Posted in Denver - Colorado Springs Market | Posted on 06-03-2015 | Written by Metrostudy News
- New Home Starts are flat in the first quarter but traffic and sales contracts are up 29% and 39%, respectively, over last year
- Major impediments to growth in this market include higher home prices – currently only 14% of the new home market is priced below $300k, and tight construction trade labor
- Denver’s resale market continues to post remarkable numbers that confirm the high rate of demand for housing
June 2015 – According to Metrostudy’s quarterly lot-by-lot field survey 1,679 homes were started in 1Q15, down 7% from 4Q14 and up 0.1% from 1Q14. Housing starts are essentially flat for the quarter, which would be concerning if traffic and sales contracts for the first quarter weren’t up 29% and 39% over last year respectively. Builder backlog continues to swell as most still face significant challenges with tight trade labor getting homes built in a timely manner. Despite continued strains on trade labor, builders have still started 7,930 homes in the last 12 months, a 16% increase from 1Q14. Builders closed 1,659 units in the first quarter, an increase of 23% from 1Q14. This large increase was expected as 2nd and 3rd quarter starts in 2014 were the highest in the last seven years. Annual closings in 1Q15 increased 10% to 7,026 units compared to 1Q14. With a robust economy and strong in-migration, along with growing buyer traffic and contracts activity, it’s a fairly safe bet that that both new home starts and closings will increase in the second quarter, and throughout the remainder of the year.
“Along with trade labor shortages, the other major impediment to housing growth in 2015 and beyond is higher home prices,” said John Covert, Director of Metrostudy’s Denver region. “Strong demand for move-up buyers combined with rising costs have placed more emphasis on higher priced product over the course of the last several years. 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. With demand shifting to move-up product and only 14% of the new home market priced below $300,000, the average sales prices are skewed higher, now at $459,557 for the trailing 12 months ending in March, which is back to the previous high in December 2007.”
Despite the increase in home starts, vacant developed lot (VDL) inventory in the Denver Market has increased +12% since 1Q14 to 11,262 lots for a 21 month supply. Metrostudy considers 18-24 months of lots to be equilibrium for the entire market, a range that varies from one jurisdiction to another. Lot deliveries, which have outpaced starts recently, are up 62% from a year ago with most coming in the Parker, Arvada, Castle Rock, and West Adams submarkets, among others. In active projects, lots are virtually nonexistent for homes priced under $250,000 and months’ supply hovers between 9 and 16 months for the $250,000-$399,000 segments.
At the end of March there were 5,731 new homes in inventory, up 19% from a year ago and essentially flat compared to last quarter. Of that total, 4,020 are single family detached units that are either under construction, finished & vacant or model homes (total inventory). Inventory levels for SFD are at 8.6 months compared to 7.8 months a year ago – and slightly above the 7.0- 8.0 months considered to be equilibrium for SFD total housing inventory. While closings are higher, which would normally bring down months of supply, there are some 600 more homes under construction this quarter than a year ago which has pushed months of supply higher. Most of these homes are already sold, but have yet to close so the higher months of supply figure will almost certainly fall in the next quarter. There are another 1,711 attached (condo, townhome, duplex) units in total inventory, up from 1,501 units in 1Q14, an increase of 14%.
“Most of the increase has come by way of paired or townhome product, which represents 1,126 of the attached units in inventory,” said Covert. “Townhomes and paired product has experienced a 34% increase in homes starts in the last year. Many of these projects have found their way back into the suburban market, within master planned communities, and are serving the increasing void left by scant condominium development which had traditionally served the entry-level buyer.”
Denver’s resale market continues to post remarkable numbers that confirm the high rate of demand for housing in Denver. The number of active listings fell to a new low in March, putting extreme pressure on buyers desperate for housing that has become increasingly difficult to find as we enter the strongest buying season of the year. There were only 4,112 active listings at the end of the year compared to over 7,000 a year ago. As would be expected, new listings jumped nearly 70% over the year, the vast majority of which already have contracts on them, leaving an active listings count at extremely low levels. Months of supply now sits at 0.9 months, down from 1.6 months a year ago. As expected median home prices are pushing higher, up 19% over the year to an all-time high of $345,000 for single family detached resales in Denver.
So far, tight trade labor and rising home prices haven’t shut off the industry’s ability to deliver homes. But many wonder at what point consumers will forego a more expensive new home that takes longer than normal to deliver and look for other alternatives. The problem they’ll face, at least in the short term, is an incredibly tight resale market where few options exist. Given the constraints the industry is facing, Metrostudy believes the market will still grow in 2015, but not nearly at the pace possible if more affordable product appealing to entry-level buyers was available.
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
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