Crabtree Report: Bakersfield housing market in full recovery mode

Crabtree Report: Bakersfield housing market in full recovery mode

SINGLE LIVING TO FUEL HOUSING DEMAND - CBRE Econometric Advisors

January 2, 2013 Volume 14, Number 1 SINGLE LIVING TO FUEL HOUSING DEMAND Gleb Nechayev, Senior Managing Economist Gleb.Nechayev@cbre.com With the U.S. economy improving, more single-person households are being formed. This trend will help to fuel demand for the nation's housing, including apartments. The rise in single-person households is part of a long-term global trend, driven by socio-economic and demographic changes. Between 1940 and 2010, single-person households increased from 7.7% of the national total, to 26.7%. This share is expected to continue climbing through this decade and beyond, with the number of single-person households—about 31 million in 2010—topping 36 million by 2020. As a result, singles will account for 35-40% of the growth in total housing demand over the period, which is more than they have historically. Early on, single-person renter households grew much more quickly than renters as a whole—moving from 8.3% of renter households in 1940 to 36% in 1980. Compared with owners, however, the share of single renters has not seen much of an increase since then. A number of factors has contributed to this, including declines in young households during the 1980s, the homeownership boom of the late 1990s, and the Great Recession, which forced many single renters to "double up" with others or to move back with their families. Various surveys have shown that since 2007, single-person households have declined as a fraction of all renters, in contrast to the share of single-person households among owners, which has continued to trend up. Sources: Bureau of the Census, CBRE Econometric Advisors. As the U.S. economy continues to recover, the rate of single-person household formation is bound to accelerate, helping to boost overall housing demand. Which types of homes stand to benefit from this the most? To answer this, let's take a closer look at where single-person households tend to live. As recently as 2011, more than half of them lived in single-family homes; the trend—among both owners and renters—has been slightly positive since 2000. Over 30% of single-person households live in apartments (structures with 5 or more units). Given the young age of most new single-person households currently being formed, these larger multi-housing properties are in a favorable position to capture much of the growth in rental demand—as long as their rents are competitive with those of single-family homes. While growth among single-person households across the country is driven by local population growth, much of the variation in single-person households' propensity to live in apartments over single-family homes stems from their relative affordability. In other words, single-person households compare local single-family home prices and rents with apartment prices and rents, just as families do, when deciding where to live. The greater the variety of housing choices in a particular area, the more relevant such comparisons become. While single-person households have gained share of occupied units across all types of housing since 2000, they matter a lot more to apartments than they do to single-family. Singles account for about half of the demand for 5+ unit multi-housing and for almost 60% of the demand for high-rise living nationally. In contrast, singles capture just over 20% of the total single-family demand. Single-person households are particularly important to multi-housing demand in areas where their concentration is already high—including places such as the District of Columbia and Philadelphia. The housing choices of single-person households do vary by age, however, and a fairly large number of singles approaching and entering retirement own or rent single-family homes. Rapid growth among this group presents a major opportunity for multi-housing to expand its market share—especially in the suburbs. Sources: Bureau of the Census, CBRE Econometric Advisors. How many new single-person households will rent and how many will buy apartments in the coming years will depend on what type of jobs and incomes they will have and how easy it would be for them to obtain mortgages. From a valuation standpoint, in most parts of the country right now, buying apartments looks more attractive than renting them. Investors have certainly taken notice of this opportunity and condominium prices are now rising at a rate well above inflation; and their sale duration is back to levels last seen during the housing boom. More multi-housing construction intended for sale should follow. The rise in single-person households is one of the long-term trends that greatly favors the multi-housing sector. The group is expected to expand by 4-5 million households this decade, and there is potential for most of this demand to be absorbed by rental apartments and townhouses or condominiums. For investors and developers, better understanding the income and age profile of these new households—along with their lifestyle choices—will be the key to taking some share of the demand from single-family homes, where most of the single-person households live today.

Fracking: California’s new oil rush | Energy | News | Financial Post

Fracking: California’s new oil rush | Energy | News | Financial Post

Din of Hammers, Oil Wells Signal Bakersfield Boom - ABC News

Din of Hammers, Oil Wells Signal Bakersfield Boom - ABC News

California Home Prices Have Biggest Increase in 8 Years - Bloomberg

California Home Prices Have Biggest Increase in 8 Years - Bloomberg

Homebuilding doubles in city, quadruples in county - BakersfieldCalifornian.com

Homebuilding doubles in city, quadruples in county - BakersfieldCalifornian.com

WSJ.com - Building Fuels Inland Boom Bakersfield Is Helping Lead California's Construction Sector Out of the Slump December 11, 2012, 6:57 p.m. ET

Building Fuels Inland Boom

Bakersfield Is Helping Lead California's Construction Sector Out of the Slump

December 11, 2012, 6:57 p.m. ET

By JIM CARLTON

BAKERSFIELD, Calif.—This Central Valley oil town, once hard-hit by the sluggish economy and housing slowdown, is helping lead a resurgence in California's construction industry and providing a hopeful sign for many of the state's inland areas.

During the housing boom, lower-cost inland areas like Bakersfield, Modesto and the Inland Empire east of Los Angeles saw home construction surge, only to crash when lending dried up, leaving huge amounts of unsold inventory. But the industry appears on the mend, with construction employment up year-over-year statewide every month since February amid growth in the technology, energy and international-trade industries, among other factors.

Matt Towery, a 54-year-old home builder, will build 50 homes here this year, versus 24 last year. He is taking his family out to eat more often and plans to buy a replacement soon for a Ford F-350 pickup truck that is nearly 10 years old. "We were stung so hard, it's taken us a long time to come back," Mr. Towery said at a new-home site in late November.

In October, construction employment in California increased by 27,700 jobs, or 5% from a year earlier, according to the Associated General Contractors of America, a trade group. California's unemployment in October fell to 10.1% from 11.5% a year earlier, according to the U.S. Bureau of Labor Statistics.

While the construction recovery in the state is broad-based, the hottest market is Bakersfield, a city of about 350,000 more than 100 miles north of Los Angeles. Surrounding Kern County is one of the biggest oil-producing places in the country, with nearly 40,000 working wells—many within the city itself—that account for the bulk of California's crude output. The city also has become a hub for warehouses and industrial parks that serve Southern California.

Commercial and residential construction jobs in the Bakersfield metro area rose 5% in October from a year earlier, one of the strongest growth rates in the nation, according to the contractors' group. After losing 40,000 total jobs—including 39% of construction jobs—between 2007 and 2010, the Bakersfield area has regained all but about 3,000, according to state data. Construction employment is running 2,800 jobs, or 15%, below 2007 levels.

"It's not any one thing, but a lot of things adding up," said John Emery, dean of the school of business and public administration at California State University, Bakersfield. "It's a great time to be here."

Economists warn that Bakersfield, like California, isn't out of the woods. Kern County's October unemployment rate of 12.2%, while down from 13.5% a year earlier, exceeded both the state and U.S. rate. And despite a rebound in housing starts here and statewide this year, the markets remain well below prerecession levels. Median prices for an existing single-family home plunged 61% in Kern County and 57% for the state as a whole between 2006 and 2009, and they have rebounded to 48% below 2006 levels, according to the California Association of Realtors.

Restoring construction is important, economists say, because it generates many other jobs. Randy Salcido, a plasterer on a three-bedroom project of home builder Mr. Towery, said he and his wife have begun going to movies again after he regained his job three months ago after being sporadically employed since 2008.

Nearby, workers put finishing touches on a four-story cancer center for San Joaquin Community Hospital. An improving economy helped the hospital raise $5 million in donations of the $36.5 million needed for the project, which broke ground in 2011, said Jarrod McNaughton, a hospital vice president. The project, which was completed earlier this month, employed as many as 100 construction workers.

A more-than-doubling of oil prices since late 2008 and increases in California's foreign trade have helped accelerate construction at a 1,400-acre industrial park outside Bakersfield owned by Roll Global LLC. The Los Angeles company has leased 250 acres for warehouse construction to energy and other companies over just the past 18 months, compared with 300 acres over the prior decade, said John Ritchie, vice president of commercial development for a Roll division.

One recent deal was for construction of a 55,000-square-foot facility for Weatherford International Ltd., WFT -0.82%a Swiss oil-field-services firm, to make drilling equipment.

"When oil goes up, you see people reinvesting," said Les Clark, executive vice president of the Independent Oil Producers' Agency in Bakersfield.

Amid the commercial-building uptick, countywide permits for single-family housing have more than doubled this year to more than 900, although that is still less than one-fifth the 2006 peak of 6,000, according to county data.

Bakersfield's Lenox Homes went from building 500 homes in 2005 to 69 in 2010, and it is back up to about 100 this year. "At the end of the day," said David Cates, Lenox Homes' president, "we survived."

Write to Jim Carlton at jim.carlton@wsj.com