated.
By contrast, spec home production is often financed
and marketed by builders who respond quickly to shifts in
mortgage rates and buyer affordability. Higher mortgage
rates reduce the pool of mortgage-qualified buyers and
extend the time it takes to sell newly built spec homes,
prompting production builders to scale back starts. That
dynamic helps explain why the custom share of starts has
been rising: spec starts have fallen back while the custom
sector, buoyed by wealth effects, has been able to expand
or hold ground.
There are practical implications for builders, suppliers,
and local housing markets. Builders focused on speculative
production may need to adjust product mix, price points,
or financing strategies to operate in a higher-rate
18 SEPTEMBER 2025 | GREATER SAN ANTONIO BUILDERS ASSOCIATION