Once a poster child for the foreclosure crisis, Denver has emerged as one of the strongest housing markets in the country, according to participants in a November 12, 2009 Executive Housing Seminar delivered by Hanley Wood Market Intelligence.
Builders in the Denver market were back to selling on average one home per community per month during the third quarter of 2009, said Jay Peterson, regional manager for HWMI. That's up from 0.7 homes per month during the same period a year before. The figures are for communities of 10 homes or more tracked by HWMI.
Moreover, cancellations have dropped 40% year-over-year. And builders in October were reporting conversion rates of 5%.
Denver has some strong market fundamentals on its side. The Builder Market Health Index, developed by HWMI in conjunction with Builder magazine, ranks Denver 13th among the top 100 housing markets.
That's in part because Denver didn't have a run-up in home prices that plagued many coastal markets and led to rampant depreciation. Existing home prices have fallen only 15% during the first nine months of the year compared to the same period a year earlier.
Denver, which continues to draw new residents, including an estimated 49,000 this year, has a higher-than-average rate of household formation. Also, even though the metro area has shed tens of thousands of jobs this year, unemployment remains below national averages.
But the big news is that foreclosures don't dominate the landscape like they did a year ago. Figures from the Colorado Division of Housing show that while foreclosure filings remain at elevated levels, foreclosure sales are falling within most Denver counties. Within Denver County proper, foreclosure sales are down 30% from last year.
Nevertheless, builders here continue to deal with a big price disadvantage on new homes. There's a roughly $80,000 gap between the median price of new ($279,990) and existing $200,000) homes in Denver. And the typical foreclosure sells for $80,000 less than the median existing home.
Denver builders are on a pace to pull slightly more than 4,000 building permits this year, a far cry from the 25,000 recorded in 2005. But 2009 could mark the bottom. Peterson expects building permits to rise 30 percent in 2010.
New home sales in communities of 10 homes or more are down only about 20% across the region. That's much better than many other major home building markets such as Phoenix, Las Vegas, and Chicago. Some Denver counties have done better than average--Douglas (-13%), Arapahoe (-14%), and Jefferson (-14%).
Larry Stark, president of National Valuation Consultants, which works throughout the country, said, "Denver is one of the best markets in the country to be working in....There's still a lot of blood-letting in Florida."
Pat Hamill, president of Oakwood Homes, testified to the relative health of the Denver market by saying that his company actually managed to turn a profit in September and expected to continue doing so through the end of the year. Oakwood has developed new value-oriented product lines to appeal to first-time buyers.
"We don't even have models for some of these homes, they are so new," said Hamill. Yet the homes, which Oakwood only began selling this year, now account for about 60 percent of company sales. Some of the homes have price points below $200,000, yet buyers are still offered a range of customization options.
Poor access to project financing continues to plague builders in Denver as it does builders throughout the country. Robin Cupka, vice president of Colorado Business Bank, said that her firm not only requires builder loan applicants to put more equity into deals, but also takes a much harder look at an applicant's ability to repay a loan should something go wrong.
Cupka said her bank spends more time analyzing the market surrounding a proposed project. That includes studying resales and foreclosures. "We didn't really look at that in the past, but now we have to."
Learn more about markets featured in this article: Denver, CO.