LAGS IN NEW HOME CONSTRUCTION
U.S. News & World Report released their 2017’s “100 Best Places to Live in the USA” and guess what? Denver claimed the #2 spot! With over 5,000 acres of parks, trails, golf courses and playgrounds – it’s no surprise. We also have a very low unemployment rate, higher than average salaries, and fantastic weather. The problem? So many people like it here that our rapid growth in population has surpassed our rate of new residential construction. What does this mean for the market?
An increase in demand with little increase in supply causes upward pressure on prices, which is what we saw in 2016 and will continue to see in the coming years. According to the Denver Metro Association of Realtor’s, the inventory of single family homes available for sale at the end of January 2017 was 2,993 - a 10.9 percent drop from inventory in January of 2016. The lack of inventory has created a 9.5 percent increase of home sale prices in January 2017 – which is much higher than income increase rates.
Denver needs 16,000 to 18,000 new homes built each year to keep pace. Metrostudy, a Hanley Wood company, counted 11,038 home starts across metro Denver, and home builders had a 22 percent increase in production for 2016. Regardless of their higher than normal rate of production, the supply is still lacking. Further, builders are typically more comfortable with a 15 percent growth rate which means inventory catch up should occur in 2019 - 2020. In addition, rising interest rates are locking people into their current locations and older Americans are choosing to stay in their homes longer – tying up home options for younger families.
What about the Luxury Market? – It’s keeping the same speed. The Days on Market (DOM) throughout 2016 was cut in half compared to five years ago. In 2016, Denver averaged 108 DOM while they averaged 226 DOM in 2011. Even high-end condos (those priced over $1M) were a hot commodity – selling 261.29 percent more inventory in 2016 compared to 2011. It’s been a good run in the Luxury Market for the past five years – and we think it will keep pace with Denver’s record setting growth. The market in 2016 was strong and 2017 is already started off to a healthy start!
Information derived from the Denver Metro Association of Realtors, U.S. News & World Report, and the Colorado Association of Realtors