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By MICHAEL BLOWER
2015 President, Central Valley Association of Realtors
While other parts of the country, such as Denver, Houston and the Bay Area have seen exceptional real estate recoveries in the past few years by being hubs of the energy and high-tech industries, California’s Central Valley is poised to continue on a modest recovery trend for 2015.
While the growth in these other cities is good, they are economic anomalies which have allowed housing prices in those areas to once again reach the highs from before the market crashed in 2007. The rest of the country just cannot support such rapid recovery, and national trends point to a more modest real estate healing trend for 2015.
Real estate expert and economist Elliot Eisenberg, who is often quoted in Bloomberg, Forbes and Business Week, says areas similar to the Central Valley fall in line with national recovery trends rather than large metropolitan areas, including nearby Silicon Valley and the Bay Area.
“In both San Joaquin and Stanislaus counties the labor markets have stabilized and appear to be growing,” said Eisenberg. “This should help increase demand for structures because more people have income. While unemployment is elevated in both counties, they have come down from 17 percent which was spectacularly higher than the national average.”
The most recent Realtors Confidence Index, compiled by the National Association of Realtors (NAR), reports that, “with rising inventory and modest expectation of demand growth, Realtors responding to the September 2014 survey expected home prices to increase in the next 12 months, with the median expected price increase at about 3 percent.”
Even on the national spectrum, some areas will have better growth patterns than others, and much of that has to do with economic factors such as population and job growth within a region.
The agricultural focus of San Joaquin and Stanislaus counties has seen a slight uptick in recent labor growth. According to the California Central Valley Economic Development Corporation (CCVEDC), the Fresno area has posted one of the best job recovery rates (3.78 percent) in the nation, tracking about 11,470 jobs in the area when compared to a year ago. However, other Central Valley cities are not far behind. The Stockton area rose 2.63 percent in available labor over the same time period accounting for about 4,500 new jobs, and Modesto has posted a respectable 1.59 percent increase in its job production.
Reviewing potential buyers coming into the area is a great way to foresee market performance in the upcoming year. The addition of first time millennial buyers to the market has been a hot topic in real estate during 2014. This group is comprised of people ranging from the ages of 18-33, and has become such a focus for the industry that it was a discussion topic for panelists at the 2014 Realtors Conference & Expo recently held in New Orleans.
The share of houses bought by first-time owners is at its lowest point in nearly 30 years according to the Realtors Confidence Index from NAR. It reports just 33 percent of home purchases in 2014 have been by first-time buyers, down from 38 percent compared to 2013. This number is well below the long-term average of 40 percent per year for time buyers entering the market. Many believe that the absence of these this type of buyer may have contributed to the slower overall recovery of real estate.
“This is where the millennial generation comes into play,” said James Harrison, president and CEO of MLS Listings Inc. “I recently read that millennial buyers make up about 60 percent of what is categorized as “first-time” or potential “first-time” homebuyers for 2015. And, this segment saw 60 percent better job growth than the rest of the country for 2014. Many real estate professionals I have spoken to have pegged this generation as the next wave of consumers to drive the real estate market.
“With the improvement of the high-tech industry in nearby Silicon Valley, many millennials are looking to convenient areas to purchase homes,” said MLS Listings Inc. Chairman Quincy Virgilio. “They are seeking areas where they can commute into cities where they work. Cities like San Jose and San Francisco have seen home prices and rent reach nearly unaffordable levels. With its proximity to these metropolitan areas, the Central Valley could see its fair share of millennial home buyers in 2015.”
Additional factors such as federal regulators easing some lending guidelines may help draw more first-time home buyers back into the market.
“These counties in the Central Valley are catching up with the rest of the nation. Population in both counties is growing while unemployment is trending down and labor markets are increasing,” said Eisenberg. “This all positive for the real estate market in the area. To summarize: It was worse, and it’s getting better,”