DENVER HOUSING 4Q18: With the Market at 2007 Levels, Production Continues to Move into Townhome and Detached Product
- It’s been a solid run for Denver homebuilders as annual new home starts are up 7% to 12,800 homes, the 28th consecutive quarter for annual start increases and the highest level since 2007.
- Quarterly detached new home starts are down 12% YoY while detached annual starts are up 5% for 2018. The biggest gains in 2018 came from townhome/duplex product, increasing 4Q18 starts by 49% to 811 homes and annual starts by 25%.
- Townhome starts for 2018 are the highest on record and now represent 27% of all homes started in the metro area.
- Condo activity remains sporadic, concentrated in a few geographies, and generally falls within high price ranges.
Metrostudy’s 4Q18 survey of the Denver housing market shows detached starts experienced a decline of 12% to 1,674 homes in 4Q18 in response to the economic turbulence last fall. However, strong activity the first three quarters of the year pushed annual starts up by 5%. The biggest gains in 2018 came from townhome/duplex product, increasing 4Q18 starts by 49% to 811 homes and annual starts by 25%. Townhome starts for 2018 are the highest on record and now represent 27% of all homes started in the metro area. With the average sales price in December for new SFD at $568,312, compared to $437,820 for townhomes, expect as much or more townhome activity in 2019.
Interest rate increases late in the summer rattled the new home building industry as sales traffic dropped nearly 25% in the 4th quarter compared to 2017. As a result, builders tapped the brakes on 4Q18 starts, dropping 8% to 2,756 from 4Q17. This is the first quarterly decline since 2Q17 and only the third quarterly drop since 2011 when the housing market began its long road to recovery. Still, it’s been a solid run for homebuilders as annual starts are up 7% to 12,800 homes, the 28th consecutive quarter for annual start increases and the highest level since 2007.
While the starts pace decelerated in the fourth quarter, new home closings are up. Builders closed 2,919 homes in 4Q18, up 20% from 4Q17 levels. There were 12,148 annual closings in 4Q18, an increase of 20% over 2017 and the largest annual gain since 1Q16. The gap between starts and closings in 2018 narrowed due to a confluence of factors including the Weyerhaeuser flak jacket issue in 2017 pushing some closings to 2018, rising interest rates and rising home prices suppressing demand at the end of the year. Demand should remain strong in 2019 and this ‘narrow’ gap will keep inventory in check and the risk of overbuilding low.
Of the 4Q18 starts and closings, condo starts in the quarter, and for the year, experienced declines of 51% and 24% respectively. Condo activity remains sporadic, concentrated in a few geographies, and generally falls within high price ranges. Still grappling with onerous construction defect liability laws, condo activity accounted for only 6% of new home starts in 2018 compared to 20% in 2006.
“The homebuilding industry in Denver may look back on the later months of 2018 as a pivotal moment during this long economic and housing recovery,” said John Covert, Regional Director of Metrostudy’s Denver office. “The market disruptions, including interest rate increases, mid-term election anxiety, and stock market declines, collectively pushed some prospective buyers to the sidelines and forced builders to step back and re-evaluate their business leading into 2019. As a result, most builders Metrostudy staff have talked with have a heightened focus on training sales teams, retooling product, and have combed through their organizations to uncover new operational efficiencies. If the market declines, stays flat, or grows in 2019, these organizations will be better equipped to maintain or increase market share no matter the market’s direction.”
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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