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New home building activity in the Denver area was down 43.2 percent in February from February 2010, according to the latest report released by the Home Builders Association of Metro Denver.
There were only 267 building permits pulled in the Denver area in February, compared with 462 in February 2010, shows the report, which tracks apartments, single-family attached and single-family detached homes in 28 counties and municipalities from Erie to Parker. It includes the counties of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert, and Jefferson. Building permits track future construction activity.
Monthly increase
However, on a month-to-month basis, overall, permit activity last month was up by 12.7 percent in February from January. A total of 267 permits were pulled in the first month of the year. Single-family attached – permits for condos and town homes – showed a whopping 165 percent increase, although the numbers were small – 23 permits in January, compared with 61 in February. Home permits were down 9.8 percent with 193 in February, compared with 214 in January. No apartment unit permits were issued in January.
While the year-over-year percentage drops were big, the numbers were small.
By building type, it showed:
Apartments, down 62.9 percent, with permits for 13 units compared with 35 in February 2010. All of last month’s permits were pulled in Boulder, while a year earlier they were all in Denver.
Single-family attached (primarily condos and town homes), showed a 14.1 percent drop, with 61 permits pulled last month, compared with 71 a year earlier. Douglas County had the most permits with 14.
Single-family attached showed a 45.8 percent drop, with 193 permits last month, compared with 356 in February 2010. Aurora had the most permits, with 30 and Denver was No. 2 with 24.
In the first two months of the year, a total of 504 permits were issued, down 31.3 percent from the first two months in 2010.
“I think for all of the various numbers, we are looking at some small base values. When you start talking in percentage changes, they start to explode,” said economist Patty Silverstein, principal of Development Research Partners in Littleton and the consulting chief economist for the Metro Denver Economic Development Corp. and the Denver Metro Chamber of Commerce.
Slow start expected
Still, the low numbers are neither surprising nor represent all bad news, she said
“Our expectations are that it is still going to be relatively slow going for the home builders,” Silverstein said. “They still have a lot of inventory they need work through, and there is this whole question of a “shadow” inventory.” The shadow market is generally considered foreclosed homes owned by banks that have not yet hit the market, increasing the supply of unsold homes on the market. These distressed homes compete with other houses on the market.
Supply in check
On the other hand, Silverstein said that keeping the new home supply in check is a good thing.
“You do not want to be over-built,” Silverstein said. “The best way to get some solid appreciation is to keep the inventory in check. And I do not believe that the the Denver-area new home market is over-built.”
2010 up almost 50%
Last year, builders pulled a total of 5,156 permits, 48.7 percent more than the all-time low of 3,467 permits in 2009. Last year, Richmond American Homes of Colorado was by far the biggest builder in the Denver area. Richmond, which is part of Denver-based MDC Holdings Inc., pulled 721 permits, representing 21.5 percent of the 3,356 single-family detached house permits pulled last year.
This year, Silverstein expects about 6,100 permits to be pulled, a far cry below the 17,700 permits pulled on average during the past three decades, she said. “So you can well, we still will be operating very much below our historical market average, even though that would represent a pretty big percentage change. But in absolute numbers, they are very constrained.”
While a drop is construction activity is good for future home appreciation, it does hurt the overall economy, she noted.”Building a home puts a lot of people to work,” Silverstein said. “Not only in the construction and supplier industries, but you tend to have a lot of spin-offs from the new owners, who spend money on everything from landscaping to new furnishings. That is why people all across the country are looking at new home sales, supplies and prices very closely.”
Nationally, building permit activity was down 8 percent in February to an annual rate of 517,000. That is the lowest level since the data was first tracked more than 40 years ago. Nationwide, new home sales in February were down 16.9 percent from January and 28 percent from February 2010.
