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Residential Homebuilding Industry Overview

While COVID-19 has meant that there have been many changes in the residential homebuilding industry, the industry has been steadily increasing over the past five years and has been adapting to the new situation with social distancing on construction sites and virtual tours.

Overview of Residential Homebuilding Industry

  • Homebuilders experienced the strongest sales in May in over a decade. Sales of newly built, single-family homes were nearly 13% higher annually in 2020. However, housing starts were about 18% lower annually.
  • The industry is currently increasing hiring to meet the increased demand for housing, specifically homes not yet under construction. In May, 226,000 new workers were added, but even before the pandemic, homebuilders are struggling to find skilled workers.
  • New homes represent a greater proportion of all homes for sale than previously: in April 2020, 1 in 5 homes for sale were new constructions as opposed to 1 in 6 the previous year.
  • The chief economist at the National Association of Home Builders, Robert Dietz, anticipates a 20% decline in single-family constructions in 2020.
  • 891,068 new single-family units were started in 2019, according to NAHB analysis of the Survey of Construction. This represents a 1% increase from 2018 and a 107% increase from 2011. The distribution of units and the annual growth for census division are shown in the following charts:

Number of new single-family starts by census division, 2019Housing starts annual growth rate by census division, 2018/2019Key Players

The fifteen biggest home builders by market value in the U.S.

  • The top five companies in the industry, Lennar, D.R. Horton, NVR, PulteGroup, and Toll Brothers, account for 60% of the total industry. This means it can be difficult for smaller companies to enter and succeed in the industry, as there are higher barriers to entry.
  • In March, Lennar slowed land purchases and housing starts, yet required a quick restart in April. However, the company was already producing well below demand levels, with builders still not fully recovered from the housing crash caused by the mortgage crisis more than a decade ago.
  • In April, PulteGroup drove industry change by launching a fully digital shopping and buying experience. This innovative technology makes it easy for buyers to explore homes in a convenient, safe, and efficient manner. The tool also includes interactive options, allowing buyers to visualize design options and customize the floor plan. In addition, homebuyers can connect with New Home Specialists and mortgage lenders digitally.
  • PulteGroup conducted a survey to learn what buyers wanted. They discovered that dedicated office spaces, increased WiFi capabilities, and open-concept floor plans. PulteGroup is looking to apply this information across its brand portfolio.
  • PulteGroup is using social media in order to increase its sales. Live Facebook events are being used to connect new communities and homes with online consumers. Instead of postponing previously in-person events, the company has decided to instead shift to hosting Live Virtual Model Tours on Facebook to showcase its properties. Each event has reached an average audience of 2,000 people. PulteGroup has stated that they can see this method becoming a lasting part of the sales process.

COVID-19 Impact

  • At the end of March, the homebuilding industry was designated an essential business. This meant that many firms were able to keep working throughout the pandemic.
  • Stay-at-home orders increased the demand for suburban housing and a desire for new houses as opposed to existing ones has increased demand for new single-family home construction.
  • With the stay-at-home orders, demand for certain features has increased. For example, buyers are looking for larger gardens, multiple offices, and greater comfort. Architects and designers are beginning to take these desires and needs, such as a space for remote work, into consideration.
  • Due to COVID-19, revenue growth for the homebuilding industry has been adjusted to decline by 5.3% in 2020, with delays caused by an increase in unemployment and a decrease in disposable income.
  • As most of the unemployment caused by COVID-19 is either temporary or involves jobs on the lower end of the income spectrum, Thomas Simons, a money market economist with Bloomfield, believes that this will not have a significant impact on the demand for single-family houses.
  • However, Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, has stated that the rebound of the housing construction industry may be hindered by the loss of 1 million jobs in the industry.
  • Other impacts that COVID-19 has had include delays in final inspections, manufacturing factories closing down temporarily, and social distancing of workers on construction sites.
  • In order to keep workers safe and follow social distancing rules, construction sites have changed. This includes masks on construction crews and visitors, hand-washing stations, shoe coverings, gloves, and hand wipes.
  • In-person tours have been mostly replaced with virtual tours of model homes. For example, Van Metre Homes has utilized the experience of game designers to also include the possibility to design homes during the virtual tour, allowing buyers to select countertops, cabinets, and appliances before viewing the virtual kitchen.

Growth Over Past Five Years

Number of single-family housing unit starts in the United States from 2000 to 2021

  • Most of the industry’s growth since the recession has been in the past five years, with an increase of 2.5% during these five years and 2019 seeing revenues of $89.4 billion.
  • Within the past five years, homebuilding industry operators have primarily constructed single-family homes.
  • The homebuilding industry has benefited in the past five years from higher disposable incomes and improved economic activity that increased consumers to buy houses, as well as accommodating interest rates and favorable access to credit that aided both homebuyers and property developers.

Residential Homebuilding Industry Overview: Predictions

The US single-family homebuilding industry is expected to see a surge in demand, prices and investment over the next three to five years. In parallel, developments in technology and the movement towards environmentalism are forecast to impact buyer expectations and builder design, however the timeframe and scale of such influences are less precise.

1. Intensifying Demand

  • Perhaps the most widely anticipated impact on US single-family homebuilding in the next three to five years, industry researchers including Harvard, PricewaterhouseCoopers, Deloitte, Urban Land Institute, Mordor Intelligence, The Real Deal and Seeking Alpha widely agree that the aging Millennial and Baby Boomer populations will generate new, heightened demand for single-family construction across the country, and thereby exacerbate existing supply imbalances in this segment of the industry.
  • Overall, Seeking Alpha asserts that the “long-term fundamentals” of the US homebuilding industry indicate “healthy and growing demand” for single-family homes throughout the next decade.
  • Perhaps most notably, Harvard points to the fact that the fastest-growing US households during the period will be younger families, empty-nesters and older single persons, as detailed within the following chart:

Harvard - Family Type

2. Rising Prices

  • In conjunction with escalating demand, industry experts (e.g., Urban Land Institute, PricewaterhouseCoopers, Seeking Alpha) expect that homebuilders will enjoy increasing rates for their single-family projects in the coming three to five years.
  • As recently as August 2019, Seeking Alpha reported that long-term economic fundamentals continued to suggest “upward pressure on home values” for single-family units across the US.
  • In particular, PricewaterhouseCoopers suggests that the increasing supply/demand imbalance will escalate the “vicious circle” of “too many people bidding on too few residential properties,” ultimately leading to higher single-family home prices as well as a portion of the population that is priced-out of the market.
  • This escalation in home prices is already visible, with the proportion of household income required to service single-family home costs rising to 53.5% in 2018.
  • As such, the Urban Land Institute and PricewaterhouseCoopers forecast that the most successful single-family homebuilders “over the next several-year stretch” will be competitors that can competitively price homes, thereby tapping into increases in demand as well as potential buyers who are sidelined by prohibitively high rates.
  • The Urban Land Institute and PricewaterhouseCoopers add that these top homebuilders in the US will achieve such advantages through deep market penetration, operational scale, M&A, vertical integration and standardized building plans for single-family residences.

3. Growing Investment — Overall & Emerging Sub-Segments

  • More generally, industry researchers (e.g., PricewaterhouseCoopers, Mordor Intelligence) and business media (e.g., CNBC, Seeking Alpha) forecast that the attractive single-family residence market will stimulate increased investment and competition for US single-family homebuilders for the foreseeable future, including in sub-segments such as build-to-rent and pre-construction sales.
  • Going into the upcoming three to five years, PricewaterhouseCoopers found that US homebuilders consistently view single-family housing as having the “best” prospects and an overall strengthening investment profile compared to all other major property types.
  • Similarly, Seeking Alpha reports that the US will see a “long runway for growth in new residential housing construction” for the foreseeable future, partly to equalize the current and expected supply/demand imbalance.
  • One offshoot of this investment boom is a shift to pre-construction sales of single-family homes, according to CNBC.
  • Notably, as of June 2020, CNBC reported that sales of single-family “not yet under construction” units were already growing by 20% year-over-year.
  • In addition, Seeking Alpha reports that the build-to-rent segment of the single-family homebuilding industry will be a “key area of potential growth” in investment.
  • Specifically, Seeking Alpha forecasts that build-to-rent will represent a “growing percentage” of single-family housing starts “over the next decade,” in response to both strong demand as well as increasing concerns over affordability.

4. Impact of Technology & Environmentalism

  • Meanwhile, BCG and PricewaterhouseCoopers predict that the US single-family homebuilding industry will be increasingly influenced by consumer expectations around new technology and environmentalism; however the scope, magnitude and timing of such impacts remain unclear.
  • According to BCG, new forms of single-family housing that are ecofriendly, technology-enabled and/or meet the additional consumer demands depicted below will become “more widespread” and may even surpass the construction of more traditional single-family residences in the coming years.

BCG - Consumer Expectations

  • PricewaterhouseCoopers similarly projects that technological and social changes ranging from Google’s Nest and smarter buildings to co-living and driverless car communities will change what single-family residence “builders can design, build, and sell.”
  • In parallel, PricewaterhouseCoopers asserts that builders will increasingly reimagine their operations and marketing models using data that enables better the matching of their homebuilding plans with future customers.
  • As a key example, the research and advisory company points to climate change and the new impetus for real estate developers and builders to “reduce the likelihood of damage from major events” by using new building strategies.
  • In particular, homebuilders may be increasingly influenced by the “emerging green premium,” wherein single-family homes with green labels from agencies such as Energy Star, LEED and Greenpoint Rated are commanding price premiums as high as 9%.

Residential Homebuilding Industry Trends

Build to rent, the zero energy home, smart homes, and the open floor plan are among the various trends currently in the US residential home building industry. Below is the description of these trends and what is driving them.

1. Build to Rent

  • Build to rent is a business model where property investors build single-family homes solely to rent them out rather than sell.
  • In the last three years, single-family rental homes have grown by up to 30%. The growth rate of single-family rentals homes has outpaced both single-family home purchases and multi-family apartments in the U.S.
  • In 2019, 43,000 single-family homes were built for rental purposes. According to the National Association of Home Builders, 43,000 homes was the largest number of single-family rental homes recorded in over 40 years.
  • Factors fueling this trend are the high costs of land, labor, and materials, making it difficult for developers to profit from low-cost houses.
  • Additionally, the current economic climate is facilitating the success of the single-family rental house. The economic climate that has riddled residents with high student loans, a tight job market, and the inability to save for a down payment has forced potential buyers to rent. The reason being that even though the residents cannot afford a down payment, they do have enough to spend extra on a rental home.
  • Leading companies in the single-family space are at the forefront of this trend. An example is American Homes 4 Rent, the second-largest owner of single family homes in the U.S. This company has partnered with J.P. Morgan to build 2,500 rental homes.
  • AHV Communities is another company that claims its single-family rental home business is booming. The company has partnered with Bristol Group to build 250 new rental houses.

2. The Zero Energy Home

  • The zero energy home is listed as one of the top trends in house plan designs by The Plan Collection.
  • Additionally, a survey done by Fixr indicated that 73% of the population would prefer an energy efficient home. This was the most popular design theme chosen by the respondents of the survey.
  • A zero energy home is a house that produces as much energy as it consumes during the year. Its purpose is to ensure the occupants have a net-zero energy bill at the end of the year. The house is built by combining advanced design and superior building systems with energy efficiency and on-site solar panels to produce a better home.
  • Experts predict that the global net-zero energy homes market will grow by 28% between 2019 and 2028. This will be evidenced by an increase of net-zero homes from 57,800 households in 2019 to 534,500 households in 2028.
  • In the US the number of net-zero projects increased from 60 in 2012 to 580 in 2019, showing tremendous growth.
  • Currently, the US has only 5,000 net-zero energy single-family homes and over 7,000 net-zero multi-family homes. However, the Net-Zero Energy Coalition estimates that the number could increase to over 100,000 in the coming year.
  • The reason this trend is growing is because of the increased demand for eco-friendly living. Future needs for clean energy alternatives also fuel this trend.
  • Additionally, government regulations being placed to promote renewable energy are facilitating the growth of this trend. An example is California, whose regulators have approved a plan to mandate solar panels on new home construction.
  • Furthermore, the prospect of saving over $19,000 due to reduced energy costs over 30 years is enticing households to promote this trend.
  • De Young Properties is at the forefront of this trend. It built its first net-zero energy building in 2013 and has been perfecting its designs ever since to become more energy efficient.
  • In 2017, the company started constructing three net-zero communities that will have more than 140 single-family homes.

3. Smart Homes

  • According to a survey done by Fixr, “49% of respondents feel that smart homes will be among the most popular design choices in the future.”
  • Smart technology is also predicted to be the preferred design type in the near future. According to Fixr, “smart home percentages are predicted to top 28% by the end of 2021.”
  • Smart homes are “futuristic buildings equipped with advanced electronics and wireless devices.” A smart home system has a web portal/smartphone application that interacts with the “automated system as a user interface.” Smart Homes to be among the popular designs

  • According to PRNewswire, the global single-family smart homes market is expected to reach $104.20 billion by 2023. In 2019, the market was estimated to be $63.4 billion and is expected to decline to $60.8 billion due to the COVID-19 crisis in 2020.
  • The demand for single-family smart homes is attributed to the “increasing number of connected homes and growing implementation of smart home appliances.” The number of connected homes in the United States was estimated to be 17 million in 2015 and 29 million in 2017. This number is expected to increase in the coming years.
  • Companies at the forefront of this trend include Lennar Corporation and Meritage Homes Corporation.

4. The Open Floor Plan

  • According to the Fixr survey, 90% of the respondents indicated that they prefer an open floor plan. This was the most popular floor plan for single-family homes.
  • An open floor plan is a plan that “typically turns the main floor living area into one unified space.” According to the Plan Collection, an open floor plan is a must-have design trend for new homes. Most popular floor plans
  • The popularity of the open floor plan has been increasing over the years. According to Fixr, about 76% of homeowners desired the open floor plan in 2018, in 2019 this number had increased to 88%.
  • In 2019, a survey done by Fixr indicated that the open floor plan was among the most popular design themes among home buyers.
  • The popularity of the open floor plan is driven by the benefits of the plan. An open floor plan centralizes the living room and other areas such as dining and kitchen into one unified space. This “layout provides a great feeling of spaciousness and removes the separation between these important areas. It transforms this section of the home into a place where function and form combine.”
  • Schumacher Homes of Akron and Studio d+c are among companies at the forefront of the trend. Schumacher Homes has a house design “with an open floor plan, with its kitchen, dining area, and living room all flowing into one another.”

Residential Homebuilding Industry: US Market Size

The new residential construction market generates revenue from building and selling both single-family and multi-family homes. The market value of single-family home starts is $346.66 billion, and it can be divided into custom homes ($69.33 billion) and spec homes. ($277.33 billion)

Single-family Home Starts

  • The market value of new residential construction (private) in the US is $527.02 billion in 2020.
  • The market value of new residential construction (private) is expected to grow to $585.65 billion by the year 2023.
  • In 2020, the public spending by the US government of residential construction was $6.6 billion.
  • In 2019, 903,000 single-family homes were completed.
  • The average price of a new single-family home was $383,900 in 2019.
  • Additionally, the market share of single-family home starts can be broken down into custom homes and speculatively built homes (Spec homes).
  • In 2016, custom homes had a share of 21% of the new single-family starts market while speculatively built homes had a share of 79%.
  • Custom and Spec Market Share

  • The market share of custom homes reduced to 20% in 2019. This means that spec homes dominate the remaining 80% of the market share.
  • The decline in the custom market share is attributed to an acceleration of single-family construction, especially in spec home building.

Decline of the custom market shareResearch Strategy

The market value of single-family home starts is given by multiplying the average price of a new single-family home by the number of single-family homes completed in 2019. The market value of single-family home starts = 903,000 * $383,900 = $346.66 billion. Custom homes and spec homes market value is given by multiplying their market share by the new residential construction industry’s market value. The custom and spec home market share for 2019 was used in this calculation since data for 2020 is not available. The custom home market value is $69.33 billion (20% of $346.66 billion), and the spec homes market value is $277.33 billion (80% of $346.66billion).

Residential Homebuilding Industry: US Market Growth

This research determined that the 2018 market value of single family homes starts was $323.4 billion with custom homes taking a 20% share ($64.68 billion) and spec homes ($258.78 billion) taking the rest. By using the difference between 2018 and 2019’s single family homes market values, the US market growth rate (CAGR) for single family home starts was determined to be 7.2%. If the CAGR maintains in the current year, the single family homes starts market value will stand at $371.62 billion.


  • The previous research titled “Residential Homebuilding Industry: US Market Size” established that the market value of single-family home starts was $346.66 billion in 2019. The research also determined that the single family home starts is divided into speculative homes (worth $277.33 billion in 2019) and custom homes (worth $69.33 billion in 2019).
  • According to Census reports on new housing, 840,000 single family homes were completed in 2018. The same report also established that the average price of single family homes in 2018 was $385,000
  • In 2018, custom homes had a share of 20% of the new single family starts market. The rest (80%) was occupied by speculative built homes.

Custom Home Building Share

  • Since the recession, the industry has experienced considerable growth, especially in the last five years. Improved economic activities, high disposable income, favorable access to credit and suitable interest rates are the driving factors for the improved homebuilding industry.

CAGR for new residential construction (private)

  • The previous research also determined that the market value of new residential construction (private) in the US is $527 billion in 2020. The value is projected to grow to $586 billion by 2023. This translates to a CAGR of 3.6%


We used the above research (Residential Homebuilding Industry: US Market Size) to determine the current growth rate of single family home starts.This can be done by identifying the annual market values of the single family home starts and calculating the percentage growth or decrease.Since 2020 data was not available in full, we used 2018 data to determine the single family home starts’ market value.

Single family homes market value

The market value can be determined by multiplying the average price of single family homes by the number of homes completed in 2018. Therefore, the 2018 market value of single family home starts is = 840,000 * $385,000 = $323.4 billion
Speculative and custom homes market values are a product of their respective market shares and the total value of the single family market. We used the 2018 custom and speculative market shares to determine their home market values. The custom home market value is $64.68 billion (20% * $323.4 billion) while the spec homes market value is $258.72 billion (80% * $323.4 billion)

CAGR for single family home starts

The growth rate is the difference in market values between 2018 and 2019. $346.66 billion -$323.4 billion = $23.26 billionUsing 2018 as the base year, the percentage growth is therefore;$23.26 billion/$323.4 billion *100CAGR = 7.2%.
2020 market value will be7.2/100 * $346.66 billion + $346.66 billion2020 market value=$371.62 billion

CAGR of new residential construction (private)

To determine the CAGR of new residential construction (private), we used the following formula;
CAGR =((Ending Value / Beginning Value) ^ 1 / # of years) -1 Beginning Value: $527 billion Ending Value: $586 billion Number of Years: 3 (or, 2023–2020 = 3 years).
(($586 billion/$527 billion) ^ 1 / 3) -1 (1.111954 ^ 1/3) — 11.036-10.036 * 100CAGR=3.6%

Glenn is the Lead Operations Research Analyst at Simple Manifestation with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.


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