California Central Valley: 1Q16 Housing Market at 2008 Levels
- Building Activity is at the highest level in eight years: Annual Starts through 1Q16 are up 22% over 1Q15 Levels; Annual Closings are up 27% in the Same Period.
- We are seeing demand stabilize in the more expensive markets and pick up in the affordable markets; Merced County saw annual starts up 134% YoY
- Builders are reaching affordability limits and may be more reluctant to raise prices too aggressively; still the average base price for a new SFD home is up 4% to $334k
MAY 2016 – Metrostudy’s 1Q16 survey of the Greater Central California Valley housing market shows the state’s improving economy continues to positively impact the region’s new home market this year. Annual starts and closings have risen dramatically since 4Q11. This quarter, annual starts are up 22% to 7,573; while Closings are up 27% to 7,266.
“It’s been 8 years since building activity has been this strong in the Valley,” said Greg Gross, Director of Metrostudy’s Central California market. “The question is will there be sufficient economic growth to keep new home demand strong”.
Annual new home starts were higher in all of the 8 counties in the region. Merced County saw the highest increase in annual starts; up 134% over 1Q15! Madera is up 51%, San Joaquin up 38%, Kings up 26%, Stanislaus up 22%, Fresno up 19%, Tulare up 17% and Kern up 6%. All of these numbers suggest that demand is beginning to stabilize in the more expensive markets and picking up in the more affordable markets.”
Region wide the average base price for new Single Family detached homes has increased 4% to $334K compared to 1Q15. Builders are reaching affordability limits and may be more reluctant to raise prices too aggressively in some submarkets. In some submarkets, higher priced product is being offered as builders are seeing increased traffic and demand, especially in Kern, Fresno, and San Joaquin Counties.
Finished inventory of homes has decreased substantially over the past year. Metrostudy counted 1,018 Finished Vacant homes this quarter. While inventories increased over the past two quarters, there is still a very low 1.7-months of supply, a considerable improvement from fourth quarter 2014. We will continue monitor these inventory levels as there are an additional 2,378 new homes under construction. Builders may need to adjust to the changing demand dynamics expected during 2016.
“The Central Valley has been absorbing more lots than were delivered for most of the past three years, making a noticeable dent in the number of finished lots,” said Gross. “Over the past 12 months, there were nearly 4,694 new lots delivered to the market, yet nearly 7,600 lots absorbed, thus bringing months of supply to 31. We counted 19,783 finished lots throughout the Greater Central Valley. Of those, 4,800 finished lots remain in Merced County, or about 24%. With the recent increase in new home starts in Madera County, there are only 782 finished lots, or about 46 months of supply. Just one year ago the lot supply was 9 YEARS.”
As 2015 came to a close, the Central Valley housing market demonstrated a fairly respectable economic improvement, especially considering the extreme drought, tightened lending standards, rising construction costs and overall economic uncertainty. However there has been a rather significant slowdown in job creation.
We are optimistic that pent up demand will continue through 2016, but the challenge may be converting this demand into buyers. Overall, Metrostudy expects the Central Valley housing market to remain steady over the course of the next year. Notably, Kern, Fresno, Stanislaus and San Joaquin Counties will be most stable and consistent housing markets in all of Central Valley. Buyers looking for more affordable homes will be drawn to the suburban markets in Madera, Merced and Kings counties.
For information contact:
Greg Gross @ 916-231-9370
Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com
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