A housing report released Tuesday afternoon provides the latest sign that the worst may be over for the Denver-area home building market, the hardest-hit sector of the local and national economies.
Home builders in the metro area – from Boulder to Castle Rock, Erie to Englewood – pulled 2,959 permits in the first 10 months of the year for single-family detached houses, 2 percent more than the 2,896 during the same period in 2010, according to the report by the HBA of Metro Denver.
On a month-over-month basis, permit activity rose by 9.7 percent to 261 in October from 238 in October 2010.
Single-family attached homes, such as condos and townhomes, saw even greater improvements. In the first 10 months of the year, permit activity – a signal of future construction, or starts – rose by 11 percent to 724 in the first 10 months from 652 in the same period last year. On a month-over-month basis, permit activity soared by 111 percent, but the numbers were small, rising to 95 in October from 45 in October 2010.
Apartment permit activity rose by 25.7 percent on a year-to-date basis, and were up 100 percent when October is compared with October 2010.
Moving in the right direction
“The numbers are encouraging,” said Jeff Whiton, President and CEO of the HBA of Metro Denver. “We have seen month-over-month improvements every month since April. The numbers aren’t big. We are still at the bottom of the cycle and it is too early to call an upswing. The buzz going around the industry is that builders are having a brighter outlook, are seeing more traffic and are finally being able to hit their projected sales numbers. That has not been the case for the past few years. Builders are much more optimistic than they were a year ago.”
That is certainly true about Gene Myers, the President and CEO of New Town Builders.
“I think customers are calling the bottom,” Myers said. “We sold around 30 homes in Stapleton until the beginning of October. Since then, we have sold 15. The numbers in the last 30 days have been amazing. It’s not just us. I was at a Vectra Bank dinner last night and I was talking to the guys at Wonderland, and they were seeing the same thing. And we are carrying more backlog of unsold homes into 2012 than we have in years.”
The HBA report includes the counties of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert and Jefferson, as well as all of the individual communities in those counties.
Myers said he didn’t know if the pick-up in activity is only occurring at places such as Stapleton, or is market-wise.
“I think a lot of time the recovery starts in the most attractive communities, like Stapleton, and moves outward from there,” Myers said. The HBA report showed that permit activity in Denver rose by 11.7 percent to 525 in the first 10 months of 2011 when compared with the same period in 2010.
In any case, he said there are several reasons driving the increased demand:
- “There’s a penting-up of demand. Families continue to grow and households are forming even in these tough economic times. Grown kids are tired of living in their parent’s basements.”
- “The affordability factor. People are starting to realize that home prices are not going to get any lower. And it’s crazy to think that interest rates are getting any lower.”
- “The resale market is very tight. There isn’t much inventory of resale homes, creating more demand for new homes.”
- “Rising apartment rates. In many parts of the country, it is cheaper to buy than to rent. I think that is true in Denver, especially if you are renting in downtown or near downtown Denver.”
The report shows that 1,259 permits were pulled for apartment units in the first 10 months of the year, compared with 1,002 during the same period in 2010. Developers in October pulled permits for 176 apartment units, compared with 88 in October 2010.
All of that apartment construction is good for the economy, and ultimately will be good for housing, said Peter Niederman, CEO of Kentwood Real Estate.
“Nationally, there is an incredible amount of construction moving forward for apartments,” Niederman said. “It may not be for new homes, but at least it is construction activity. Think of all the concrete being purchased, all of the steel, lumber, fixtures, roofing material, copper pipes and glass for windows. That creates jobs. Ultimately, some of those people working in the trades, building apartments, will buy homes. And some of those renters, especially as rents continue to rise, will eventually buy, when they are secure enough in their jobs.”
Denver housing consultant S. Robert August said that he, and most builders, are “cautiously optimistic.”
August, who has weathered many economic downturns during the past four decades or so, said that in the past, when the inventory falls and the population increases, “we see a tremendous direction with pent-up demand taking place.”
The pent-up demand hasn’t yet manifested itself as strongly as it has in the past, because consumers are reluctant to make the big economic commitment of buying a home, the unemployment rate is still high, and consumer confidence remains low.
“Denver, unfortunately, has been in this economic malaise for such a long-time, people are afraid to call the bottom,” August said. “But I really believe the worst is over.”
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