Denver Housing Market 4Q15: An Incredible Year for Housing
- Existing home sales reached an all-time high of 55,509 closings for the year
- 2015 Saw Annual New Home Starts at their Highest Level since 2007; 4Q15 Starts were at their highest level since 2005
- While single family detached activity has been at the core of the housing recovery, it’s the resurgence of townhome and paired product that has accelerated the recovery as of late, accounting for 1,770 of the total starts, up 41% over the year
FEBRUARY 2016 – According to Metrostudy’s 4Q15 lot-by-lot field survey of the Denver market, 2,359 homes were started in the fourth quarter, down a seasonal 18% from 3Q15 and an increase of 31% from 4Q14. A very wet spring, which caused delays across the industry already stressed to deliver homes due to tight trade labor issues, pushed many home starts into the second half of the year. 4Q15 Starts were the highest of any fourth quarter figure since 2005, illustrating the continued strength of demand for new-build homes. Metrostudy had forecasted approximately 9,000 home starts in 2015, and builders started 9,130 homes for the year, a 16% increase from 2014 and the highest level of starts since 2007. Builders also closed 2,191 units in the fourth quarter, an increase of 18% from 4Q14. Annual closings in 2015 increased 22% to 8,185 units compared to 2014.
“Along with trade labor shortages, the other major impediment to stronger housing growth in 2015 and into 2016 are rising home prices,” said John Covert, Director of Metrostudy’s Denver market. “Strong demand for move-up buyers combined with rising costs have placed more emphasis on higher priced product over the course of the last several years. The most prominent change in the past year has been in the $400,000-$499,999 price band where 34% of all homes started in 2015 were concentrated. 2015 was a low water mark for new home starts below $300k, representing only 7% of total starts for the year.”
There are currently 12,045 vacant developed lots (VDL) in the Denver Metro Area, an increase of 5% over December 2014. Builders and developers have long recognized the urgent need for new lots in ‘A’ submarkets, and many have materialized in 2015 as lot deliveries are up 14% to nearly 7,800. However, builders started nearly 7,200 detached homes for the year so lot supply remains tight, now 20 months for the market. Metrostudy considers 18-24 months of lots to be equilibrium for the entire market. However, when segmented between large lots and ‘production’ size lots of 7,000 foot lots or less, there’s only a 17 month supply.
At the end of December there were 6,589 new homes in inventory, up 17% from a year ago and up 2% compared to last quarter. Of that total, 4,691 (71%) are single family detached units that are either under construction, finished & vacant or model homes (total inventory). Inventory levels for SFD are at 8.7 months compared to 9.0 months a year ago – and slightly above the 7.0-8.0 months considered to be equilibrium for SFD total housing inventory. While inventory increased, the drop in months of supply is tied to the equally strong increase in annual closings, which generally post stronger numbers in the second half of the year. There are another 1,898 attached (condo, townhome, duplex) units in total inventory, up from 1,645 units in 4Q14, an increase of +15%. Condo construction remains anemic, as only 173 units were started in 2015, accounting for 2% of all new home activity.
“Typically viewed as a viable option for entry-level buyers, condo construction has been virtually nonexistent during the recession and subsequent recovery, due to among other things construction defect regulations, which is particularly challenging given the rapidly increasing cost of housing in Denver,” said Covert. “Since townhome product isn’t subject to the same regulatory risk as condos, townhome and paired homes have experienced rapid increases the last couple of years.”
Despite the headwinds the industry faced in 2015 such as rising costs, high home prices, trade labor shortages, tight lot supplies, tight inventory and persistent regulatory pressure, 2015 was a strong year for builders. Home starts and closings were up about where Metrostudy expected as a robust state and local economy and strong demand for housing overcame most obstacles. Metrostudy expects much of the same formula in 2016, with similar and persistent headwinds, but steady and growing economy and continued strong demand for housing.
For information contact:
John Covert – 720.493.2020 x 201
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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