John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... As the year nears a close, the Denver metro market is seeing a sharp drop-off in inventories of homes and condos, according to a monthly report released on Tuesday by Jack O’Connor, broker/owner of The Denver 100 Real Estate.
“The story now is all about declining inventory, and about how that will affect demand for lower priced housing in the coming year,” said O’Connor. He added that for condominium product, falling inventory is particularly pronounced. O’Connor has authored his monthly ‘So How’s the Market?’ letter for the past eight years.
An earlier report by independent broker Gary Bauer showed that there were only 15,794 unsold homes and condominiums on the market, a 27.7 percent drop from the unsold inventory in October 2010, which stood at 21,851. Bauer and O’Connor base their reports on data from Metrolist Inc.
Condominium inventory at the beginning of November in the metro area stands at 2,652 units – down 9.18 percent from the start of October, and down a whopping 45.7 percent from November 2010, according to O’Connor.
Not surprisingly, O’Connor says, condo prices are already rising in the metro area. The average sales prices for condominiums are currently up an average of 0.46 percents per month over recent months, he calculated.
Meanwhile, inventory for combined homes and condos representing all price ranges in the Denver area stands at a 4.57-month supply based on annualized sales.
Supply of homes and condos priced $250,000-and-lower stands at only 3.69 months, and single-family inventory by itself, O’Connor added, has fallen 21 percent since the start of the year; at its lowest November level in eight years.
“You’ll probably see builders planning starter product in 2012 that did not build in 2010 or 2011,” O’Connor said. “When there is a three-month supply in resale inventory, builders of $250,000-type new homes will have a waiting list. When was the last time that happened in Denver?”
O’Connor noted that supply increases sharply in higher, luxury home price ranges. Current supply of homes and condos in the $1-million-and-over range, he said, stands at just over two years.
Contact John Rebchook at JRCHOOK@gmail.com
“You’ll probably see builders planning starter product in 2012 that did not build in 2010 or 2011,” O’Connor said. “When there is a three-month supply in resale inventory, builders of. $250,000-type new homes will have a waiting list. When was the last time that happened in Denver?”
Sounds good in theory. The real issue is gross margins. Over the past few years, margins have been shrinking for builder and the gross margins in the under $250k price points are lower than higher end homes. This is a function of a stagnate home market, in terms of prices for 10 year. Home prices have remained flat, but input costs(1.e. labor, material, copper, steel, concreate, ect.) have been rising over this same period. This compresses margins and if compressed enough, builders will not build. As we have been hearing from Steve Holben for years, you can buy resales for less than the cost of construction. Larry Mizel in his quarterly conferance call said,MDC will limit the number of “spec” home going forward.
Also form MDC’s conference call-
Quoting Management: Larry A. Mizel, MDC’s chairman and chief executive officer, stated, “Given increased uncertainty surrounding employment levels and consumer confidence, our goal is to return to profitability without relying on an improvement in homebuilding market conditions. Prior to the third quarter, we focused primarily on increasing our community count, giving us the opportunity to improve our market share and increase revenue. However, as our economy continues to display considerable weakness, it is difficult to justify a significant number of additional land acquisitions in the near-term, and therefore we are now focusing on other strategies to drive profitability.”
After reading the last sentence, it sounds to me like MDC is going to limit building, eliminate workers, thereby, reducing their cash burn rate, and wait for the market to recover. But that’s just my take.