• Annual Starts in 2Q16 up 8% year-over-year
  • Annual Closings up 20% year-over-year
  • Starts pace mixed throughout the 8-county region: Merced County up 132% year-over-year, Stanislaus County up 60%, Kings County up 22%, Tulare County up 14% and San Joaquin County up 13%, Kern County was flat, Fresno County starts down 10%, and Madera County down 22%
  • New home starts prices for units $300K and above increased year-over-year, but starts in price ranges $299K and below declined year-over-year
  • The average base price for a new, detached single-family home is up 3% to $339K year-over-year

Metrostudy’s 2Q16 survey of the Greater Central California Valley housing market shows annual starts totaled 7,467 in the twelve months ending in 2Q16, up 8% from 2Q15. Annual closings were up 20% YoY to 7,275. Compared to 2Q15, annual new home starts for the eight counties throughout region were mixed: Merced County saw the highest YoY increase, with annual starts up 132% over 2Q15. Stanislaus was up 60%, Kings up 22%, Tulare up 14% and San Joaquin up 13%. Annual starts were flat in Kern County, but down 10% in Fresno and down 22% in Madera.

Annual Starts and Closings

“Annual starts and closings have risen dramatically since 2Q12, and the mixed starts pace throughout the region suggests demand is beginning to stabilize in the more expensive markets, and picking up in the more affordable markets,” said Greg Gross, Director of Metrostudy’s Central California market. “Prolonged home demand should remain steady for the remainder of the year. Annual job growth was 3.7% in 2Q16. This is the highest annual job growth percentage since December of 2000, when the annual growth rate reached 4%. However, a significant interest rate increase coupled with the ongoing drought conditions and unstable water supply and increased regulations on home building may negatively impact the Central Valley new home market.”

In 2Q16, the average “offer to build” base price for new Single Family detached homes throughout the region was to $339K, up 3% compared to 2Q15. Overall, pricing for new home starts has trended up in the past year, as new home starts declined YoY in price ranges $299K and below and have increased in the price ranges of $300K and above. Builders are reaching affordability limits in certain sub-markets and may be more reluctant to raise prices too aggressively in some areas.

Central Cali Shift in Housing Starts by Price Range

Metrostudy counted 1,008 Finished Vacant Single Family homes in 2Q16. While inventories increased during the second quarter, there is still a very low 1.7-months of supply, a considerable improvement from fourth quarter 2014 but still below the 2-2.5 month of supply considered Equilibrium. We will continue monitor these inventory levels, as there are an additional 2,787 new homes under construction. Builders may need to adjust to the changing demand dynamics expected through 2016.

Through 2Q16, there were 5,568 new lots delivered to the market, yet 7,406 lots were absorbed, thus keeping months of supply at 31. We counted 18,974 finished lots throughout the Greater Central Valley. Of those, 4,669 finished lots remain in Merced County, or about 25%. With the recent increase in new home starts in Merced County, there are only 731 finished lots, or about 55 months of supply. This is significantly lower than one year ago when the lot supply was 9 years. As of 2Q16, there were an additional 27,485 lots in the pipeline with 11,855 lots being excavated now, with overall development 21% higher than one year ago.

Future Lot Inventory Pipeline

“As 2016 reached the halfway point, we are optimistic that pent up demand will continue through 2016, but the challenge may be converting this demand into buyers,” said Gross. “We caution that further interest increases and cooling of the job market, may have greater impact in many Central Valley markets. 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 further analysis of the Central California market, reach out to regional director Greg Gross: