Fresno Realtor Brandon Gonzales, front, answers questions from the audience attending the Fall 2018 Housing Market Symposium Tuesday at Fresno State. He was joined by, left to right, John A. Bonadelle, director of operations for Valley home developer Bonadelle Neighborhoods and Richard K. Green, director of the USC Lusk Center for Real Estate. On the far right is Leland Parnagian, moderator.
Written by David Castellon
After years of strong growth in home sales and prices, things are slowing down, real estate broker Brandon Gonzales told a crowd of fellow brokers and academics gathered Tuesday at California State University, Fresno.
“We will see a decrease in sales. We’ve already started to see that,” with home prices in the region that had averaged about 9 percent growth over each of the past seven years slowing to about 3 percent this year, said Gonzales, owner of Iron Key Real Estate in Fresno and president of the Fresno Association of Realtors.
Time for adjustments
“And that’s not necessarily a bad thing, because I think there’s an adjustment period going. Inventory is steadily increasing, the median sales price will increase, but not in the 9 to 10 percentile we’ve seen over the past seven years. Affordability will remain stable,” at least here in the Valley, where hones are more affordable than in many other parts of California, while interest rates could rise of to the mid 5 to low 6 percent range by the middle of next year, he explained.
But Gonzales noted to the crowd of more than 80 people gathered at Fresno State’s Craig School of Business that “It’s not doom and gloom by any stretch of the imagination, but there are definitely changes on the way.”
In fact, he said the changes in pricing are good news as what had been largely a sellers market is shifting to give back some leverage to buyers, many of whom are frustrated with paying premium prices for some homes that hadn’t been spruced up or upgraded, and sellers frequently were unwilling to do repairs or make concessions as part of the negotiations, Gonzales said.
That’s changing as price growth for homes slows down and more housing becomes available, giving buyers more options, making it in sellers’ best interests to at least invest in some sprucing or upgrades, even if it’s just some fresh paint and flooring, he said.
Buyers gain leverage
That’s good news for brokers, as the shift could prompt more potential buyers to look for homes, said Gonzales, one of three real estate experts invited to address the Fall 2018 Housing Market Symposium put on by the business school’s Gazarian Real Estate Center.
J.P. Shamshoian, president of Fresno-based Realty Concepts, wasn’t a speaker at Tuesday’s event but offered an assessment similar to Gonzales’ of the Valley residential real estate market.
“Really, for the last couple of years, we’ve seen a very strong seller’s market, rapid price appreciation, multiple offers, things like that. A lot of that is drying up. We’re not seeing the same acceleration in the market that we had been seeing over the last two or three years,” he said.
“Just over the last couple of months, buyers seem to have gotten a little pickier about what it is that they’re buying. We see inventory building up, which means that the balance between sellers having all the power … is shifting more toward the buyers, which is great news for people looking for the opportunity to buy their dream homes.”
And a 3-4 percent annual increases in home prices is a healthier rate than what has occurred here in recent years, some of which saw increases in the low double digits, Shamshoian noted.
“Slow and steady wins the race,” he said adding this isn’t necessarily bad news for sellers because “most people who are selling are buying” homes elsewhere.
Another speaker at the symposium was John A. Bonadelle, director of operations for Bonadelle Neighborhoods, one of the Valley’s top homebuilders.
He said that after the Great Recession’s housing market bust in 2008, a lot of developers left the Valley, with just a few remaining.
With the economy recovering in recent years, those developers that rode out the crash and others are “pouring” into the Fresno-area market trying to fill the high demand for new housing here, he said.
From Merced to Tulare counties, “in that footprint you’ll maybe encounter 15, maybe 20 other homebuilders that you’ll be competing with.
That dynamic of local and national builders “really is just raising the floor of competition across the board, said Bonadelle, adding, “What that’s really done is benefit the homebuyer, because builders are delivering more affordable housing and they’re delivering houses with more amenities and just a better product.”
In addition, builders in the Valley – which in the past has had a reputation for lagging in adopting new housing trends – are incorporating new, fresh trends into their homes here, he told the crowd.
For example, Bonadelle said, one industry magazine announced 2018 as the “year of the farm house elevation,” referring to exterior home designs that resemble traditional farmhouses.
“But here in the Valley, there have been a handful of builders building these farmhouse elevations for two or three years now.”
Another big change has been the introduction of master-planned communities in the Valley, in which large, new home developments constructed by multiple builders include the development of retail areas and can include schools and public service buildings, including police and fire stations – like small cities or towns being built from scratch.
Bonadelle noted two under development in Madera County, Riverstone and Tesoro Viejo, and Copper River Ranch in Fresno County.
“We’re really starting to see the master-planned community take hold in the Fresno market.
“It’s also starting to raise the expectations of homebuyers. Even if a homebuyer doesn’t buy a home in Riverstone or Copper River, they’re still seeing the amenities offered in those other communities, and they’re still expecting that from other developers,” Bonadelle said.
Price is a factor
A major plus for homebuyers here is the Valley remains a price-conscious market, he added.
In his presentation, Gonzales said the median price for a single-family home here is about $265,00, with the average price being closer to $300,000.
On average, Fresno County residents can afford about $250,000 homes, and high-volume builders need to offer homes in the $200,000 to $400,000 range, Bonadelle said.
Land costs are rising and parcels with sufficient water access and without environmental issues are getting harder to find for home building, “and that’s forcing builders to get really creative with projects,” which includes a push to higher-density neighborhoods, getting away from the 60-by-100 foot lots with pools that used to be the “bread and butter” for Fresno-area homebuilders and instead building on 35-foot and 45-foot lots with shallower yard space, Bonadelle said.
“And what they’re doing is they’re jamming in the number of units per acre you can get to spread out those costs with that higher yield, and that lets the deal pencil financially a little better.”
Rise of ‘tertiary’ markets
In addition, Bonadelle told the audience that developers who have been successful in areas that include Merced and Visalia are trying their luck in “tertiary,” housing markets, Dinuba and Kerman among them.
But homebuilders here are facing challenges; including the high fees the state imposes to build homes and the upcoming requirement in 2020 that new homes will need to have solar panels. That will add thousands of dollars to the costs of homes, and while Southern California and Bay Area builders could easily tack those costs to their much higher-priced homes, the builders here may have cut their profit margins to keep their lower-priced homes affordable enough for buyers in these markets, Bonadelle explained.
He said builders also are contending with low availability of workers to build homes, forcing some to look beyond the Valley for construction crews or offering higher pay for those willing to leave jobs they’ve already started here.
If the labor pool was back to pre-recession levels, Bonadelle estimated that builders could put out new homes at a rate about 25 percent higher than they can now.