For the first time since the depths of the housing crash in 2009, the pace of new home construction in metro Denver has dropped for three consecutive quarters.
The number of construction starts on new homes dropped 10.5 percent in the second quarter compared to the same period a year ago. That was mostly driven by a steep 17.6 percent drop in single-family home starts, according to counts maintained by Metrostudy, which tracks new home construction across the country.
“This isn’t necessarily indicative of demand slowing down. It is in part of an overhang that we felt in summer of 2018 when interest rates spiked,” said John Covert, who watches the Denver market for Metrostudy, in a conference call.
Rising mortgage rates, stock market volatility, mid-term elections, and a government shutdown all combined to cause buyers and builders alike to pull back.
“It created quite a bit of anxiety. Builders took their foot off the gas and it had been down to the floor,” Covert said on a conference call.
And although stock prices quickly recovered and mortgage rates dropped sharply, home construction has taken longer to rev up.
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Covert notes that the average size of the homes that builders are bringing to market is down 18 percent. The trend of builders trying to provide more homes that first-time buyers can afford has only accelerated. Condos are finally seeing strong gains, although from very low levels.
“There has been a dramatic shift. Builders are trying to get more affordable and to get int touch where market demand really is,” he said.
Starts reflect when construction begins on a prepared lot, and closings are when buyers take ownership. A third measure, permits, precedes both and indicates what builders are planning further out.
It effectively is a measure of confidence in the future. And it is down big in the state, according to a mid-year update of the Colorado Business Economic Outlook from the University of Colorado Boulder.
New single-family home permits dropped 18.4 percent through May, compared to the same period a year ago, while the permits pulled for new apartments are down even more, 30.3 percent.
“The committee believes that there is still a lot of unsatisfied demand despite the decrease in permit activity,” the report said.
Covert also agrees that demand is still there. Buyers still need homes. They just need more homes built at prices they can afford, which builders are finally acknowledging in more concrete ways.
“We have very little risk of overbuilding the market. We don’t have the inventory overhang during the recession of a decade ago,” he said.
