More builders are getting into the custom home business because there is more profit and less risk that units will go unsold.
The custom share of the market tends to go up during down times, while production building peaks during boom times, according to Steve Melman, an economist with the National Association of Home Builders. In 2007, the custom share of the market was 24 percent. In 2005, during the peak of the boom, the custom share was 19 percent.
Toll Brothers, K. Hovnanian and many other large builders are rolling out â€œbuild on your own lotâ€ programs in select markets, something few of them have ever done before.
Because large builders can provide both custom and semi-custom homes at relatively low prices, they are putting pressure on small custom builders. Some small builders are responding by joining co-op buying groups. These groups can reduce the costs of building a home by an estimated 4 percent to 8 percent.
“It’s allowed me to stay competitive with the big guys,” says Chip Gruver, president of Gruver-Cooley Corp., a Leesburg, Va., custom builder.
Source: June Fletcher, Wall Street Journal.