The number of housing permits issued in the Denver area rose by 53.3 percent in the first three quarters of this year, compared with the first nine months of 2011, according to a report released today by the Home Builders Association of Metro Denver.
There were 4,135 permits issued for single-family, detached homes through September, compared with 2,698 during the same period last year, shows the report, which tracks the counties of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert and Jefferson, as well as all the municipalities in the counties.
Permits signal future construction activity.
“I think we are continuing the trend; it has been a good year,” said Jeff Whiton, CEO and executive director of the HBA of Metro Denver. “We have seen about an 18-month increase, where we have seen an increase of the same month the year before.”
Still, the market is far from normal.
“The absolute numbers remain small, but the percentage increases are big,” Whiton said. “We were about 75 percent off the height of the market, when we hit bottom. Since hitting the bottom, we have clawed our way back a very tiny amount when compared to where were at the peak, so we have a lot of upward potential if the economic environment is right.”
However, storm clouds out of the control of the local market could setback the fledgling recovery, he said.
“The big story I heard is what is going to happen to the community banking industry if the Basel III agreements are implemented,” Whiton said.
Basel III, international banking rules, would require banks to boost reserves to cushion themselves against losses and require them to hold more capital to back some of their assets, especially residential and commercial real estate.
“Community banks are really supporting and providing competitive financing for a lot of new home construction and land development, particularly for the small-to medium-sized builder,” that can’t access Wall Street lines of credit, Whiton said.
“If Basel III is pushed through regulatory agencies, it could have a real limiting effect on local banking,” Whiton said. “There is a really big concern that these international guidelines aimed to curb abuses by big, international banks will end up really inhibiting the ability of community banks to make loans. It’s a big question mark.”
The other thing that builders in the Denver area and across the country are grappling with are rising prices.
Since the beginning of the year, the cost of framing lumber has risen 21 percent and the cost of drywall is up 25 percent. Labor costs also are rising and it is more difficult to find skilled workers who sought other employment options during the housing crash.
Builders may have a problem passing on their fixed costs to consumers, Whiton said.
“That is going to depend on incomes,” Whiton said. “If incomes do not go up, then home buyers aren’t going to keep pace with the rising costs. If the economy gets more and better jobs, than the rising tide will lift all boats. Many people in the construction industry are just waiting to see what happens with the presidential election next week before they make any big hiring and financial decisions. I can tell you, whoever wins, we need more and better paying jobs. I can’t stress that enough.”
Meanwhile, Richmond Homes, owned by Denver-based MDC Holdings Inc., remains the biggest builder in the metro area, having pulled 820 permits in the first nine months of the year, compared with 444 in 2011.
Century Communities is No. 2, pulling 555 permits in the first three quarters of this year, compared with 275 last year.
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.
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