The construction industry, particularly the homebuilding sector, witnessed significant changes in 2022. Analyzing the latest Survey of Construction data reveals crucial insights into this evolving landscape, essential for industry professionals and potential homeowners alike.
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The Surge in Square Foot Prices
In 2022, the median square foot prices for new single-family detached (SFD) homes saw a marked increase of 18%. This surge was not isolated to standard homes; custom SFD homes experienced a similar trend, with prices averaging a 19% hike. This escalation, more than double the U.S. inflation rate of 8%, underscores the rising costs of construction and labor that have impacted home building in the post-pandemic era.
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Custom homes, often built on the owner’s land, traditionally have lower contract prices than spec homes. However, even when accounting for the exclusion of improved lot values, the upward trend in pricing is evident across all U.S. regions.
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Regional Variations in Pricing
The for-sale market displayed notable regional differences. The Pacific and New England divisions topped the charts with median prices exceeding $214 and $219 per square foot, respectively. In contrast, the most economical SFD spec homes emerged in the South region, aligning with or falling below the national median.
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Interestingly, the analysis shows that these regional price disparities cannot be solely attributed to varying land values. Factors like zoning practices, construction codes, and other regulatory costs play significant roles. Moreover, the types of homes, their features, and the materials used also contribute to these differences.
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Custom Homes: A Closer Look
Custom SFD homes in New England emerged as the most expensive to build in 2022, with prices surpassing $213 per square foot. Following closely were homes in the Mountain and East North Central divisions, illustrating a diverse pricing landscape across the nation.
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The South Atlantic division, however, offered the most economical custom homes, a trend mirrored by its neighboring divisions. Custom homes have traditionally been more expensive per square foot than for-sale homes, barring improved lot values. This “custom home premium,” while averaging above 9% over the last two decades, has seen a shift since 2021. The gap between custom and for-sale home prices narrowed significantly, indicating a change in buyer preferences and market dynamics.
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The Impact of the Pandemic
The pandemic played a crucial role in reshaping the homebuilding sector. Supply chain disruptions, soaring material costs, and record-setting home prices contributed to the rapid appreciation of spec home prices. Spec builders, benefiting from shorter build times and sales flexibility, adapted quicker to these changes. As of 2022, the custom home premium per square foot resurfaced but remained below historical norms, signaling a shift in buyer inclination towards less expensive features and materials.
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Tips for Construction Business Owners:
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- Do your research. Before setting prices for your new homes, research the latest square-foot prices in your region. This information is found from various sources, including the NAHB, local real estate associations, and comparable sales data.
- Be competitive. Setting competitive prices with other new homes in your area is essential. However, you should also avoid putting prices too low, which could reduce your profits.
- Be flexible. Be willing to negotiate with potential buyers. You may need to adjust your prices slightly to close a sale.
- Offer incentives. You can offer incentives to buyers, such as free upgrades or closing cost assistance, to make your homes more attractive.
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Square foot prices for new homes are expected to continue to rise in the coming years. Construction business owners can use the latest square foot prices to inform their pricing decisions and make their businesses more successful.
