Metro Denver home construction revved up in the first quarter, reaching a pace not seen since before the last recession, according to a report Wednesday from Metrostudy.
Builders in metro Denver started 2,413 new homes in the first quarter, up 3 percent from the fourth quarter and 47 percent higher than the first quarter of 2015. New housing starts are running at a pace about 26 percent faster than a year ago, on track to end the year with about 9,869 homes built.
“Demand is very strong in Denver and builders are pressed to get homes started and delivered as quickly as possible,” said John Covert, director of Metrostudy’s Denver market, in the report.
Housing starts in metro Denver, as measured by Metrostudy, are now at their highest level since 2007, and Covert expects the pace to quicken and that builders will complete 10,000 new homes this year.
He called 10,000 homes an important milestone, but it is only half the number metro builders achieved during the peak of the housing boom last decade. It also remains far short of what is needed to keep pace with the region’s population growth.
“While the large run up in new homes in metro Denver is a very encouraging sign, demand still out paces supply. The influx of new residents to the state coupled with historical low interest rates has created a very strong demand for homes in the metro area,” said Brook Rarden, a managing director with U.S. Bank’s Private Client Reserve in Denver.
And there simply isn’t enough supply for first-time and low-income buyers, he adds.
Builders remain primarily focused on higher-priced properties. Homes priced above $400,000 accounting for about 60 percent of the market, the highest share on record, according to Metrostudy.
The cost of a new home in metro Denver now averages $503,768, which contrasts with an average price of $398,663 for existing homessold in April, according to the Denver Metro Association of Realtors.
Demand, however, is much stronger in the under $400,000 market, based on what the typical household can afford. Covert expects builders will respond by producing more condos, townhouses and paired homes in suburban and in-fill locations.
Builders closed on 2,141 units in the first quarter, an increase of 29 percent from the first quarter of 2015. The annualized rate of new homes sold is running 8,641 units, 23 percent more than a year earlier.
The accelerated pace of new home construction has put pressure on the supply of vacant lots. In the first quarter, there were 11,494 vacant developed lots available through the entire metro area.
In the past year, builders have started 600 more homes than what lot developers were able to add, pushing the inventory of available lots to an 18 months supply. Metrostudy considers that on the lower end of the inventory of lots needed to keep the market in balance, and the ability of lot developers to keep pace will be critical for new home construction.