A home under construction by New Town Builders in Denver's Stapleton neighborhood. The company is building 78 homes, and all but one is already sold. [Photo: CPR/BMarkus]
After years of lackluster growth, single family home construction is finally coming back. Permits to build homes in Colorado are at their highest level in six years, according to numbers the US Census Department released Thursday morning.
For many buyers, new homes can’t be built fast enough. Justin Knoll, a real estate broker in Denver, is ready to sell his Aurora home. He says now is a good time because prices are up. According to the latest S&P/Case-Shiller Home Prices Index, metro Denver prices are approaching an all-time high, set back in 2006. Knoll is also ready to downsize.
“I have too much house,” said Knoll, “and I don’t do a lot of business in that area, I don’t have a lot of friends in that area, I do most of my stuff in central Denver, so I’m in the position of being my own worst client and selling my property.”
Knoll doesn’t want to move into another old home he’ll have to fix up. Instead, he’s looking for new construction, preferably in the northeast Denver suburb of Stapleton, but there’s a problem.
“I’m competing with hundreds of other people,” said Knoll. “I’m on a waitlist just to get notified when lots are being released - not a waitlist to get a property, but to be notified.”
As the economy has picked up, a lot of pent up demand for homes has been unleashed, but there aren’t a lot of homes on the market. Last month there were 7,556 pre-owned homes for sale in metro Denver, according to independent real estate analyst Gary Bauer. Bauer says that’s half the inventory of a normal market.
That leaves home builders struggling to respond, said Gene Myers, chairman of New Town Builders, one of several companies building in a Stapleton neighborhood next to the Northfield mall.
“You can see, just looking out across the landscape, there’s lot development almost for as far as the eye can see. That is a huge change,” Myers said.
Myers has 78 homes under construction right now, and all but one is already sold. A survey by the National Association of Home Builders found that builder confidence is at a seven-year high.
“Well, the last seven years haven’t been that great,” Myers said laughing, “so I would definitely say my confidence is at a seven-year high.”
He’s confident because the fundamentals look good. Apartments in metro Denver are the fullest they’ve been in thirteen years, allowing landlords to hike rents by nearly 14% over the last three years, according to the Colorado Division of Housing. Mortgage interest rates have ticked up over 4%, but they’re still near historic lows. So Myers says for a lot of people, owning a home is attractive again.
“There’s definitely a huge sigh of relief going through the industry here in Denver, among all the builders, whether they’re big or small,” said Myers. “Where we were, literally, was not sustainable. We weren’t going to have an industry if this had lasted much longer.”
He says some have called the economic collapse the Great Recession, but for home builders it was a Great Depression. Myers says employment at New Town Builders dropped more than 80%, from 74 employees down to 13. He’s added a dozen more workers to meet demand, but he says getting skilled workers back to the job site is one of the biggest challenges facing the industry.
“The truth is, it was a very tough time. This industry wasn’t kind to some people over the last few years,” said Myers, “and there are a lot of people that just changed careers, and they’re not interested in coming back.”
Myers says the boom and bust nature of the business scares a lot of talent away.
The increase in home construction isn’t just contained to Denver, where year-to-date (through June) building permits are up 147% since 2009, to a total of 435, according to the Census Department.
- Douglas County, is up 271% to 1,042 permits.
- El Paso County is up 144% to 1,574 permits.
- Larimer County is up 434% to 806 permits.
For those fearing another another housing bubble, Ryan McMaken, an economist with the Colorado Division of Housing, says not so fast.
“It’s a big increase, but you certainly wouldn’t describe it as massive, bubble-type production,” McMaken said.
Statewide, building permits are still less than half their peak level, employment has stabilized, and Front Range population growth remains strong. The State Demography Office estimates the region will grow by more than 2 million people by 2040. All those transplants from the midwest and California will need somewhere to live. Plus, builder Gene Myers says banks aren’t nearly as eager to finance new construction as they were before the housing collapse.
That brings us back to real estate broker Justin Knoll and his search for a new home. Like many of his clients, it looks like he’s going to sell his old house before he can find a new one. So where will he live in the meantime?
“I love my parents so much,” Knoll said. “They’ve offered to let me stay with them. I’m trying to wrap my head around living with my parents again at 37 years old.”