I was visiting with an industry professional recently, and he was asking about my perception of what had the new home building industry in such a headlock. I repeated the obvious: interest rates, insurance costs, and affordability. He went on to mention that he had just completed a new custom home, and in speaking to his builder, he learned this specialized segment of the homebuilding business was galloping forward.
The builder lived with every day, presenting a packed schedule—no extra time for anything. He was so busy, he was turning away work. In the meantime, the lower-end tract home industry continues to carry the burden of the interest rate environment, insurance premiums that are ever climbing, and price points that are beyond reach for many homebuyers sitting on the bench, waiting for conditions to improve.
With overall single-family construction down 5 percent for the first four months of 2026, custom home building has been a relative bright spot. The custom segment is less sensitive to the interest rate cycle than other forms of home building, but more sensitive to changes in household wealth and stock prices. With spec home building down and the stock market up, custom building has expanded its market share.
According to the National Association of Homebuilders, there were 36,000 total custom building starts during the first quarter of 2026, up 3 percent compared to the first quarter of 2025. Currently, the market share of custom home building, based on a one-year moving average, is 20 percent of total single-family starts. This is down from a prior cycle peak of 31.5 percent set during the second quarter of 2009 and the 21 percent recent peak rate at the beginning of 2023, after which spec home building gained some market share.
Note that this definition of custom home building does not include homes intended for sale, so the analysis in this report uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold a tax basis in the structure during construction. This form of home building is almost universally undertaken by smaller, private home builders. For the last four quarters, custom single-family housing starts totaled 188,000 homes, a 3 percent increase compared to the prior four-quarter period (182,000).
Welcome to the K-shaped economy. You may have heard this expression used in the last year or two, but it emerged just after Covid-19 finally began to recede, and the consumer and business liquidity that had been spawned by government incentives and free giveaways of cash had ebbed. Today, it defines two disparate cohorts of the American consumer.
A K-shaped economy is one where different groups move in opposite directions at the same time. The “K” image means one arm goes up while the other goes down. In plain English: some people, companies, or industries are doing very well, while others are struggling, even though the overall economy may look fine on paper. Economists generally describe this as a recovery where different parts of the economy recover at different rates, times, or magnitudes, diverging like the two arms of the letter K.
For example, higher-income households with stock portfolios and real estate may keep gaining wealth, while lower-income households face higher costs, credit card debt, and stagnant purchasing power. It can be summarized as the upper part of the K representing higher-income people seeing earnings and wealth growth, while the lower part represents lower-income families struggling with costs and slower income growth.
So when someone says “We’re in a K-shaped economy,” they usually mean the economy is bifurcated: luxury travel, high-end restaurants, stocks, AI/tech, and affluent consumers may be strong, while budget retailers, debt-heavy households, and lower-income consumers may be under pressure.
So there you have it: the haves continue to prosper, represented by the upper arm of the K, and the have-nots struggle to meet the cost of gasoline, groceries, and utilities, all of which have grown in the current economy and represent the lower arm of the K. We can only hope for more sensible times ahead.