New home market past bottom

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The worst appears over for the Denver area’s battered homebuilding market, a report released today the by HBA of Metro Denver indicates.

“My initial reaction is that we are seeing a little bit of a recovery,” said Jeff Whiton, president and CEO of the local home builder’s association. “I think the general feeling in the industry is that we’ve hit bottom and we are past the low point. I think we will continue to show some modest gains.”

Today’s report shows in the first three quarters of the year, builders pulled 2,698 permits for single-family, detached homes, 1.5 percent more than the 2,658 during the first nine months of 2010. Builders pulled 264 permits in September, up 4.35 percent from September 2010.

“This is the fourth or fifth month in a row that we have exceeded the same month in the prior year,” Whiton said. “Granted, they’re modest gains. But they are moving in the right direction.”

Even bigger percentage gains were made for attached “For Sale” homes, but the numbers were small, in September compared with September 2010. There were 120 permits pulled for attached homes, such as condos and townhomes in September, 67 percent more than the 72 in September 2010. On a year-to-date basis, builders pulled 629 permits for condos and townhomes and other attached homes, 3.6 percent more than the 607 in the first three quarters of 2010.

Permits reflect future construction, or starts. The HBA report includes the counties of Adams, Boulder, Broomfield, Denver, Douglas, Elbert, and Jefferson, as well as all of the municipalities in those counties.

“Anecdotally, what I am hearing from builders is that have have re-set their sales strategies and figuring out what business they can get,” Whiton said.

Homebuilding important to economy

He said a boost in home building activity is not only good for people in the industry, but the entire economy, including the public sector.

“It is a huge boost to the economy,” when the building industry is firing on all cylinders, Whiton said. “Take a look at the municipalities. When you look at tap fees, permit fees and other fees they collect, every new house built injects $30,000 or $40,000 directly into the municipal coffers. And when you look at the private-sector side, every home built has a lumber package, so that keeps the lumbers yards and the companies that make trusses busy, every home has an appliance package, so appliances sales pick up, and so on. And then you look at the substantial amount of local labor employed, a lot of money they earn flows back into the local economy. They’ll spend their money at King Soopers and Safeway and other places. It goes back to that old classic saying – homebuilding will help us out of the recession.”

Apartment activity slows

Meanwhile, apartment activity, which has been shooting the lights out, took a breather in September.

There were only 135 building permits picked – all of them in Denver – a 78 percent drop from the 607 in September 2010.

But that is only a temporary drop, said Denver housing consultant S. Robert August. Indeed, in the first nine months of the year, developers have pulled 1,083 apartment permits, 18.5 percent more than the 914 during the same period in 2010.

“We’re going to see more apartment starts,” August said. “It takes a little time for apartment developers to get through the entitlement process. There is still a lot of demand for that type of product.”

And consumer interest for apartments ultimately is good news for the homebuilding market, August said.

He said because demand for apartments will continue to out-strip the increase in supply,  the trend in the foreseeable future is to see an increase in apartment rental rates.

“As it becomes more expensive to be a renter, buying a new home is going to be a more competitive option,” August said.

Incredibly low mortgage rates, hovering around 4 percent for a 30-year fixed-rate loan and around 3.25 percent for a 15-year loan, will also drive more people to homes, he added.

The new home industry also is getting a boost from the dearth of resale homes on the market. The inventory of resale homes stands at about a 10-year low, about 25 percent below where it was a year ago.

“That is an incredible help,” for those interested in a new home.

But, if anything, the new-home inventory is even lower than the supply of unsold previously owned homes.

“There is no inventory of new homes,” August said. “Builders aren’t constructing spec (speculative homes, with no buyers lined up.)” That means for the most part, consumers won’t be able to wheel and deal to buy a new home, he said.

“Some builders may offer discounts here and there, but I don’t think there are going to be a lot of discounts offered.”

Contact John Rebchook at JRCHOOK@gmail.com

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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