The pace of Colorado Springs-area home construction slowed last month, breaking a yearlong string of increases. But that doesn't necessarily mean the red-hot housing market has suddenly cooled off.
The Pikes Peak Regional Building Department issued 296 permits in May for the construction of single-family, detached homes in El Paso County, a 10% drop over the same month last year, according to a report Tuesday by the agency. It was the first year-over-year decline in permits since May 2020.
But May's permit numbers — which exclude townhomes and condominiums — don't mean the demand for new homes has waned, said Tom Hennessy, president and CEO of Challenger Homes, a Springs builder.
In fact, the decline might be more the result of internal industry factors, he said.
For one, a tight supply of home sites — or lots — probably has forced some builders to delay construction, Hennessy said.
"Finished lot availability, lots that are available to build on, is just low right now," he said. "The supply is low and some builders are just running out of lots."
Also, some builders who pulled large numbers of permits during the first two months of 2021 have taken out relatively few permits the past few months, including none in May, Hennessy said. That imbalance somewhat skews permit numbers — inflating the first few months of the year and making the last few months artificially low, he said.
And for what it's worth, May only had 20 working days available to pull permits, compared with 21 and 22 in other months, Hennessy said.
Despite May's decline, single-family permits issued during the first five months of 2021 totaled 2,043, an 18.2% increase over the same period in 2020, Regional Building Department figures show.
"Overall, the market's still super strong, believe me," Hennessy said.
The demand for new homes has been driven, in part, because of a lack of supply on the resale side of the market.
Resale inventories have fallen to historically low levels, and some buyers who can't find an existing home have turned to the new home market, real estate agents and builders have said.
Mortgage rates that continue to hover around 3% for 30-year, fixed-rate loans also are an incentive to buy, industry experts have said.
"We have wait lists at most of our communities," Hennessy said. "It's just a matter of trying to keep up on the building process. We get to a point where we just only sell what we really have to build and not get too far ahead of ourselves."
One issue for the building industry remains the soaring cost of lumber, which makes it difficult to hold down prices and keep homes affordable, especially for first-time buyers, he said.
Lumber and other building products have skyrocketed, in part, because of tight supplies that resulted when mills and manufacturers closed in the early months of the COVID-19 pandemic. Even so, the demand for housing never let up over the last year, and building material prices have exploded ever since.
"What we're hoping is that the commodity prices will decrease so that it will put less pressure on builder margins and profitability and allow us to keep offering homes at a reasonable price and not raise them to cover costs," Hennessy said.