DENVER 2Q18 HOUSING: Robust Start Levels and Affordability Pressures Push Growth into Condomininium and Townhome Product
- Quarterly New Home Starts are up 20% over 2Q17 levels – and at the highest level for any quarter since 3Q06
- Annual New Home Starts are up 14% YoY and are also at the highest levels since 2006, with the highest growth in condominiums (up 112% since 2Q17).
- Affordability Pressures continue to define the market, with only 23% of new starts priced below $400k and the highest growth in the $600k-$699k price range.
- The median sales price of a single-family home is now $452,500, up nearly 7%, and an increase of over $100,000 since June of 2015.
After strong sales contract activity in the first quarter of 2018, second quarter showed a tremendous increase of home starts for builders across the board. In its quarterly lot-by-lot survey, Metrostudy counted 3,452 homes started in 2Q18, an increase of 20% over 2Q17. Due to the lack of inventory and rapid price escalation in the resale market, frustrated buyers have gravitated toward new construction, resulting in the third consecutive quarter with double digit increases. The 3,452 starts figure in the second quarter was the highest for any quarter since 3Q06.
Annual starts continue to grow and are now at 12,886 units; a 14% increase over 2Q17, and the highest annual starts figure observed in this market since 2006. Of the homes started in the last 12 months, 8,764 were single-family detached homes (68%), 3093 were townhomes/duplexes (24%), and 1,029 were condominiums (8% ). While every product type experienced increases over the year (single-family detached homes were up 8% and townhomes/duplexes were up 16%), condominiums experienced the largest increase in home starts (112%).
Builders closed 3,364 homes in the second quarter, up 21% compared to 2Q17, and nearly equal to the number of quarterly starts; keeping risk low for overbuilding. Annual closings in 2Q18 were up 9% to 11,084 units, its highest level since 2007. Douglas County is once again the market share leader for home starts, now at 23% share. Denver County ranks second for market share and is now 77% back to its previous peak for housing starts.
“Housing affordability continues to be a major concern for prospective buyers, government and economic development officials, and the industry as a whole,” said John Covert, Regional Director of Metrostudy’s Denver market. “At no time in Denver’s history has housing been as expensive as it is now with only 23% of new home starts priced below $400,000. Many builders are introducing smaller detached homes at more affordable prices; a strategy that will surely pay off in the near-term, as the swelling buyer pool of young first-time and entry-level buyers continues to push into the market. The price band with the largest year-over-year gains is the $600,000-$699,999 segment with an 88% increase to 834 starts, representing nearly 10% of the market.”
A consequence of Denver’s robust economy is the extremely low supply of housing inventory for existing homes. As of June, the number of active listings in Denver rose 5% from the previous year to 7,436, but it is still near historic low levels, especially considering the level of housing demand in the market. The persistently low levels of active listings have kept sales volumes relatively flat and home price appreciation strong. The median sales price of a single-family home is now $452,500, up nearly 7%, and an increase of over $100,000 since June of 2015.
Given the severity of persistent constraints facing the industry, the housing market is estimated to remain underbuilt, relative to demand, for several more years. This should provide builders the opportunity to grow at a measured pace throughout 2018 and 2019. New trade tariffs and rising inflation are potential threats to the industry as costs continue to push higher for builders. However, Denver’s sturdy economic engine and impressive run of housing starts the last three quarters are the highlights for this mid-year report. More product is available than at any other point over the last ten years, and more affordable choices are on the way with higher concentrations in attached product. Metrostudy is still forecasting about 13,000 starts for the year.
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
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