Apr 23, 2008 6:17 am US/Mountain
New Housing Down, But Far From Out
Good Question: Why Are They Still Building?
DENVER (CBS4) ―
"They keep building more and more," one man says.
"We already got too much stuff in Denver already, it's too packed already," said a woman.
But home builders are still finding a reason to put up new houses, literally thousands of them in the Denver metro area. And more homes on the market mean more competition when people are trying to sell an existing home.
"I've been shopping here for over a year and I have a house now that has a contingent offer here but I have to wait for my house to sell," said a woman waiting to sell her home in Minnesota.
It's the same all over. Builders have cut production, but the nail guns haven't gone silent.
"Generally the weakness has been on the lower end of the housing market," says economist Michael Kone of Housingmetrics, a Boulder company that tracks the market.
There's a shift in demographics says Kone.
"So what we're seeing is the population is aging. It's the baby boomers and what happens is they want to move into a house which offers less maintenance requirements."
That has led to a surge in demand for what some think of as less traditional housing, condos and high rises.
Developments like the Peloton in Boulder are seeing demand at the high end.
"It comes down to supply and demand and we have very limited supply and a lot of demand," says Julia Simisky, vice president of sales and marketing for Peloton.
Boulder may be unusual. Demand is still strong, unlike areas only a few dozen miles away in Denver and Weld County, where foreclosure rates have skyrocketed.
"There's a premium to live in Boulder," says Simisky.
They found that in the first phase of the development demand for the most expensive property was the highest.
"And they went very quickly. We had five people vying for the same home that was our most expensive one."
They have changed plans somewhat in the second phase to create more top end offerings.
Many of the projects going up now were planned years ago, when the market was stronger.
"Well it is a carryover because the big builders were really competing to see who could get the most desirable plots of land," says Kone.
Once they had that land, they needed to do something with it.
"The margins actually by this point are pretty thin, but what happens is even if they're losing money they still may need to try to sell some homes in order to carry the interest expenses of carrying the land positions that they have."
That land still costs them for the taxes and the cost of financing what they bought.
The Greenwood Village based tracking firm Metrostudy says in 2005 there were 20,019 new housing starts, 15,700 in 2006 and 10,077 last year. Metrostudy expects a drop again this year.
Builders and developers are in the business of putting up homes and are also reluctant to close up and carry the costs of re-starting when times are better. So it's better for the builders to build and sell and take slimmer profits.
"If they can't afford the interest payments they're not going to be able to make it through to the day when things are better and they do have more potential for profits," says Kone.
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