DENVER HOUSING 3Q16: Rising Costs and Demand Drives Prices to Record Levels

  • Robust activity earlier in the year has kept starts growing at year over year rate with annual starts up 24% to 10,563 homes – the highest level of starts since 2007
  • Homes with base prices above $400k now 
represent 67% of the market, and homes priced
 above $500k represent 27% – both all-time
 highs fueled by steady demand from move-up 
buyers coupled with rising land, development,
materials costs
  • The shortage of trade labor the last several years continues to slow builders’ ability to complete and deliver homes, so months’ supply of inventory is naturally higher

According to Metrostudy’s quarterly lot-by-lot field
 survey 2,893 homes were started in the third
 quarter, unchanged from the second quarter, and essentially flat from 3Q15. However, robust activity earlier in the year has kept starts growing at year over year rate with annual starts up 24% to 10,563 homes – the highest level of starts since 2007. Metrostudy
 expects starts to increase slightly in the fourth
 quarter as builders focus on closing inventory 
before the end of the year. After a slow second
quarter for deliveries, builders caught up and
closed 2,612 units in the third quarter, an increase
 of 24% from the 2,114 closings in 3Q15. Annual closings in 3Q16 increased 18% to 9,253 units compared to the 7,860 annual home closings in 3Q15.

“Homes with base prices above $400k now 
represent 67% of the market, and homes priced
 above $500k represent 27% – both all-time 
highs fueled by steady demand from move-up 
buyers coupled with the rising land, development,
 materials costs,” said John Covert, Director of Metrostudy’s Denver offices. “For many prospective
 entry-level or first-time buyers, few options exist
f or new home detached product, thus the industry
 will continue to push toward more townhome and
paired product which is up 32% over the year to 2,217 starts representing nearly 21% of all home starts. It stands to reason that the average new home sales prices continue to push higher, now at $517,445 for the trailing 12 months ending in September, 6% higher than a year ago.”

At the end of September there were 7,686 new homes in inventory, up 21% from a year ago. This isn’t a surprising figure given the swelling backlog builders have had to manage over the last year. But with annual closings growing at a slower rate than starts, months of supply figures are pushing higher. Inventory levels for SFD are at 9.2 months compared to 8.7 months a year ago. This is still above the 7.0-8.0 months considered to be equilibrium for total housing inventory, but is down from its peak level last quarter of 9.7 months as builders deliver more homes. Again, the shortage of trade labor the last several years continues to slow builders’ ability to complete and deliver homes, so months’ supply of inventory is naturally higher.

Though still very tight, finished vacant inventory 
for single family detached homes experienced its
 largest one quarter increase in ten years, jumping 
from 517 units last quarter to 665 units in
 September, a 29% increase. With closings up,
months of supply for finished vacant inventory has
stayed very low, now at 1.1 months, the same as 
it was this time last year and below normal
 equilibrium range of 1.5-2.0 months. There are another 320 townhome/condo finished vacant units in the market, down slightly from a 
year ago. Since attached finished vacant inventory 
has declined and closings have increased, months of supply has tightened further, now at 1.8
 months compared to 2.3 months a year ago.

Finished vacant inventory remains incredibly thin 
for most price points, and essentially non-existent
 for anything priced below $300,000. 
Metrostudy expects finished vacant inventory to
increase in the coming months as builders catch up, more homes are completed and seasonal cancellation rates move higher. As expected, closings picked up in the third quarter, and some of the high inventory levels the market had reached the previous quarters has ticked down. However, traffic counts remain below last year’s levels and sales contract year-over-year growth is slowing, so builders should continue to pay close attention to spec inventory levels as the end of the year draws near.

“In many ways the market is still hampered by tight supplies of lots, high costs, trade labor shortages, and regulatory pressure,” said Covert. “But the economy continues to grow at a very healthy clip and demand for homes continues to push the industry forward. Metrostudy expects around a 15% increase in home starts for 2016 over last year, which would put builders on pace to start in the neighborhood of 10,500-10,700 homes. This following increases of 54% in 2012, 22% in 2013, 17% in 2014, and 16% in 2015.”

For information contact:
John Covert – 720.493.2020 x 201
jcovert@metrostudy.com

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.

 

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