by John Egan
February 27, 2017
Good news for homebuyers in the Denver, CO, metro area: Over the past 30 years, the rise in home values has outpaced the rise in home construction costs. Even more good news: Home values and home construction costs are not expected to wander off that path over the next several years.
A LawnStarter review of data from the Lincoln Institute of Land Policy shows that from 1986 to 2016, the value of an average single-family home in the Denver area went up 258 percent, landing at $370,002. During the same time, construction costs for the average single-family home -- including things like concrete and excavation, but excluding land prices -- climbed 203 percent, sitting at $233,188 in 2016.
Back in 1986, the value of an average single-family home in the Denver area was $103,288, while construction costs totaled $76,849, our data analysis shows.
Among the 46 major metro areas included in the Lincoln Institute’s data, Denver stood in the middle of the pack for the three-decade spikes in both home values and home construction costs. As a means of comparison, home construction costs skyrocketed 458 percent in the San Francisco, CA, metro area from 1986 to 2016 -- the biggest increase among all 46 metros.
Brad Hunter, chief economist at HomeAdvisor, forecasts a slowdown in the increase of both home prices and home construction costs over the next several years. The price of a home and, subsequently, the market value of a home are tied to supply and demand.
“As prices of construction materials and labor go up, home prices go up, though probably not at the same rate as construction costs during the next few years. This, of course, means the builders will make less money per house,” Hunter tells LawnStarter.
In the graphic below, see how home values and home construction costs changed from 1986 to 2016 in the Denver area.