Posted in Denver - Colorado Springs Market | Posted on 12-11-2014 | Written by Metrostudy News
- Denver’s 3Q14 Home Starts are up 14% over 3Q13; the highest number of quarterly starts since 3Q07
- Pricing Squeeze Continues on First Time and Entry Level buyers as only 17% of new homes are priced below $300k, down from 40% in 2012
- Closings rate is slowing down showing that builders should be cautious moving into 2015 and keep expectations realistic.
December 2014: Metrostudy’s 3Q14 quarterly lot-by-lot field survey of the Denver housing market shows that 2,215 homes were started in the quarter, up 14% from 3Q13. This is the highest number of starts in any quarter since 3Q07 and the first time builders have started over 2,200 homes in consecutive quarters since 2007. As a result of strong buyer demand and healthy builder sentiment, annual starts have ascended to 7,558, a 14% increase from 3Q13 and the highest level since 2008. Builders also closed 1,742 units in the third quarter, an increase of 3% from 3Q13.
Annual closings in the third quarter increased 4% to 6,455 home closings compared to 3Q13. Clearly starts continue to outpace closings, a sign at first glance that the market is growing. However, looking closer at the trend over the last several years, home starts and closings continue to grow, but at a declining rate. Builders have started nearly 6,100 homes year-to-date, up 16%, but have closed only 4,800 homes which is the identical number of closings YTD in 2013. Reasons for the slowdown in closings could include price increases, shortages in trade labor, and tight inventory. No matter the reason, builders should be cautious moving into spring 2015 and establish realistic expectations.
“Strong demand from move-up buyers combined with rising costs have placed more emphasis on higher priced product over the course of the last several years,” said John Covert, Director of Metrostudy’s Denver region. “The trend continues as all price points above $350,000 have experienced market share increases since 2013 with the strongest growth in the $400,000-$500,000 segment. For many 1st time or entry level buyers looking to buy single family detached homes, the market has few options available as they’ve either been priced out of the market or can’t find housing in the right locations, thus the need to recalibrate. Only 17% of all single family home starts in the last year were priced below $300,000 compared to 29% in 2013 and 40% in 2012.”
Denver Starts by Price
After five years of declines, vacant developed lot (VDL) inventory in the Denver Market has leveled off in 2014 with 10,565 vacant lots for a 21 month supply. Lot count is essentially unchanged from last quarter, up 1%, and also up only 1% from a year ago. “With home starts up 14% over the year, this can only mean that lot deliveries have accelerated in 2014,” said Covert. “Up over 100% from a year ago, lot deliveries have finally outpaced home starts for the first time since 2007. Normally this would provide some relief for builders, but with lot supplies still tight in prime submarkets, and most of the new lots already controlled by larger public builders, Metrostudy expects supplies to remain tight through 2015. In active projects, lots are virtually nonexistent for homes priced under $250,000 and months of supply hovers between 12 and 18 months for the rest of the segments up to $500,000.”
At the end of September there were 5,740 new homes in inventory, up 23% from a year ago and up 9% compared to last quarter. Of that total, 3,988 are single family detached units that are either under construction, finished & vacant or model homes (total inventory). Inventory levels for SFD are now at 9.1 months compared to 7.7 months a year ago – above the 7.0-8.0 months considered to be equilibrium for SFD total housing inventory and the highest level since Metrostudy began tracking the market in 2001. Again, much of this increase is to meet demand in the market, but with inventory high, and prices high, builders should pay close attention to buyer sentiment moving into 2015. There are another 1,752 attached (condo, townhome, duplex) units in total inventory, up from 1,488 units in 3Q13, an increase of 18%. Most of the increase has come by way of paired or townhome product, which represents over 1,107 of the attached units in inventory. The supply of attached inventory has spiked in the last couple of quarters and is now at 17 months. While inventory is up over the year, closings for attached product continue to decline, down 6%, thus the rise in total inventory months of supply. Our 4th quarter survey will reveal how much of the inventory builders were able to close.
As perhaps housing’s best indicator of market health and equilibrium between 1.5-2.0 months, finished vacant inventory in Denver appears tight. For the single family detached market there are now 647 finished vacant units on the ground, up 58% from a year ago as builders continue to play catch-up with strong demand the last two years. However, closings are flat, thus months of supply of finished vacant inventory has increased from 1.0 month a year ago to 1.5 months in 3Q14. Still low by historical norms and at the lower end of equilibrium, finished vacant inventory has experienced a sharp increase that should be monitored closely over the next few months. The number of finished vacant homes has more than doubled in several price bands over the year, particularly in the $400,000-$499,999 segment.
Have builders finally caught up with demand by putting enough inventory on the ground that will be absorbed by year’s end? Or, have the market increases we’ve experienced the last couple of years began to slow because of rising prices in which case builders may be left with some excess inventory? It’s hard to ignore Denver’s robust economy, strong buyer traffic and increased sales activity which all point to a consumer that is still engaged. However, the pressures on the industry in 2014 such as high land prices and rising development fees, tight lot supplies, rising construction costs, and tight labor markets will likely be factors in 2015, in which case builders should approach the new year with realistic expectations.
For information contact:
John Covert – 720.493.2020 x 201
Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. www.metrostudy.com
About Hanley Wood
Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.