Peak Economics Research & Consulting

NEW DATA SET – Topic #1, Post 2 of 2 – Basements in Colorado Follow up from the post last week – on both the basement data and the data library I have been building over the past year (thanks to those who have already reached out). For those who missed it - I am pleased to finally share some data that few, if any, others have to offer. Covering the 11-County Front Range Colorado new home closings deeds, collected and cleaned via the assessors, listings, and thus far, a few homebuilder reconciliations. By product, builder, subdivision, home size, price, etc. Deeds cleaned. Locally. No estimates, no algorithms, no guesses. Reviewed one-by-one, with identification of how the information was cleaned (e.g. 80% assessor, 10% builder reconciled, 10% MLS/online, etc.). Technology will play a future role in efficiency but for now, we are learning the processes to best define the path. To explore further how we can help you today, please feel free to reach out and we can schedule time to talk. To learn more about what Peak ERC is building, same. To pose new challenges, pain points, fire away. You can reach me at: thayden@peakerc.com ---- Basements in Colorado #2 A second teaser piece, again focused in Douglas County. Let’s look at the same categories as last week's post but by homebuilder this time. Based on 2024 new single-family detached home deeds, the table below shows active homebuilders in Douglas County last year with a minimum of ten closings. Then (1) the percentage of homes that had a basement (finished or unfinished), and (2) the percentage of those that were finished by the homebuilder. Important to note on finishes, that some homebuilders do not offer this as an option. A few builders already confirmed this, so some of the actual counts are because that individual homeowner finished the basement shortly after closing (confirmed this with a sample of deeds via county permitting). I left them on here for the visual (but removed them in the data library). Personally, I think it makes sense to wait for the home to settle before finishing the basement, but not always want the homeowner wants/needs, right? This data can be further analyzed by square footage, location (from zip code to market), subdivision, and of course home close price. If you are interested in joining an interest list for a data-driven (white paper) summary of this information, please email me at:  thayden@peakerc.com

NEW DATA – Topic #1 Basements (Front Range) As I continue to build a data library superior to my previous one, I am pleased to finally share some data that few, if any, others have to offer. Covering the 11-County Front Range new home closings deeds, collected and cleaned via the assessors, listings, and thus far, a few homebuilder reconciliations. By product, builder, subdivision, home size, price, etc.   Solving this has allowed me to return to playing a role in the district bond study business once again. And it opens up other future local analysis too.   But allow me to back up. Ever used data that seems spotty at best? Too many blanks or filled in data, that when you spot-check is not accurate? The struggle is real, sorting through the incomplete, skewed, and sometimes completely inaccurate data. There is a lot out there these days and little of it seems to hold up to basic quality spot checks with field work, cleaning, and some calls. So, what do we do? What do I do as a new business? Build it !  And that is what we are doing. To explore further how we can help you today, please feel free to reach out and we can schedule time to talk. To pose new challenges, pain points, fire away. You can reach me at: thayden@peakerc.com --- First Topic: Basements in Colorado. Consider this a teaser of what we can learn, here specifically to Douglas County. This was driven by several cost analysis conversations from both developer and homebuilder perspectives. ** The first illustration shows the percentage of 2024 new home deeds with (1) a basement, and (2) a finished basement at close, by product type. So, In Douglas, 92% of new single-family detached homes had a basement (finished or unfinished) and 29% of those were finished by the homebuilder. ** Interestingly, 81% of duplexes had a basement of some size, but only 8% were finished. With more age-targeted products coming soon or recently started, expect the finished rates to advance in 2025. ** Townhomes with a basement were less than 8% of the time, but keep in mind 52% of them were also built as three-story product (some also with a rooftop deck). ** The second graph shows the percentage of SFD new homes in 2024 with (1) a basement, and (2) of those, with a finished basement by the builder, by price segment. So, 95% of any SFD new home priced above $700,000 had a basement; in the $600s the percentage fell to 75%, and while there are not many being built, about 60% at below $600. Given how important cost analysis will be as market remains competitive in 2025, there are plenty of ways to dive deeper into this data set. Should you prepare the ground for basements? Where are finished basements relevant or opportunities to differentiate? Analyze square footage, location (zip code to market), comps, and home close price. If you are interested in joining an interest list for a data-driven (white paper) summary of this information, please email me: thayden@peakerc.com

Building Permits Trends Quick Look - I was hopeful to see an Executive Order to speed up the data release but alas, it was not to be. Last week, November came out. Below is a rolling 12-month look at annual permits across the State of Colorado, broken out by Region, Front Range markets, and the Top-25 among the 64 counties. Notables: ** 83% of total permits occurred in the 11-County Front Range (81% of SF, 86% of MF). It is a significant capture rate, however, also important to remember that with preliminary data sets, the delays/catch-up usually occur outside the Front Range. Regardless, to increase housing supply in the State, we need more activity. ** State level data (not shown in the table): Total down 13% YOY to 33,367 with a 10% gain in SF and 34% reduction in MF. Total is down from a high of 51,276 in Nov 2022 driven by more than 26,000 MF permits. Now MF is down to 12,645 permits but keep in mind, prior to 2021, the ten-year MF average was 12,000. ** From a share of volume, the two regional areas with the biggest gains in recent years are the West and the Mountain. The West making capture gains in both SF and MF, while no surprises but the Mountains increasing with more gains driven by MF. **  In the Front Range, SF is up 11% YOY on SF annual permits through November. This was driven by net gains led by Arapahoe County (+817), Weld (+370), and El Paso (+291). ** MF has cooled down across the Front Range, as it has elsewhere in most of the country (for now), with MF annual permits down 39% YOY. ** County Table. The first non-Front Range county on the list in terms of total volume is Mesa (Grand Junction), followed by Routt (Steamboat Spgs), Eagle (Vail), and Chaffee (Buena Vista). ** The graph selected this time is the 11C Front Range 12-month rolling annual permits looking at January 2023 to November 2024. Without the volatility of month-to-month, or the broader view of a 20-year look (I have those too), I think this sums up the activity for both 2023 and 2024 well. A plateau reached in SF and continued slowing in MF. Focusing on SF, the lowest annual November level since….well, 2023. But after that….2015! 

Migration – More Details than the News A recent news story caught my attention when they focused on net migration and stated that Texas had more in-migration into Colorado this past year than California. It is true (In 2023, Texas surpassed California by nearly 6,000), but that is at the state level. How about the Front Range? Here is a table from the most recently updated Census estimates, 2018-2022 for State-to-County (19-23 not yet available). Despite the lag, I prefer to use this wider range over a one-year to better monitor the steady shift in trends. Looking by Front Range counties and several categories followed by the top-ten feeder states overall to the Front Range. These include: 1-California, 2-Texas, 3-Florida, 4-Illinois, 5-New York, 6-Arizona, 7-Viriginia, 8-Georgia, 9-North Carolina, and 10-Kansas. ** No surprises – the most moves overall occurred in El Paso (137,521) and Denver (136,314) counties. The most moves staying within the county also happened in these two counties, as were the most relocations from Abroad. ** The second-highest percentage of movers from within Colorado were in Weld County at 42%, again for reasons previously discussed related to affordability and southwest Weld blending into the Denver metro. ** Over the five-year period, if we look at how many counties each led within across Colorado’s 64 counties, Texas wins 34 counties to 25, with 5 NA. So the popular vote and the county electoral match!   The second table is an adjusted version of migration patterns from an old friend. On top is each Front Range county and then the top ten feeder states for the county, color-coded to follow the pattern trends among those states ranking in at least five of the counties. No surprises at the very top spots. Anecdotally, there was a time not too long ago when states including Kansas, Nebraska, Utah, New Mexico, and Utah ranked much higher. I remember when New York only made the top-ten in Boulder and Denver counties. The shifts in living costs and home prices certainly influence many of the changes but there is also a chicken-or-egg debate there too. ~t

Generation Shifts – Playing around with some State Demographer data and forecasts on generation trends. Below is the Denver 8C population estimated for 2024 by Age and color-coded by Generation. Happily, the generations are defined by Bronco QBs (and yes, I did put Tebow in there instead of Wilson – he is one of five QBs to lead his Denver team to a playoff victory – only one of them is missing from this list – any guesses who? Answer at the bottom). In 2024: 26% of the population is Millennials, followed by Gen Z at 23% and then Gen X at 20% and the Boomers at 17%, with Silent Gen at 4%. Over the next five years, this is projected to see the most gains with Alphas moving into 4th at 16%, behind Gen Z at 25%, Millennials at 24%, and Gen X at 18%. Ahead of the Boomers (15%) and Silent Gen at 2%. In both Northern CO and ColoSpgs, Gen Z is already outpacing Millennials, and Alphas are anticipated to increase even more than in Denver by 2029 – see the comments for those two illustrations. While I think there are better ways to look at future buyer demand beyond generations, this is a helpful visual to demonstrate where we are today and where we are headed - plus any excuse to add Broncos trivia to an economic slide is a win. ~t Answer: Jake the Snake Plummer.

Resale Inventory Gains: June-November Another look at listing inventory levels by price point for the Denver (8-County) Market. NoCO and ColoSpgs are in the comments. The top graph and table show the distribution by price point, blue is SFD; green is Condo/TH. The bottom illustrations reflect the change in inventory by price point between June 17th and November 18th of this year. Key Takeaways: Inventory was rising across all price points a month ago, but has settled as it does every season. It is still pretty modest in the heart of the housing market for single-family detached; a little better on attached side. Lower priced inventory gains also reflect more modular/mobile home activity as well as some significantly older homes. Visually, these homes ran as high as into the $300s on the table. 46% of all SFD listings were over $700,000, down from 53% earlier this year. $1.0-$2.9M accounted for 19% of all SFD listings; nearly 23% of all SFD listings were listed above $1M. This is down from a high of 26% earlier this year. $400-$699 captured 49% of SFD listings and 37% of attached. Four months ago, this was 44% and 41%. Inventory is beginning to steadily spread out by price. Again, I would suggest paying attention to where the inventory supplies are based on price – that tells a far more accurate story than inventory supply overall. Yes, watching the overall supply level is important, but we have been so low, for so long, that a 13-year high (last month) still only translated to 3.5 months of detached supply and a 4.2-month supply of attached. For the history buffs, peak inventory supply was 7.1 months of detached (Sept 07) and 8.4 months of attached (May 06 - all those high-end condos back then). Generally, supply levels over ~6.0 months tend to create price corrections. So, watch the price points. The changes by price point tells us where the market is still very much undersupplied. At the lower price end, new builds are unlikely to be able to get there without moving to attached and/or modular product but new detached can play a role in the middle and high-end, which of course opens up other homes and price points as we tempt those locked-in households and build a new set of “move-up” options. ~t 

CO Home Price Gains 2019 to 2024 Following up from last week. Below are some tables on selected locales across the Front Range, looking at the change in annual home price for new and resale from 2019 to 2024 year-to-date. For data transparency, these are the percentage changes off annual average prices in 2019 against an eight-month period in 2024. Prices are being posted everywhere but I want to focus on the change ---- and how it is analyzed (so I have left the actual average prices out of the visual). Pretty eye-catching and about as scary as the jumps in property tax assessments and insurance costs. On the new home side, some of the jump is related to the sharp increases in development/build costs. Keep in mind with prices, the rise and fall of average prices also must factor in what is happening with new builds and resale listings. The kind of housing being built as well as the types of resale homes available will impact what can even sell, and therefore the close price average. When certain buyer profiles move to the sidelines, or increase in activity (i.e. cash buyers; in-migration from a less affordable place), it will also influence the calculation. And the more dialed-into local characteristics and influences, from the state to metro to county to city/town, the better the understanding of the result(s). A few related thoughts: Resale inventory. While 13-year highs headline, it is important to remember that inventories were actually higher during the good times of 2002-2005. Those last 13 years were not by any means “normal” either (hint: there is no normal). More inventory than we have had in recent years is a good thing right now. Yes, it may lower the average price trends but that also indicates that more pricing tiers of a depleted inventory stock are coming back. New home inventory. Builders build. It is what they do best. No matter the cycle or obstacles, our industry is resilient, adaptable, and brilliant at finding ways to hit the right spots and follow where demand leads. Buy-downs remain a key part of the incentive game and coupled with strategic management of more inventory means quick-move sales are more likely to occur on the new home side. It creates both its own challenges and opportunities. Traffic levels have been mostly slow this year, but so too have the availability of sales offices. I would expect that increases in sales office presence in 2025 will also likely improve some of the volume. Buyers. During recent conversations we agreed – for those who can afford to buy today, there is probably no better time to get in – the barriers are not likely to get any easier and for those who are rate-watching, well the minute it reaches a tipping point, it is too late – they will be competing with the high wave of other buyers. The old adage still applies: buy when others are not; sit when others compete to buy. Few seem to follow this, which tends to make it that much more valuable a piece of advice. ~t

Where are the Home Buyers? Inflation 2019-2024 Based on some conversations while out in the field this past week: “The buyers didn’t come back even when rates fell. Even when we have some great deals to offer.” “How much longer?” – This one was both from field conversations as well as my boys who accompanied me one day; we also tested out many community playgrounds. Uncertainty is the culprit, running closely with the effects of the long inflation period. The buyer psyche is not a one-size-fits-all. Patient buyers are patient, urgent buyers are out there buying – there just is not a lot of urgency unless someone is facing a job change, an empty nest, a new baby, or a break-up. And most locked-ins are still locked-in, while those who cannot afford are locked out. Where is the economy headed? Most trends that serve as indicators for measuring confidence have spent the past two years beginning each year with optimism only to whittle down over time. As far as the election - some will say they impact everything, others will say they do not impact anything; the truth is in the middle (causation and correlation are two different things). This year, the election “certainly” does not help resolve any uncertainty. Back to the rates – why didn’t buyers return when rates dropped below 6.1%? Because if they blinked, they missed the rate drop that while welcome, still only took us back to ~Feb 2023 levels - not that great compared to the rates many have locked in. Rates are now back over 6.7%. Wages and cost of living didn’t catch back up in those few weeks. To illustrate the longer term effects of inflation, the graph shows CPI data focused on the price changes of select items from 2019 to 2024: *** Eggs +182%, Oranges +34%, Ground chuck beef +34%, Bread +32%, Chicken +28%. *** Electricity +30% and Utility (piped) gas +31%. *** Gasoline +52%. Never mind the costs of school, daycare, insurance, two kid meals at Chic Fil A, or Halloween candy. Most everyday items and services are up sharply since 2019, and many households continue to feel that squeeze. Look at CO home prices. A new SFD (annual) home closing price is up 26% in Denver since 2019, 44% in NoCO, and 54% in ColoSpgs. Resales are up the same or higher (ColoSpgs +52%, Denver +47%, NoCO +47%). More on this next time. Many Americans remain exasperated and uncertain, with their financial goals in recent years undermined by the impact of prolonged high inflation. For most households, as always, this takes time to resolve. Slowly, it is, by moderating prices and wage growth that is (finally) outpacing the inflation rate. The good news is that inflation has slowed. The Fed is in a known easing cycle. The election will soon be over. Uncertainty is and will continue to improve…BUT….maybe not this week or month while we work through the election. After that blue and red dust settles, optimism will return, morning will start again, and 2025 will be better – steady gains - than 2024. ~t

Must Read on Condo Construction Defects - From the team at the Terner Center for Housing Innovation on defect liability policy in California. Definitely some cross-over discussion and takeaways for us in Colorado. This policy brief delves into the history of such laws in California and provides a comparative analysis of approaches to construction defect liability in Canada and in other states like Hawaii, New Jersey, and Utah. Happy to play a small role in this analysis. ~t

RESALE INVENTORY BY PRICE A quick Review of existing home sales trends and what prices the listings are coming in by segment, the Denver market. Lots of buzz about listings on the rise this past month and thought I would share some data sets I have not yet seen elsewhere. First, you already heard that Denver area listings were up 29% on Detached and 43% on Condo/TH through May. Detached sales were up 6% M-O-M, down 5% YTD compared to same period last year, and annual sales were down 11%. For Condo/TH, a little more volatility: down 20% M-O-M, down 19% YTD comparison, and annual sales through May were down 18%. With the rise in inventory and declining sales, months-of-supply rose to 2.9 months of Detached and 3.1 months of Condo/TH. So all this inventory. The second-highest market for Detached in May over the past ten years, the third-highest for Condo/TH. But what kind of listings are we seeing?  Here are some observations: ** More than 53% of all SFD listings were over $700,000 and about 26% of SFD was listed over $1.0M. ** About 14% of SFD listings were under $500,000 and roughly 21% of Condo/TH listings were under $300,000. But look at most of them - Yikes. ** More than 35% of all Condo/TH is listed over $500,000 and about 13% for over $700,000. ** Price points between $400,000 and $699,999 account for 44% of SFD and 41% of Condo/TH. That is a lot of overlap! Even with rising resale inventory, it remains a good time for new builds to maintain high capture shares of those buyers out there – while there are some locations and a few gems priced reasonably, many of the resale listings will push Days on Market up and require price concessions prior to closing. For new builds, navigating how to further spread out the price point assortment is another challenge - at least going down; between permit fees, zoning, water, land development, and building costs, it will remain difficult to price new homes lower. For resales, concessions are likely to come on most of those list prices, but how much before it is not worth the move for the seller (assuming they have the choice)? As we enter the summer months, and get closer to a look at June numbers, it will be interesting to see how these inventory figures, and price breakouts continue to evolve. Overall, expect slower sales typical this time of year (albeit likely below historical seasonal), price adjustments/concessions for many listings, highly qualified and selective buyers (cash and 20%+ down), and more talk about the lack of housing affordability and uncertainties as the election season (both national and local) moves into the spotlight. ~t