Fanning The Flames In Denver
The Denver home builders are charging ahead, and according to the RM News, not everyone is happy about it. "'It's the worst news I've heard all day,' economist Tucker Hart Adams said. 'Who is living in all of these homes?'"
"Adams argues that since 1999, builders have constructed more than 20,000 too many homes in the metro area." This post on area foreclosures seems to back that up. But somebody forgot to tell the industry. "Builders pulled 3,181 permits for homes, condos and apartments in the Denver area in the first two months of the year, about 35 percent more than through February of 2004."
Get out the prayer beads, says one builder. "The homes are being absorbed into the market," he said. "Builders are building to meet demand. That has been my mantra and it continues to be my mantra."
Then comes the contradiction. "(H)e said he's heard from some builders that sales and traffic from prospective buyers weren't as strong as they had expected in the first quarter, so they may pull back a bit."
9 Comments:
Here is the rub: builders are making good profits, even if the homes sell in a declining market.
The builders costs haven't increased a whole lot and their margins are really good. They'll just keep building homes like crazy until the market price equals their building cost plus a small profit. Right now they have a large profit on each house.
In effect, it is the builders that bring the real estate bubble back to reality because they provide the supply. They are actually the ones that ultimately prick the bubble from the supply side. Things like interest rates, consumer debt, jobs, etc. prick the bubble from the demand side.
Let them build ! The more houses they build, the farther the price is going to fall when it does.
I think just about every North American city is seeing this kind of activity. Everywhere you look is seeing record number of new homes being put up. Yet, the population isn't increasing !
We are going to see one hell of a crash when it all comes together.
It will be the perfect storm: debt crisis, over supply, mass speculation, rising interst rates and maybe even some unemployment.
Bring it on. I'm sleeping on cash these days !
(Right now they have a large profit on each house.. They'll just keep building homes like crazy)
Your right. Thats why the Fed should have "taken the punchbowl away" a long time ago.
(just about every North American city is seeing this kind of activity)
I have been all over the continent in the last five years, and construction was everywhere, including Canada.
This is exactly why the price of homes will NEVER grow at more than the rate of inflation for building them over the long term. You can always build a new house. There is unlimited supply !
And as long as the new house supply is keeping up with demand, the profit margin is small. And as long as there is competition in the new home market, the price will track the cost of building them.
There is no land shortage in USA ! There is land as far as the eye can see ! CA may be a bit crowded, but there is always land. Furthermore, cities tend to spread out because if there isn't land for houses, there isn't land for commercial (employers) either, so there is always land where people need to work.
Let the builders build as many as they want. The more the better ! Lets kill this stupid RE bubble once and for all.
Ben,
What is your profession? I'm curious as to what allows you to run this blog-your profession or a hobby.
I'm the newbie that sent the THE CYCLE TURNS Economic Forecasting of Residential
Real Estate Prices for 2005 yesterday.
People are going to be underwater on their mortgages:
http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BAAE96FE3%2D9D6B%2D4FC2%2D9B0E%2D70D878DC2486%7D
(There is no land shortage in USA)
Agreed, and you'll hear people say that Las Vegas is running out of land! The BLM can open up thousands of acres at the drop of a hat. The US government ownes 40% of the west.
Newbie,
I am a writer and do this as a hobby, but I am considering jumping into the current media fray. I still think the wrong questions are being asked...Ben
I can attest that there's plenty of land around Vegas. Just drove from Zion (Utah) to Vegas. Five miles north of Vegas is open land for 100 miles, all wide open spaces if you can handle six months of the year at 110-115 degrees.
Mesquite, NV (border w/Utah) and St. George, UT has tons of new tract developments. Apparently lots of retirees buying 2nd homes there (guess they plan to roast away their declining years).
Spoke w/three couples in their 60s who had bought in Southern Utah. Two were from SoCal, one from Phoenix. All three used gains from homes (HELOC) to buy into 2nd homes. All three "can't wait" to get out of SoCal/Phoenix.
At some point, there will be lots of homes for sale as these 2-home retirees make the transition to 1-home.
I can attest that there's plenty of land around Vegas. Just drove from Zion (Utah) to Vegas. Once you get five miles north of Vegas, there's nothing but wide open spaces until you hit Mesquite---100 miles. Plenty of room if you can handle six months of the year at 110-115 degrees.
Mesquite, NV (border w/Utah) and St. George, UT has tons of new tract developments. Apparently lots of retirees buying 2nd homes there (guess they plan to roast away their declining years).
Spoke w/three couples in their 60s who had bought in Southern Utah. Two were from SoCal, one from Phoenix. All three used gains from homes (HELOC) to buy into 2nd homes. All three "can't wait" to get out of SoCal/Phoenix.
At some point, there will be lots of homes for sale as these 2-home retirees make the transition to 1-home.
One of the really big issues with new developments in the Denver area is WATER. Most areas developed outside metro Denver have only secondary water rights (buy Denver's surplus) or use wells that are not terribly reliable. Many people moving from the East or the coasts don't know how water works here. If you're going to buy in Colorado reseach carefully who supplies your water and how secure the supply is.
As a side not I have inlaws selling their house in the Denver area. It's not a bust, but it's not like it used to be. If you didn't buy before 2000 you're not making much on RE here. (I'm in Fort Collins, the trust fund babies and old folks are propping us up right now)
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