As homebuilding lags, experts see little probability of housing bubble

by | Mar 20, 2017 | Blog, Buying a Home, Denver Real Estate Market

As the Denver housing market continues its sustained hot streak, some potential home buyers worry that we are in the midst of a bubble that will soon burst. All evidence, however, points to the opposite: that Denver will continue to enjoy a strong and healthy market.

Part of the reason, experts note, is that available housing still lags far behind demand. Inventory of existing homes is notoriously tight, and new construction has failed to bridge the gap.

A recent article in the Denver Post about home construction in the Denver area, for example, noted that housing starts are lagging far behind demand. The metro area needs 16,000 to 18,000 new homes a year, just to keep pace with population growth, according to John Covert, Denver market director for Metrostudy, a company that tracks home starts in the area. This level of construction isn’t happening.

“We add jobs, but we don’t build homes,” housing economist Elliot Eisenberg told a gathering of the Colorado Association of Realtors, according to the Post. “Colorado is growing at twice the pace of the country, but you have housing starts that are at 1995 levels.”

Covert reported that Denver area home builders increased production 22% in 2016. “At 15% growth a year,” notes the Post, “the metro Denver market gets to the volume of new homes it needs around 2019 or 2020.”

But the Post noted that there are obstacles to reaching even this distant goal: a lack of construction workers and an expected increase in oil drilling that will further usurp potential workers is an issue.

Another problem, in the larger housing picture, is that older Americans are choosing to stay put as they age, making it harder for young families to find homes. While developers are looking to appeal to these buyers with “move down” homes, they face issues with making these homes less expensive than the homes baby boomers will leave behind.

In short, demand will continue to outstrip supply for several years to come.
The bottom line: “We are not in a housing bubble,” Eisenberg said.


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