Thursday, March 2, 2017

Housing permits in Metro Denver up 18 percent in 2016

Housing permits in the Denver metro area increased 18 percent from 2015 to 2016, rising from 1,462 to 1,732 permits. As we can see in the first graph, this brings total permit activity back to levels similar to those found in 2004 and 2005, and well above what we saw during the recessionary period of 2008 and 2009:

As demand for both apartments and for-sale housing grew after 2009, we saw gradual increases in permit activity, and the permit total is now at a 14-year high. Permit totals have not been this high since 2002 when they reached 1,770. 

The composition of the permit total is very different today from what it was prior to 2007, however. As we see in the next graph, prior to 2007, the total number of single-family permits greatly outnumbered the number of multifamily permits. Since 2011, single-family and multifamily permits have been rather similar, with multifamily permits even exceeding single-family permits in 2012 and 2013. 

We can contrast this to the situation before 2007 when the very large numbers of new single-family permits from 1998 to 2005 were a factor in what became sizable declines in home prices from 2008 to 2010 that only made a quick turnaround on the back of massive federal monetary and fiscal stimulus in the wake of the 2008 financial crisis. Since then, the single-family market has remained well below its former peaks even though population growth continues as a sizable rate in Colorado. 

Much of this single-family activity has now been replaced by multifamily production. In fact, over the past five years, nearly half of new permits have been for multifamily housing, which is highly unusual:

Moreover, we see this show up in the homeownership numbers in Colorado. due in part to the boom in apartment building that has taken place since 2012, homeownership has gone into decline over the past decade. 

While homebuilders were quickly adding new supply, we saw the homeownership rate sit as historic highs above 70 percent. . 

Now, the housing focus has shifted more in the direction of multifamily, but overall permitting has  rebounded to 80 percent of where it was at the 2001 peak. Nevertheless, continuing growth in both home prices and rents suggests that there is still room for more housing production. 

Foreclosures in Colorado's metro counties fell 6.9 percent from 2015 to 2016.

Foreclosure activity continued to fall in 2016 in Colorado's 12 metropolitan counties. In Colorado's 11 most populous counties plus Broomfield County,  new foreclosure filings were down 6.9 percent while foreclosure sales at auction — the point at which the foreclosing property is auctioned off to the bank or other buyer — were down 26.5 percent. The first chart shows all counties measured, and the year over year change from 2015 to 2016:

Except for Mesa and Denver counties, foreclosure filings fell in all counties. And, when it came to foreclosure sales at auction — the final and most serious phase of foreclosure — only Mesa county reported an increase from 2015 to 2016.

Annual foreclosure totals in these counties have fallen off significantly in recent years:

If we look at monthly totals, we see a similar trend — with foreclosure activity falling to some of the lowest levels we've seen since I began tracking monthly numbers in 2008. The first graph shows just how far totals have fallen since they peaked in 2008 and 2009. In December, we can see that new foreclosure filings ticked up slightly, while sales totals remained near all-time lows:

For all counties combined, filings were down in December 2016 by 17.4 percent, year over year, while sales at auction were down 29.2 percent. 

Here are filings: 

 And here are sales totals:

Only Mesa and Broomfield Counties reported increases in filings (the Broomfield numbers were tiny overall), while only Adams, Boulder, and Pueblo counties reported increases in sales. In general however, it's safe to say that foreclosures in the state continue to be at at least ten-year lows.  

As a final note, we can see which counties have the most or fewest foreclosures in relation to the number of households overall. The following chart shows the foreclosure rate given as the number of foreclosure sales adjusted for the number of households in each county (based on 2015 household totals): 

By this measure — in which a higher number indicates fewer foreclosures per person — we see that with zero foreclosure sales, Broomfield has the lowest rate, but Douglas County also shows a very foreclosure rate compared to other counties, with more than 57,000 households per foreclosure sale. Pueblo and Mesa counties — as has been the case for several years — show some of the highest foreclosure rates with Mesa showing just over 2,300 households per foreclosure sale. 

Generally, higher income areas with more demand for real estate tend to show lower foreclosure rates while areas with lower incomes tend to have higher foreclosure rates. 

This data is just the latest confirmation that demand for real estate in Colorado continues to be strong. In an environment such as we have today, even a household that goes into foreclosure can usually find a buyer before the property enters the foreclosure process. Thus, high demand for homes leads to few foreclosures, even as some households become delinquent on their loans.  

Note on the data: all foreclosure numbers are collected from the public trustee in each county measured.

Rent growth in Metro Denver falls to 4-year low in 4th quarter of 2016

According to the latest data from the Apartment Association of Metro Denver, the average rent in Metro Denver during the fourth quarter of 2016 was $1,347, which was down from the third quarter average rent of $1,368.

The fourth quarter's average rent was up from the fourth quarter of 2015 with the average rent rising 4.2 percent from $1,292.

With a year-over-year increase of 4.2 percent, however, average rent came in at the smallest year-over-year increase since the first quarter of 2013, when the average rent grew 4.1 percent:

Rent growth has been falling for the past six quarters after reaching a record high of 13.2 percent during the second quarter of 2015.

The average rent has also fallen, quarter over quarter, for the past two quarters. After hitting $1,371 in the second quarter of this year, the average rent fell to $1,368 during the third quarter and then to $1,347 during the fourth quarter:

If we adjust for inflation, we see a similar trend, although we can note that in real terms, the average rent fell between 2001 and about 2011:

Flattening rents are likely a result of substantial increases in new housing construction that took place in metro Denver since 2012. In October 2016, for example, new housing permits reached the highest level recorded since 2001. 

Not surprisingly, we also find that vacancy rates have increased as well. During the fourth quarter, the metro Denver' vacancy rate rose to 6.2 percent, which was up from the 3rd quarter rate of 5.1 percent. 2016's fourth quarter rate was down, however, from the vacancy one year earlier. The vacancy rate had surged to 6.8 percent during the fourth quarter of 2015, but fell again during the first quarter of 2016. Nevertheless, 2016's fourth-quarter rate of 6.1 percent is the second-highest vacancy rate recorded since 2010. 
All of this points toward some stabilization in the market, although there is still little to indicate that we're entering a bearish market in multifamily housing, barring a sizable economic shock to employment or incomes.

Home-loan payoffs in Colorado increase in 2016 after fourth-quarter surge

In Colorado, a release of a deed of trust occurs when a real estate loan is paid off whether through refinance, sale of property, or because the owner has made the final payment on the loan. Increases in release activity occur as refinance and home-sale activity increases, and rising release totals generally indicate increases in the demand for home loans and real estate.

Every quarter, I monitor release activity in 21 counties based on population size and to ensure that as many regions of the state as possible are represented. More than 90 percent of all occupied households in Colorado are within the twenty-one counties chosen:

The number of home loans paid off in Colorado was up 14.4 percent from the fourth quarter of 2015 to the fourth quarter of 2016. Comparing the full year of 2016 to 2015, the total was up 2.8 percent. 

Looking at all counties' measures, we find that during the fourth quarter of 2016, most areas reported increases in releases of deeds of trust: 

Year over year, the largest increase was in La Plata County and the largest decline was in Alamosa County.

Taking the year as a whole, the changes were less dramatic: 

Statewide, releases were up 2.8 percent for the year overall. Again, La Plata County showed the largest increase, but Eagle County, in this case, shows the largest decline. 

The fourth quarter of 2016 showed a sizable surge in release activity as can be seen in the first graph: 

For the fourth quarter of 2016, there were 93,147 releases, which makes the quarter the second-highest in releases since I began tracking the quarterly totals in 2008. During the fourth quarter of 2015, there were 81,398 releases. Over the past two years, there has been a sizable trend upward in release activity. 

Although quarterly data only goes back to 2008, I do have annual data going back to 2000. Looking at annual data, we find that 2016 was not an especially remarkable year, in spite of the fourth quarter's surge: 

Releases did hit a 3-year high in 2016, but this was comparable to what we saw in 2012 and 2013. Totals remain well below where they were in the run-up to the housing bubble in 2002, 2003, and 2004. 

So where is release activity most concentrated? In raw numbers, we naturally expect the most activity in the most populous counties. However, when we adjust for the total number of households in each county, we find: 

In this case, a small number means more release activity given the population size. So, the county with the most release activity per household is Summit County with only 6 households per release. The least-active county is Alamosa County with 48 households per release. 

If we had to identify factors that lead to more release activity, we could likely point to median income and employment trends as factor, as well as overall demand for real estate in that area. There isn't a flawless correlation here, but counties like Douglas, Weld, and Jefferson continue to see fairly solid employment and income numbers while some counties at the bottom of the list — Pueblo and Alamosa Counties, for instance — tend to have lower incomes and/or less job growth. 

And finally, it's always helpful to compare release activity against trends in mortgage rates. Since refinance activity is a large factor in release activity, we find that, historically, falling interest rates have tended to spur more release activity.

This appears to still be the case, and we can see that in the quarters following declines in the mortgage rate, we see increasing release activity:

There is a lag here, so the 4th Q's surge represents the result of the overall decline in mortgage rates that occurred through most of 2016. Note also how in the quarters immediately following the increases in the mortgage rate in 2013, releases fell to a multi-year low. 

In late 2016, mortgage rates began to climb and remain above four percent during the first quarter of 2017. This is likely to lead to a leveling off in release activity, although this may not be apparent until after the first quarter this year. Moreover, a continuation of strong employment trends may mitigate interest-rate-based downward pressure on home sales and refi activity — and prevent sizable declines in release activity as well. 

Note on sources: all release activity is collected from the public trustee in each state listed.