Tuesday, July 29, 2008

Cheap custom homes! Fire sale prices! Won't last!

Consumers can get better prices on a custom or semi-custom home these days from a mass market homebuilder (free Yahoo link) (I found the Yahoo link since I had to search Google for the story after I couldn't find it directly on the WSJ site). The housing slump is pushing the builders to find more profitable niches.

A number of big home builders are now getting into the custom-home game -- an area that was once almost entirely the province of boutique builders. Companies such as John Laing Homes, Toll Brothers Inc. and K. Hovnanian Homes are all venturing into a field that takes more time, patience and hand-holding than production building.

The reason is simple: Custom-home building is more profitable for builders. And -- in this tough market -- it also carries less risk: Builders avoid the carrying costs of land, taxes and other monthly expenses that can come with speculative building. Because custom building caters to the upper end of the market, it's doing better than production building right now, says Steve Melman, an economist with the National Association of Home Builders. Although home building of all types is stagnating, he says that the custom share of the market tends to go up during down times, while production building peaks during boom times. In 2007, the custom share of the market was 24%. In 2005, during the peak of the boom, the custom share was 19%.

To see the difference in prices, look at one couple building a house in the Lowcountry of South Carolina. The per square foot cost from Toll Brothers was $137, while custom builders quoted between $170 and $200. The couple had to tweak an existing Toll Brothers design as opposed to a fully custom house, but the price break they got seems worth it. If you're in the market for a custom house, the big builders are worth checking out.