CENTRAL CALIFORNIA VALLEY HOUSING 1Q18: Steady Growth Continues as Demand is Strongest in More Affordable Markets

  • Annual New Home Starts are up 9% YoY, while closings are up 14% from 1Q17 levels.
  • We continue to see a squeeze on affordable housing as Average New Home Prices are up 7% YoY to $374k, and production under $200k has been eliminated.
  • Regionwide, the average base price for new Single Family detached homes is now $374k; up 7% from last year. Builders are trying to address affordability concerns by offering new product at lower prices located in secondary, more affordable area of the valley.

Metrostudy’s 1Q18 survey of the Central California Valley housing market shows that 2018 is off to a good start: Annual Starts pace is up 9% to 8,813, while Closings are up 14% to 8,460. It has been 9 years since building activity has been this strong in the valley. The improving California economy continues to have a positive effect on the Greater Central Valley new home market again this year, as annual starts and closings have been rising dramatically since 2012.

“Compared to 1Q17, annual new home starts were mixed throughout most of the eight county region, suggesting demand is strong and even stronger in the more affordable markets,” said Greg Gross, Director of Metrostudy’s Central California market. “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, and new home demand should steadily increase through 2018. However, any significant interest rate increase coupled with toughened regulations on home building may negatively affect the Central Valley new home market, as affordability concerns are rising.”

Regionwide, the average base price for new Single Family detached homes is now $374k; up 7% from last year. 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, as production under $200k has been eliminated.

Finished inventory of homes has increased slightly this year. Metrostudy counted 1,073 Finished Vacant homes this quarter. There is still a very low 1.5-month of supply, a considerable improvement from fourth quarter 2014. 2 – 2.5 MOS is considered Equilibrium. We will continue monitor these inventory levels as there are an additional 3,278 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. Over the past 4 quarters, there were 7,036 new lots delivered to the market, yet 8,460 lots absorbed, thus dropping months of supply to 22.

Metrostudy counted 16,525 finished lots throughout the Greater Central Valley. Of those, 3,714 finished lots remain in Merced County, or about 22%. With the recent increase in new home starts in Kings County, there are only 210 finished lots, or about 10 months of lot supply! Fresno is also facing a lot shortage, with less than 17 months of lot supply.

It is clear that the Central Valley Market has experienced respectable economic improvement over the past few years. After a slow down during 2017, it appears that job creation is beginning to increase. A word of caution though, as the nation comes to grip with a new administration, there will be some economic and global political uncertainty, so with the potential of rising interest rates and cooling of the job market, may have greater impact in many Central Valley markets. Good news is that Consumer Confidence levels are at a 17-year high, so consumers are generally feeling good about the future.

We are optimistic that pent up demand will continue through 2018, but the challenge may be converting this demand into buyers. Metrostudy is forecasting new home starts to reach 10,000 in 2018.

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.