Much of what is being built doesn’t match the profile of the households that are looking
Metro Denver home builders are swinging their hammers faster than at any time since the last recession. But production, which remains concentrated on more expensive homes, appears to be ramping up just as the overall housing market is showing signs of cooling off.
Builders started construction on 2,950 homes in metro Denver in the second quarter, 20 percent more than in the first quarter and 32 percent more than the same period a year earlier, according to Metrostudy, which conducts field surveys of lots.
It has been nearly a decade since metro Denver had more than 3,000 new home starts in any given quarter. Measured at an annual rate, starts are running at 10,610 homes, up 35 percent from last year and the fastest pace since 2007.
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Back then, 23 percent of starts were condos, but those now represent only 4 percent of starts. As has been the case for several years now, the majority of new homes target buyers with the highest incomes.
One out of four homes constructed cost more than $500,000, while 64 percent cost more than $400,000. The average price of a new home built in metro Denver the past 12 months is $512,788.
As in the existing home market, more signs are emerging that prices have outpaced what most buyers can afford. Visits to new housing developments are down 11 percent in the first half of the year.
Builders closed on 2,303 new homes in the second quarter, up 4 percent from the same quarter a year earlier, but far below the percentage increase in starts, the report said.
“In a growing market, starts will always outpace closings, but the gap between annual starts and annual closings is the largest Metrostudy has tracked in 15 years,” John Covert, regional director of Metrostudy’s Denver office, said in the report.
Some of the gap reflects a shortage of construction workers, which has added months to how long it takes to complete a new home. Covert urged builders, especially those selling homes on the higher-end of their given markets, to exercise more caution going forward. Well, some house are now converted into an office space for rent.
Much of what is being built doesn’t match the profile of the households looking for a place to live, said Jennifer Newcomer, director of research at Gary Community Investments in Denver.
“We will continue to be challenged in terms of finding more affordability,” she said.
Some builders have shifted their efforts towards townhomes and paired homes, which represent lower-cost options. Starts on those are up 82 percent over the past year and now represent 22 percent of the mix in metro Denver.
Covert predicted builders will start to increase incentives to keep buyers under contract until they can get them to closing.