Home Sales Drop in Denver Housing Market

Sales of new homes in the Denver housing market were down more than one-third in the first half of the year from the first six months of 2006, as the market heads for a 13-year low in sales activity.

The report by the Genesis Group shows there were 5,842 new-home sales in the metro area in the first six months, compared with 8,758 sales during the same period in 2006. The numbers don’t include custom homes.

This is the largest percentage drop in sales since the 1980s, when Denver suffered a housing depression following the collapse of energy prices, said Mike Rinner of the Genesis Group, which tracks the housing market across the Front Range.

The overall Denver-area economy remains fairly robust, with the exception of the new-home market, Rinner said. Even the resale market is in better shape than the new-home industry, he said.

Rinner said the downturn in the home-building industry will affect the overall economy, as builders trim staff and construction workers can’t find jobs. A housing slowdown also directly affects retailers who sell everything from furniture to appliances.

“This is not good news,” said Tom Clark, head of the Metro Denver Economic Development Corp.

“The home-building industry, in particular, is a bellwether for where the economy is going,” Clark said. “It takes a lot more carpenters and plumbers to build a subdivision than an office building, so the increase in commercial building won’t offset the loss in residential building. Plain and simple, we need job growth.”

Today’s woes can be traced to 2000 and 2001, when the Denver area lost tens of thousands of high-paying tech jobs, but builders kept constructing homes, Rinner said.

Builders were able to sell homes because of the lowest interest rates in a generation, he said.

The so-called subprime market - risky loans made to people with shaky credit - drove the first wave of the collapsing mortgage industry.

“Denver really should have taken this hit to housing in 2001,” said Jeffrey Willis of Berkeley Homes. “I think that would have been much worse for the economy.”

Willis said he thinks 2007 will end with a 20 percent to 25 percent downturn in sales compared with 2006, as builders continue to pull fewer building permits. Permit activity is down almost 30 percent in the first half of the year, compared with mid-year 2006.

Genesis is projecting about 11,000 sales of new homes this year, the lowest level since the 9,590 home sales in 1994.

But economist Tucker Hart Adams said the slide in new-home sales likely will accelerate, especially with the continuing mortgage crisis.

“Certainly, at least for the short term, it is going to be more difficult for anybody to get a loan,” she said.

And with many people in the Denver area and nationwide looking at as much as 50 percent increases in their monthly mortgage payments as their loans adjust, she said the record number of foreclosures and loan defaults will continue to rise.

SOURCE: Rocky Mountain News