Central California Valley Housing 4Q16: The Strongest Level of Building Activity in 8 Years – but the Search is on for More Affordable Land
- 2016 grew at a more modest rate with Annual Starts up 5% YoY to 7,977 and Closings up 3% to 7,296
- Regionwide, the average base price for new Single Family detached homes has risen 3% to $346K compared to 4Q15
- Builders are addressing affordability concerns as new product at lower prices is being developed in secondary, more affordable area of the valley.
Metrostudy’s 4Q16 survey of the Greater Central Valley Greater Central Valley new home market shows the strongest level of building activity in eight years as the improving California economy continues to positively impact the region. As predicted, 2016 grew at a more modest rate with the Annual Start pace is up 5% YoY to 7,977 and Closings up 3% to 7,296. Annual starts and closings have risen dramatically since 3Q12, but it’s not clear that there will be sufficient economic growth to keep new home demand strong.
“Compared to 2015, annual new home starts were mixed throughout the 8 County region,” said Greg Gross, Director of Metrostudy’s Central Valley region. “Percentage wise, Stanislaus County saw the highest increase in annual starts; up 75% over 2015! Merced is up 59%, Kings up 42%, San Joaquin up 15%, Tulare up 12% and Madera up 7%. Still, Annual Starts were down 9% in in both Kern and Fresno Counties, suggesting demand is beginning to stabilize in the more expensive markets, and picking up in the more affordable markets.”
Regionwide, the average base price for new Single Family detached homes has risen 3% to $346K compared to 4Q15. Builders are addressing affordability concerns as new product at lower prices is being developed in secondary, more affordable area of the valley. The search is on for more affordable land. The chart below represents the percentage of new home starts across price ranges and demonstrates how the price range has shifted to the right over the past year.
Finished inventory of homes has decreased substantially during 2015, but did rise in 2016. Metrostudy counted 1,076 Finished Vacant homes this quarter. While inventories increased during the 2016, there is still a very low 1.8-months 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. During 2016, there were 6,783 new lots delivered to the market, yet 7,919 lots absorbed, thus dropping months of supply to 27.
Through 2016, 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.
A word of caution though, as the nation comes to grip with a new administration, there will be some economic uncertainty, so with the potential of rising interest rates and cooling of the job market, may have greater impact in many Central Valley markets. 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.
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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