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Growth for Custom Home Building

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NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates year-over year growth for custom home builders amid broader single-family home building weakness. The custom building market is less sensitive to the interest rate cycle than other forms of home building but is more sensitive to changes in household wealth and stock prices. With spec home building down and the stock market up, custom building is gaining market share.

There were 54,000 total custom building starts during the second quarter of 2025. This was up 4% relative to the second quarter of 2024. Over the last four quarters, custom housing starts totaled 184,000 homes, just more than a 2% increase compared to the prior four quarter total (180,000).

Currently, the market share of custom home building, based on a one-year moving average, is approximately 19% of total single-family starts. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009 and the 21% recent peak rate at the beginning of 2023, after which spec home building gained market share. The current market share is the highest since 2022.

Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.

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Residential Building Worker Wage Growth Slows Amid Housing Slowdown

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Both real and nominal wage growth for residential building workers slowed during the second quarter of 2025, reflecting a broader cooling in the construction labor market, according to the latest report from the U.S. Bureau of Labor Statistics (BLS).

In nominal terms, average hourly earnings (AHE) for residential building workers rose to $39.35 in June 2025, a 3.5% increase from $38.02 a year ago. This marks a continued deceleration in the year-over-year wage growth, which peaked at 9.3% in June 2024. The recent slowdown reflects a slowdown in residential construction activity and a decline in labor demand across the sector. Meanwhile, the number of open, and unfilled construction sector jobs has continued to trend downward, in line with the overall slowdown in housing activity.

Despite the slowdown in wage growth, residential building workers’ wages remain competitive:

11.4% higher than the manufacturing sector ($35.32/hour)

25.3% higher than the transportation and warehousing sector ($31.4/hour)

2.3% lower than the mining and logging sector ($40.29/hour)

Note:

Data used in this post relate to all employees in the residential building industry. This group includes both new single-family housing construction (excluding for-sale builders) and residential remodelers but does not include specialty trade contractors.

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Building Material Prices Rise in July

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Prices for residential building materials rose again in July, marking the largest year-over-year increase in over two years. The underlying price growth trend remained the same, with service prices continuing to grow at a faster pace than goods prices. Similar to last month, parts for construction machinery and metal molding/trim experienced significant price growth, as both increased over 25% compared to last year.

Prices for inputs to new residential construction—excluding capital investment, labor, and imports—rose 0.2% in July, following a 0.8% increase in June. These figures are taken from the most recent Producer Price Index (PPI) report published by U.S. Bureau of Labor Statistics. The PPI measures prices that domestic producers receive for their goods and services; this differs from the Consumer Price Index which measures what consumers pay and includes both domestic products as well as imports.

The inputs to the new residential construction price index grew 2.8% from July of last year. The index can be broken into two components­—the goods component increased 2.4% over the year, while services increased 3.3%. For comparison, the total final demand index, which measures all goods and services across the economy, increased 3.3% over the year, with final demand with respect to goods up 1.9% and final demand for services up 4.0%.

Input Goods

The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. On a monthly basis, the price of input goods to new residential construction was up 0.4% in July.

The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring remaining goods. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index.

Energy input prices jumped up 3.9% between June and July but were 8.1% lower than one year ago. Building material prices were up 0.2% between June and July and up 3.3% compared to one year ago.

Tariffs on building materials do not directly show up in the PPI data because the PPI measures prices for domestically produced goods and services. In fact, tariffs and taxes are explicitly excluded from the PPI. Despite this, price changes in reaction to tariffs are included in the PPI, meaning price increases to pass on increased costs of materials will show up in this pricing data.  Announced tariffs in recent months have resulted in material increases across a few different goods, specifically certain metal products and equipment.

In July, the largest year-over-year input price increase was for construction machinery and equipment parts, reporting a 31.4% increase over the year. Meanwhile, metal molding and trim prices were up 25.6%, fabricated steel plate prices were up 14.3%, and nonferrous wire/cable up 10.5%. Metal commodities have been the primary targets of tariffs, with 50% tariffs in effect on steel and aluminum products and a 50% tariff on semifinished products of copper.

Input Services

Prices for service inputs to residential construction reported a decrease of 0.2% in July. On a year-over-year basis, service input prices are up 3.3%. The price index for service inputs to residential construction can be broken out into three separate components: a trade services component, a transportation and warehousing services component, and a services excluding trade, transportation and warehousing component (other services).

 The most significant component is trade services (around 60%), followed by other services (around 29%), and finally transportation and warehousing services (around 11%). The largest component, trade services, was up 5.2% from a year ago. The other services component was up 1.2% over the year.  Lastly, prices for transportation and warehousing services fell 0.6% compared to July of last year.

Inputs to New Construction Satellite Data

Within the PPI that BLS publishes, new experimental data was recently published regarding inputs to new construction. The data expands existing inputs to industry indexes by incorporating import prices with prices for domestically produced goods and services. With this additional data, users can track how industry input costs are changing among domestically produced products and imported products. This data focuses on new construction, but the complete dataset includes indices across numerous industries that can be found here on the BLS website.

New construction input prices are primarily influenced by domestically produced goods and services, with domestic products accounting for 90% of the weight of the industry index for new construction. Imported goods make up the remaining 10% of the index.

The latest available data, for May 2025, showed that domestically produced goods have experienced faster price growth compared to imported goods used in new construction. On a year-over-year basis, the index for domestic goods increased 1.6%, while prices for imported goods rose 0.1% over the same period. Comparatively, service prices have risen more than good prices over the past year, rising 2.7% year-over-year. Across the three indexes, all inputs remain at higher levels compared to pre-pandemic prices.

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Shrinking Lots: Spec Building New Norm

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The share of smaller lots remained record high in 2024, with two out of three new single-family detached homes sold occupying lots under 9,000 square feet (1/5 of an acre or less). Moreover, a high share of 40% occupied lots under 7,000 square feet (or less than 1/6 of an acre). These shares match the record highs established a year earlier, according to the latest Survey of Construction (SOC). Analysis of a quarter-century of SOC data reveals stark changes in the lot size distribution and documents a dramatic shift towards more compact building over the last two decades.

In 1999, when the Census Bureau started tracking these series, less than half (46%) of new for-sale single-family detached homes occupied lots under 9,000 square feet. The share of these smaller lots fluctuated around 48%, never crossing the 50% mark, until 2011. A shift in speculatively built (or spec) home building towards smaller lots first became noticeable during the anemic housing recovery that followed the Great Recession. Over that period, the share of spec homes built on lots smaller than or equal to one-fifth of an acre rose rapidly, from 47% in 2010 to 61% right before the pandemic.

The trend towards more compact spec building continued during the post-pandemic housing boom, with the share of smaller lots gaining an additional 4 percentage points during the last five years. The persistent shift towards building spec homes on smaller lots is seemingly harder to explain against the backdrop of the pandemic-triggered suburban flight and presumed shifts in preferences towards more spacious living. Less indicative of changing consumer preferences or the residential business cycle, the steadily rising share of spec homes built on smaller lots undoubtedly reflects unprecedented lot shortages confronted by home builders and their attempts to make new homes more affordable.

A closer look at the lot size distribution since 2010 reveals that the most dramatic shifts took place at the lowest end, with lots smaller than 7,000 square feet (or under 1/6 of an acre) increasing their share by 13 percentage points. In 2010, 27% of all sold single-family detached homes occupied lots under 1/6 of an acre. The share was not much different from the 1999 recording of 28%. Fast forward to 2024, and the percentage increased to 40%. At the same time, the share of single-family detached spec homes occupying lots between 1/6 and 1/5 acres increased from 20% in 2010 to 25% in 2024.

At the other end of the lot size distribution, the share of spec homes built on larger lots exceeding half an acre shrank from 14% in 2010 to 9% in 2024. The share of homes occupying lots between a quarter and half an acre declined from 24% to 19% over that period. The market share of homes built on lots between 1/5 and 1/4 of an acre lost 8 percentage points, declining from 15% to 7%.

The median lot size of a new single-family detached home sold in 2024 is 8,506 square feet, or just under one-fifth of an acre. This is slightly larger but statistically not different from the lowest on record median of 8,177 square feet set a year before the COVID-19 pandemic.

While the nation’s production of spec homes shifts towards smaller lots, regional differences in lot sizes persist. Looking at single-family detached spec homes started in 2024, the median lot size in New England is three times larger than the national median.

New England is known for strict local zoning regulations that often require very low density. Therefore, it is not surprising that single-family detached spec homes started in New England are built on some of the largest lots in the nation, with half of the lots exceeding 0.6 acres. The East South Central division is a distant second on the list, with the median lot occupying 0.3 acres.

At the other end of the spectrum, the Pacific division, where densities are high and developed land is scarce, has the smallest lots, with half of the lots being under 0.13 acres. The bordering Mountain division also reports typical lots smaller (0.15 acres) than the national median.

In the South, the West South Central division stands out for starting half of single-family detached spec homes on lots under 0.15 acres. This is half the size of typical lots in the neighboring East South Central division.

The analysis above is limited to single-family detached speculatively built homes. Custom homes built on an owner’s land with either the owner or a builder acting as the general contractor do not involve the work of a professional land developer subdividing a property. Therefore, in the case of custom homes, lots refer to an owner’s land area rather than lots in a conventional sense. Nevertheless, the SOC reports lot sizes for custom homes and shows that they tend to have larger lots. The median lot size for custom single-family detached homes started in 2024 is one acre.

For regional analysis, the median lot size is chosen over the average since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot sizes and values on the public use SOC dataset, making it difficult to calculate averages precisely, but medians (as the midpoint of a frequency distribution) remain unaffected by these procedures.

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AI’s Role in Reshaping Employment: From Theory to Home Building Sector Impacts

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The rapid rise of artificial intelligence (AI), particularly machine learning and generative AI (GenAI), is reshaping industries, creating new economic opportunities, and raising critical questions about its long-term impact on jobs and economic growth. 

A recent study by Ping Wang and Tsz-Nga Wong, titled “Artificial Intelligence and Technological Unemployment” (NBER Working Paper No. 33867, May 2025), provides valuable insights into how AI is reshaping labor markets. Their research highlights both the opportunities and challenges AI adoption brings to the workforce as it becomes increasingly integrated into the economy.

The paper conceptualizes AI as a “learning-by-using” technology, meaning that AI improves its capabilities by learning from the very workers it may eventually replace. In the short term, this dynamic can significantly boost labor productivity. However, over time, if wages and job roles are not adjusted to reflect the growing capabilities of AI, the technology may transition from a supportive tool to a direct substitute for human labor.

The paper outlines three possible long-term scenarios:

Some-AI Steady State: AI improves productivity threefold but cuts nearly a quarter of jobs. Half of the job losses occur within the first five years, driven by the rapid replacement of workers by an AI system.

Unbounded-AI Equilibrium: AI adoption unfolds smoothly, enhancing productivity without displacing workers. Employment rises modestly as AI becomes a complement to human labor rather than a substitute.

No AI Equilibrium: AI fails to take off, and the labor market remains largely unchanged from its traditional form.

AI presents a dual-edged sword. While it holds the potential to drive sustained growth and create new kinds of work, it also poses significant risks of job displacement. Early stages of AI adoption see the most significant job losses, while those who keep their jobs often see wage increases due to higher productivity.

The authors emphasize that the long-term impact of AI remains uncertain. Outcomes will depend on several variables, including AI’s learning speed, error rates, and the relative cost of replacing workers with machines. This unpredictability makes it difficult to forecast whether AI will be a net job creator or destroyer over time.

Additionally, the study points out that traditional labor market policies are insufficient to address the complex challenges posed by AI. Instead, smart, targeted policies are needed, like balancing the bargaining power between workers and firms, and offering subsidies to jobs at risk of AI disruption. These steps could mitigate negative outcomes and improve overall welfare significantly over the next 20 years, and help make AI a powerful ally in our work rather than a threat.

The Impact of AI on the Home Building Industry: Opportunities and Challenges

In the home building industry, on the supply side, AI is beginning to make its mark with both significant opportunities and complex challenges.

From automating repetitive tasks to enhancing project efficiency, AI is transforming how homes are designed and built. Technologies, such as AI-powered design tools, robotic bricklayers, and automated construction equipment, are streamlining construction processes. These innovations reduce the need for manual labor in certain areas, leading to lower costs and shorter project timelines and helping address ongoing labor shortages. Moreover, AI is creating new opportunities within the home building sector. Demand is rising for workers skilled in AI system management, data analysis, and digital design, signaling a shift toward more technologically integrated and highly skilled roles.

However, the adoption of AI comes with disruption. Without opportunities for reskilling, many workers whose roles may become automated may face displacement. The shortage of highly skilled workers could drive up labor costs and lead to project delays, putting pressure on housing affordability.

To ensure a smooth transformation, targeted policy support is essential. Public and private investment in workforce retraining and upskilling programs will be key to helping displaced workers adapt to new roles, like ones that involve supervising AI systems or solving complex problems machines can’t yet handle.

On the demand side of the housing market, the impact of AI could potentially be farther-reaching. AI will bring short-term disruption to labor markets, eliminating office jobs in metro areas. Such transitions in labor markets will alter housing demand, until the economy produces new jobs in an AI-adopting economy. And in theory, by making workers more productive, AI will raise long-term wage growth. These income gains will be a positive outcome for remodeling, housing demand, and vacation home demand in long run.

For the time being, these impacts are speculative. Over time, they will be worth watching on both the supply and demand sides of the housing market.

Note:

Schmelzer, Ron. “Building The Future: How AI Is Revolutionizing Construction.”

“The Rise of Artificial Intelligence in Construction.” Construction Today, September 2024.

Demirci, Ozge, Jonas Hannane, and Xinrong Zhu. “Research: How Gen AI Is Already Impacting the Labor Market.” Harvard Business Review, November 11, 2024.

“Artificial Intelligence Impact on Labor Markets.” International Economic Development Council (IEDC) and Economic Development Research Partners (EDRP), Literature Review.

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Building Material Price Growth Minimal in April

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Prices for inputs to new residential construction—excluding capital investment, labor, and imports—fell 0.4% in April, following a (revised) increase of 0.8% in March. These figures are taken from the most recent Producer Price Index (PPI) report published by U.S. Bureau of Labor Statistics. The PPI measures prices that domestic producers receive for their goods and services; this differs from the Consumer Price Index which measures what consumers pay and includes both domestic products as well as imports.

The inputs to the New Residential Construction Price Index grew 0.6% from April of last year. The index can be broken into two components­—the goods component also increased 0.6% over the year, with services increasing 0.6% as well. For comparison, the total final demand index, which measures all goods and services across the economy, increased 2.4% over the year, with final demand with respect to goods up 0.5% and final demand for services up 3.3% over the year.

Input Goods Prices

The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. For the month, the price of input goods to new residential construction was down 0.2% in April.

The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index.

Energy input prices were up 0.1% between March and April but were 17.6% lower than one year ago. Building material prices were down 0.3% between March and April but up 2.2% compared to one year ago. Energy costs have continued to fall on a year-over-year basis, as this marks the ninth consecutive month of lower input energy costs.

Input Services Prices

Prices for service inputs to residential construction reported its first monthly decline in five months, down 0.6% in April. On a year-over-year basis, service input prices are up 0.6%.

The price index for service inputs to residential construction can be broken out into three separate components: a trade services component, a transportation and warehousing services component, and a services excluding trade, transportation and warehousing component (other services). The most significant component is trade services (around 60%), followed by other services (around 29%), and finally transportation and warehousing services (around 11%). The largest component, trade services, was up 0.2% from a year ago. The other services component was up 1.4% over the year. Lastly, prices for transportation and warehousing services advanced 0.6% compared to April last year.

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Flat Custom Home Building Trends

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NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates flat year-over year growth for custom home builders. The custom building market is less sensitive to the interest rate cycle than other forms of home building but is more sensitive to changes in household wealth and stock prices.

There were 34,000 total custom building starts during the first quarter of 2025. This was unchanged relative to the first quarter of 2024. Over the last four quarters, custom housing starts totaled 181,000 homes, just more than a 2% increase compared to the prior four quarter total (177,000).

Currently, the market share of custom home building, based on a one-year moving average, is approximately 18% of total single-family starts. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009 and the 21% recent peak rate at the beginning of 2023, after which spec home building gained market share.

Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.

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Residential Building Worker Wage Growth Slows Amid Softer Labor Market

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Wage growth for residential building workers continued to slow in March 2025, reflecting softening in the construction labor market, according to the latest report from the U.S. Bureau of Labor Statistics (BLS).

On a nominal basis, average hourly earnings (AHE) for residential building workers reached $38.76 in March 2025, up 4.5% from $37.10 a year ago. This marks a continued deceleration in the year-over-year wage growth, which peaked at 9.3% in June 2024. The recent slowdown reflects an easing of pandemic-related labor shortages and a softening labor demand in the construction sector. In March, the construction labor market saw a decline in job openings as employers slowed hiring plans amid ongoing economic uncertainty.

Despite the slowdown in wage growth, residential building workers’ wages remain competitive:

10.2% higher than the manufacturing sector ($35.17/hour)

24.0% higher than the transportation and warehousing sector ($31.25/hour)

3.7% lower than the mining and logging sector ($40.23/hour)

Note:

Data used in this post relate to all employees in the residential building industry. This group includes both new single-family housing construction (excluding for-sale builders) and residential remodelers but does not include specialty trade contractors.

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Who Influences the Purchasing of Building Products?

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In a previous post, NAHB analyzed where builders and remodelers purchased products, regardless of who ultimately purchases them (themselves or subcontractors).  In this post, the question shifts to who is most often responsible for  the choice of particular products.

When averaging over all 24 building product categories, 60% of builders report they had the most influence on product selection compared to 49% of remodelers.  Still, these shares are ranked the highest within their respective sector.  Both builders and remodelers reported similar shares of influence for subcontractors, dealers & suppliers, and architects. 

However, when it comes to the greatest influencer being the customer, this is more prevalent among remodelers (26%) than among builders (16%).  When analyzing the top seven products most often chosen by the customer, there is a considerable gap between remodelers and builders.  Most of these products (cabinets, lighting, carpeting, ceramic tile, countertops, other flooring) typically are chosen for decorative qualities which are rated quite important among customers.

Please click here to be redirected to the full report.

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Where Do Builders and Remodelers Buy Building Products?

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The most common sources for products used in home building and remodeling are specialty retailers, lumber yards, and wholesale distributors, according to two recent NAHB surveys. The surveys include one of single-family homebuilders in the October 2024 NAHB/Wells Fargo Housing Market Index (HMI) and one of remodelers in the Q3 2024 NAHB/Westlake Royal Remodeling Market Index (RMI). Both surveys asked respondents where they purchase building products, regardless of who ultimately purchases them (themselves or subcontractors)

When averaging across 24 building product categories, the top three major channels of distribution are roughly the same for both builders and remodelers. Specialty retailers, lumber yards, and wholesale distributors together account for around 70% of building product purchases.

When analyzing the specific products purchased at lumber yards, the top products purchased by both builders and remodelers were basic lumber products including plywood & OSB, sawn lumber, and engineered lumber & I-joists.

One major difference between builders and remodelers was the share of those who purchase products from home improvement centers.  Remodelers are three times as likely to buy products at this channel of distribution compared to builders.  Nevertheless, one specific product category, hand & power tools, is purchased at home improvement centers by a majority of both remodelers (68%) and builders (56%).  Of those that do purchase hand & power tools at home improvement centers, 11% of remodelers purchased at least one other product there compared to 3% of builders. 

A subsequent post on who is most often responsible for choosing these products will come later. Please click here to be redirected to the full report.

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