Despite a trend of fewer new single-family construction starts in recent months, Census Data indicates custom home and townhome construction activity is increasing.
According to an analysis by the NAHB, there were 52,000 custom home starts in the second quarter of 2024, a 6% increase compared to the prior-year period and the largest gain since the third quarter of 2022.
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 retrenchment. 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.
Townhome construction in the second quarter also increased on a year-over-year basis in the second quarter, rising by 8% to 42,000 starts. Over the last four quarters, townhome construction starts totaled 174,000 homes, 23% higher than the prior four-quarter period. According to the NAHB, townhomes made up almost 15% of single-family starts in the second quarter of the year.
Using a one-year moving average, the market share of newly-built townhouses stood at 17.2% of all single-family starts for the second quarter. With recent gains, the four-quarter moving average market share remains at the highest on record, for data going back to 1985.
Prior to the current cycle, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6%, on a one-year moving average basis. This high point was set after a fairly consistent increase in the share beginning in the early 1990s.
The long-run prospects for townhouse construction are positive given growing numbers of home buyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.
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