DENVER HOUSING 3Q18: Market Starts to Level Off as Builders Accelerate Efforts to Deliver More Affordable Homes
- Quarterly New Home Starts are up 2% over 3Q17 – Annual Starts are up 13% YoY
- Annual Closings are up 14% YoY – at the highest level since 2007
- Of the homes started in the last 12 months, 68% were for single family detached homes which is up 8% over the year; 25% were for townhomes/duplexes – which is up 15% over the year; and 7% condominiums – up 77% over the year
- Demand appears to be leveling off at the higher price points, which should benefit lower price points in the coming quarters as prospective buyers recalibrate given declining purchasing power
Metrostudy’s 3Q18 survey of the Denver housing market shows that builders started 3,312 homes in the third quarter, up only 2% compared to 3Q17. The leveling off was not unexpected as builders have been easing back this fall to get a better sense of market direction going forward while focusing on deliveries from the very strong first and second quarter’s starts pace. To that end, builders for the first time since 2005/06 have started 10,000 homes in a three-quarter span (1Q18-3Q18) and annual starts are now at 12,958 units, up 13% for the year.
Of the homes started in the last 12 months, 8,865 were for single family detached homes (68% share) which is up 8% over the year; 3,207 were for townhomes/duplexes (25% share) which is up 15% over the year; and 896 condominiums (7% share) and up 77% over the year. Builders closed 3,138 homes in the third quarter, up 24% compared to 3Q17, and nearly equal to the number of quarterly starts, keeping risk low for the potential of overbuilding if the market suddenly moves sideways – which is not expected. Annual closings in 3Q18 were up 14% to 11,688 units, its highest level since 2007. As expected Douglas County starts continue to increase having eclipsed 3,000 starts for the first time since 2006. The 3,053 starts are up 35% over the year and now represents a 24% share of the market with top performing communities such as Sterling Ranch, Crystal Valley Ranch, Stepping Stone, Sierra Ridge, Terrain, Inspiration, and Cobblestone Ranch.
“Subtle shifts in product and pricing have started to materialize in recent quarters as many builders have accelerated efforts to deliver more affordable homes,” said John Covert, Regional Director of Metrostudy’s Denver market. “The number of annual starts for homes priced from $350,000-$450,000, which had dropped the previous year, have actually increased this year, up 5% compared to 3Q17 annual starts. Third quarter starts have had a greater increase, up 9% compared to 3Q17. While annual starts in the $500,000-$599,999 price band are still up over the previous year, third quarter starts are essentially flat compared to 3Q17, another sign that demand may be leveling off at the higher price points, which should benefit lower price points in the coming quarters as prospective buyers recalibrate given declining purchasing power.”
Months of supply for lots is at the lowest level since Metrostudy began tracking the market in 2001. Along with tight trade labor and rising costs, lot supply has been a consistent challenge for builders trying to balance rising demand without building through available lots before more can be replaced. Annual lot deliveries are down 13% for the year and have fallen below the pace of new home starts once again, which should keep lot supply relatively tight for the immediate future.
Despite a little turbulence as the market responds to rising rates and high home prices, Metrostudy believes new home demand remains strong for the Denver region and expects a healthy number of prospective buyers to show up as the 2019 selling season kicks off. Economic fundamentals are solid and demographics suggest that household formations will continue to grow, driven primarily by young professionals and young families that will translate to more, first time and entry-level buyers. Builder traffic has fallen the last couple of months, now down 7% YTD as prospective new homebuyers face the same struggles as the existing home buyers with declining purchasing power. However, sales contracts are still above last year’s pace demonstrating the continued strength in the market as buyers recalibrate what they can afford.
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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