Spec Square Foot Prices Skyrocket in 2021

2022-10-21T08:19:47-05:00

Median square foot prices (excluding record-high improved lot values) for new for-sale single-family detached (SFD) homes started in 2021 increased 19%, according to NAHB’s analysis of the latest Survey of Construction data. Increases for square foot prices in new custom SFD homes were more moderate, averaging 5%. Median sale and contract prices per square foot of floor area went up across all US regions, undoubtedly, reflecting skyrocketing building materials prices and fast rising labor costs that pummeled home building in 2021. Contract prices of custom, or contractor-built, homes do not include value of improved lot as these homes are built on owner’s land (with either the owner or a contractor acting as a general contractor). Consequently, contract prices are typically lower than sale prices of spec homes. To make comparison more meaningful, the cost of lot development is excluded from sale prices in this analysis. In the for-sale market, the Pacific and New England divisions registered the highest median prices. Half of new for-sale single-family detached homes started in these divisions in 2021 were sold at prices exceeding $206 and $198 per square foot of floor area, respectively, paid on top of the most expensive lot values in the nation. The most economical SFD spec homes were started in the South region, where the median sale prices per square foot were below the national medians. The East South Central division is home to the least expensive for-sale homes. Half of all for-sale SFD homes started here in 2021 registered square foot prices of $111 or lower, paid on top of the most economical lot values in the country. The other two divisions in the South – West South Central and South Atlantic – also registered median prices below the national median of $132 per square foot of floor area. Their corresponding prices are $125 and $123 per square foot, excluding improved lot values. Because square foot prices in this analysis exclude the cost of developed lot, highly variant land values cannot explain the regional differences in square foot prices. However, overly restrictive zoning practices, more stringent construction codes and higher other regulatory costs undoubtedly contribute to higher per square foot prices. Regional differences in the types of homes, prevalent features and materials used in construction also contribute to price differences. In the South, for example, lower square foot prices partially reflect less frequent regional occurrence of such costly new home features as basements. In the custom home market, new contractor-built SFD homes in the New England are by far most expensive to build. Half of custom SFD homes started in New England in 2021 registered prices in excess of $200 per square foot of floor area. The median custom square foot prices in the neighboring Mid Atlantic division were $154 per square foot – third highest in the nation. The Mountain division came in second with the median of $160 per square foot of floor space. The East North Central division had similarly high custom square foot prices. Half of custom SFD started in the East North Central in 2021 had prices of $150 per square foot or higher. The corresponding median price in the West North Central was $140. The South Atlantic division is where most economical custom homes were started in 2021 with half of new custom homes registering prices at or below $108 per square foot. The remaining two divisions in the South – East South Central and West South Central – recorded slightly higher median square foot contract prices of $123 and $120 – all below the national median of $131. Typically, contractor-built custom homes have been more expensive per square foot than for-sale homes after excluding improved lot values. Over the last two decades, this custom home premium averaged slightly above 9%, suggesting that new custom home buyers were not only willing to wait longer to move into a new home but also pay extra for pricier features and materials. However, these custom home premiums largely disappeared in 2021 when median square foot prices for new for-sale homes caught up and, in five divisions, exceeded divisional custom homes square foot prices. Pandemic-induced supply chain disruptions, skyrocketing building materials costs and home prices setting new records on a monthly basis, combined with shorter build times for spec homes and more flexibility that spec builders have in delaying sales to keep up with the production pace – all likely contributed to a faster appreciation of spec home prices per square foot. It is possible the custom home premium per square foot will return to normal levels in the post-pandemic market or even reach higher levels, similar to the elevated readings of the housing bust and slow recovery of the late 2000s, if the housing market finds itself in a deep recession. The NAHB estimates in this post are based on the Survey of Construction (SOC) data. The survey information comes from interviews of builders and owners of the selected new houses. The reported prices are medians, meaning that half of all builders reported higher per square foot prices and the other half reported prices lower than the median. While the reported median prices cannot reflect the price variability within a division, and even less so within a metro area, they, nevertheless, highlight the regional differences in square foot prices. For the square footage statistics, the SOC uses all completely finished floor space, including space in basements and attics with finished walls, floors, and ceilings. This does not include a garage, carport, porch, unfinished attic or utility room, or any unfinished area of the basement. Related ‹ Existing Home Sales Continue to Drop Amid Rising Mortgage RatesTags: contract price per square foot, home building, median sale price per square foot, new single-family detached, regional differences, Square foot price