Metro Denver’s chronic shortage of existing homes for sale will push more buyers towards new home communities this year. But those buyers won’t find much relief from tight supply and rising prices.
“We expect we will see Denver builders experience a significant uptick in traffic that shows up at their sales office. So few options are available on the resale side,” John Covert, senior regional director for Colorado and New Mexico with Metrostudy, said in a market update Wednesday.
Metro Denver, with a population of 2.8 million, had fewer than 4,000 homes listed for sale at the end of December or January. The average price of a home sold in January topped $490,932, while the median price was $416,000, according to the Denver Metro Association of Realtors.
The average price of a new home sold last year in metro Denver was $560,000. New homes are priced mostly in the $450,000 to $700,000 range, with the under $300,000 pretty much extinct and the under $350,000 getting there, Covert said.
To qualify for a 30-year mortgage at a 4.5 percent interest rate on a new home at the average price, a household putting 3 percent down would need to make more than $143,000 a year to qualify, including taxes and insurance, according to MortgageCalculator.org.
“It highlights and emphasizes the lack of product we have available for that first-time homebuyer,” Covert said.
Builders are trying to offer more affordable products via townhomes and duplexes. Townhome starts rose by 25.2 percent last year and they now represent a quarter of all new starts. Condo starts, long depressed, only saw a 7.4 percent gain last year despite the passage of a bill to make construction defects litigation more difficult. Single-family starts were up only 2.4 percent.
“Denver has become very expensive, very quickly,” Covert said. “As Denver becomes more pricey, we are leaning more towards attached product.”
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New homes are taking about seven months to complete, about double the 3.5 months required a decade ago.
The housing shortfall is a national issue, said Mark Boud, chief economist at Metrostudy, a Hanley Wood company.
Boud forecasts 1.256 million homes will be built in the U.S. this year, which only brings the country back to the volumes seen in 1992. He estimates the housing shortfall at 2.5 million units, a gap that will contribute to upward pressure on prices.
“We have supplied too few homes compared to economic growth and economic growth continues at a high level,” he said.
That run up in prices combined with higher interest rates and slower job growth, however, will cause home prices to start declining in 2021 and 2022, he predicts.