Metrostudy’s 1Q14 survey of Denver housing showed that the state’s strong economy and employment growth are fueling continued strength in the market, even as that growth is constraining supply at the lower end of the market.  Colorado ranked among the top 10 states for employment growth in 2013, and the trend continues in 2014 as initial reports indicate that March is the 29th  consecutive month for employment gains. Unemployment now sits at 6.2% compared to 6.7% nationally.

According to Metrostudy’s quarterly lot-by-lot field survey 1,753 homes were started in the first-quarter, up 10% from 1Q13 when 1,598 homes were started. There were 6,874 annual starts through 1Q14, a 13% increase from the 6,105 annual home starts in 1Q13.

Following the strong recovery years in 2012 and 2013, growth in 2014 will slow somewhat due to price increases that will suppress demand, particularly at the lower price points. Builders also closed 1,356 units in the first quarter, a decline of 5% from the 1,431 closings in 1Q13. The ‘winter pause’ due to fitful economic news, uncertainly about mortgage rates, and lack of closeable inventory might have caused the slight dip in quarterly closings. However, annual closings in the first quarter increased 14% to 6,399 home closings compared to the 5,611 annual home closings in 1Q13, demonstrating the general health of the market over the course of the year.

“At the conclusion of 2014, we’ll look back on a year that will likely be defined as a recalibration year for buyers as purchasing power declines,” said John Covert, Regional Director of Metrostudy’s Albuquerque and Denver Markets.  “8% of all single family home starts in the last year were priced below $250,000 compared to 15% in 2012 and 31% in 2010. As a result, first- time or entry level buyers will find fewer options as they are either priced out of the market or can’t find housing in the right locations, thus the need to recalibrate.”

Metrostudy expects housing starts to increase in 2014, but so too will lot deliveries in existing projects as well as several new large communities. The 4,652 lot deliveries in the past year are a 73% increase over 1Q13 annual deliveries and the most since 2007.

“While lot inventory appears to have reached its nadir, the market share of lots controlled by big builders is likely at its highest levels, which will mean increased competition for remaining lots, and ultimately higher lot prices in prime locations,” commented Covert. “When segmented by home price, lots are virtually non-existent for homes priced under $200,000 and lot availability for homes $200,000-$249,999 are falling quickly with only 10 months of inventory compared to 20 months in 1Q13.”

However, Denver’s continued economic expansion and wage increases might well offset some of the erosion in purchasing power cause by rising home prices and mortgage rates. Either way, builders should be particularly mindful of how buyers are now faced with a new buying paradigm that could reshape the housing recovery.

For information contact: John Covert at 720.493.2020 x 201

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

Learn more about markets featured in this article: Denver, CO.