California Central Valley Housing 4Q15: The Strongest Market in 8 Years – Will Economic Growth Fuel Further Demand?
- 2015 saw building activity at the strongest levels we have seen in 8 years: YoY Starts are up 27%
- Compared to 2014, annual new home starts were higher in all of the 8 counties. Madera County saw the highest increase in annual starts; up 166% over 2014
- 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.
JANUARY 2016 – Metrostudy’s 4Q15 survey of the California Central Valley’s New Home Market shows that the state’s improving economy has positively impacted new home starts. Annual starts and closings have risen dramatically since 4Q11. This year, starts are up 27% to 7,523; while Closings are up 28% to 7,070. It’s been 8 years since building activity has been this strong in the valley – the question is will there be sufficient economic growth to keep new home demand strong in 2016?
“Compared to 2014, annual new home starts were higher in all of the 8 counties.,” said Greg Gross, Director of Metrostudy’s Central California Valley market. “Madera County saw the highest increase in annual starts; up 166% over 2014! San Joaquin is up 53%, Madera up 35%, Fresno up 22% all suggesting demand is beginning to stabilize in the more expensive markets, and picking up in the more affordable markets.”
Regionwide the average “offer to build” base price for new Single Family detached homes increased 4% to $331K compared to 4Q14. Builders are reaching affordability limits and may be more reluctant to raise prices too aggressively in some submarkets.
The chart below is representative of how the price range has shifted to the right over the past year. 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 during 2015. Metrostudy counted 1,030 Finished Vacant Single Family homes this quarter. While inventories increased during the fourth quarter, there is still a relatively low 1.8- months of supply, a considerable improvement from fourth quarter 2014. We will continue monitor these inventory levels as there are an additional 2,343 new homes under construction.
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. During 2015, there were nearly 4,506 new lots delivered to the market, yet nearly 7,500 lots absorbed, thus bringing months of supply to 31.
We counted 19,374 finished lots throughout the Greater Central Valley. Of those, 4,800 finished lots remain in Merced County, or about 25%. With the recent increase in new home starts in Madera County, there are only 817 finished lots, or about 47 months of supply. Just one year ago the lot supply was 9 YEARS.
“As 2015 came to a close, the Central Valley Market demonstrated a fairly respectable economic improvement, especially considering the extreme drought, tightened lending standards, rising construction costs and overall economic uncertainty,” said Gross. “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.”
A word of caution though: Further interest increases and cooling of the job market, may have greater impact in many Central Valley markets. Continued job creation usually indicates that new home demand should remain steady for the remainder of the year. However an interest rate increase coupled with the ongoing drought conditions and unstable water supply may have negatively impacted the Central Valley job market.
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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