CENTRAL CALIFORNIA VALLEY HOUSING 1Q17: Demand Begins to Stabilize in the More Expensive Markets While Growth Surges in the More Affordable Counties

  • YoY, the pace of Annual New Home Starts is up an impressive 6% to 8,060; It has been 8 years since building activity has been this strong in the valley.
  • Average New Home Prices are up 3% YoY to $348k; Builders are trying to address affordability concerns by offering new product at lower prices located in secondary, more affordable areas of the
  • We are seeing demand stabilize in the more expensive counties and pick up in the more affordable regions: Annual Starts are up 74% YoY in Stanislaus County, while Fresno is flat and Kern and Madera counties are both down.

Metrostudy’s 1Q17 survey of Central California Valley housing shows that the improving California economy continues to have a positive effect on the Valley’s new home market this year. Annual starts and closings have risen dramatically since 2012. While 2016 grew at a more modest rate, Annual Start pace through 1Q17 is up an impressive 6% to 8,060; while Closings are up 1% to 7,404. It has been 8 years since building activity has been this strong in the valley.

“Compared to 1Q16, annual new home starts were mixed throughout the 8 County region,” said Greg Gross, Director of Metrostudy’s Central California Valley region. “Percentage wise, Stanislaus County saw the highest increase in annual starts; up 74% over 1Q16! Kings was up 13%, Tulare up 7% and San Joaquin up 3%. Fresno was flat, Kern was down 6% and Madera was down 13%. Suggesting demand is beginning to stabilize in the more expensive markets and picking up in the more affordable markets.”

Region wide, the average “offer to build” base price for new Single Family detached homes has risen 3% to $348K compared to 1Q16. Builders are trying to address affordability concerns by offering new product at lower prices located in secondary, more affordable area of the valley. The search is on for more affordable land. The chart below shows the percentage of new home starts across price ranges and demonstrates how the price range has shifted to the right over the past year.

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Finished inventory of homes has decreased substantially during 2015, but did rise in 2016. Metrostudy counted 1,051 Finished Vacant homes this quarter. While inventories increased during over the past year, there is still a very low 1.7-month of supply, a considerable improvement from fourth quarter 2014. 2 – 2.5 MOS is considered Equilibrium.

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. Over the past 4 quarters, there were 6,406 new lots delivered to the market, yet 8,011 lots absorbed, thus dropping months of supply to 26.5.

As 2016 came to an end, the Central Valley Market has experienced fairly respectable economic improvement, especially considering the extreme drought, tightened lending standards, rising construction costs and overall economic uncertainty. However, the recent slowdown in job creation may be indicative of more moderate growth. We are optimistic that pent up demand will continue through 2017, 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. However, some indicators point to a national recessionary period in 2019-2020. Also, a significant interest rate increase coupled increased regulations on home building may negatively impact the Central Valley new home market as affordability concerns are present.

Greg Gross @ 916.231.9370
Email: ggross@metrostudy.com

About Metrostudy: Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. www.metrostudy.com

About Hanley Wood: Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.