DENVER HOUSING 1Q17: Affordability has Become the Primary Roadblock for Future Growth
- New Home Starts in 1Q17 are at their highest quarterly levels since 3Q07 – and are up 25% YoY; Annual Starts are up 19% YoY and are at levels not seen since 1Q07.
- At no time in Denver’s history has housing been as expensive as it is now with only 31% of new home starts priced below $400k.
- Strong Price Increases may be leveling off: The average detached new home sales price is now at $528,130, up 4% over 1Q16 – but lower than the 8% average increase over the previous 3 years.
- The market is not operating under normal circumstances as tight trade labor has pushed delivery times for homes up to twice the length of time normally required.
According to Metrostudy’s quarterly lot-by-lot field survey of the Denver housing market, 3,055 homes were started in 1Q17, up 21% from 4Q16, and up 25% from 1Q16. These start figures account for all product types including single family detached, townhomes, duplexes and condominiums and is the highest start figure in any quarter since the third quarter of 2007. There were 11,746 annual starts in 1Q17, up 19% from 1Q16 and the highest level of 12-month starts since 1Q07.
“Housing affordability continues to be a major concern for the industry, prospective buyers, and government and economic development officials,” said John Covert, Director of Metrostudy’s Denver market. “At no time in Denver’s history has housing been as expensive as it is now with only 31% of new home starts priced below $400,000. Conversely, starts for homes priced above $500,000 now represent 29% of activity, compared to 25% a year ago, a trend fueled by steady demand from move-up buyers coupled with the rising land, development, materials costs. The average detached new home sales price is now at $528,130 for the trailing 12 months ending in March, 4% higher than a year ago. This is lower than the 8% average increase over the previous 3 years, which indicates that strong price increases may be leveling off.”
With persistent tight trade labor plaguing the industry during this recovery, deliveries remain somewhat irregular from quarter to quarter though the overall trend continues to grow. Builders closed 2,401 homes in the first quarter, down 4% from the fourth quarter, but up 10% compared to 1Q16. Annual closings in 1Q17 increased 13% to 9,798 units compared to 1Q16. There are currently 11,515 vacant developed lots (VDL) in the metro area for single family detached homes, a 5% decline from the fourth quarter and flat from a year ago. Lot deliveries continue to play catch-up and are at their highest level since 2007, up 13% from a year ago. Despite the increase in deliveries, the supply of VDL remains tight at 17 months. Metrostudy considers 18-24 months of lots to be equilibrium for the entire market.
There were 8,706 new homes in inventory in the 1st quarter, up 29% from a year ago. All product types, single family detached (SFD), townhomes, and condo are included in this calculation. Months of supply for total inventory is now at 10.7 months, up from 9.4 months a year ago and the highest level since 2011. Normally increases like this would be cause for alarm, but the market is not operating under normal circumstances as tight trade labor has pushed delivery times for homes up to twice the length of time normally required. In addition, there is more attached product under construction today, even some condos, that is pushing months of supply higher since some of those buildings can take longer to complete.
“While the economy is healthy, job growth is slowing, likely due to a persistent tight labor market and the rising cost of living,” said Covert. “It is difficult to fill job openings when unemployment is so low and the cost of living continues to increase. Trade labor for homebuilders is going to remain tight for the near future. Despite the slowdown, Metrostudy expects builders will continue to start more homes throughout the year as demand remains strong, particularly for entry- level and first-time homebuyers. Look for a steady increase of smaller homes in new projects, along with a rise of attached product to drive down the average sales price. The pathway for condo development, which has been choked by rising insurance costs and construction defects litigation in recent years, has cleared somewhat with the passage of HB 1279, which changes the ease in which lawsuits can be filed. A much-needed change at a time when affordability has become the primary roadblock for continued growth.”
For information contact:
John Covert – 720.493.2020 x 201
About Metrostudy: 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.