People keep asking me about the future direction of the market, and while I can't foretell the future (if I could, I'd be in that business), I can say that the last sixty or so years have demonstrated that many Americans and new immigrants wish to move to California and have been doing so consistently. Homes in the coastal cities have become expensive, forcing buyers to move further inland. So unless another part of the country becomes more attractive in terms of lifestyle and economics, it is unlikely that this overall growth will stop despite plateaus and even recessions. For those who hesitate to buy at this time, I warn them that lower prices are most likely to happen across the board when interest rates go up, so monthly payments are unlikely to go any lower. If they do buy now and see prices fall, then can sit tight in their home and wait perhaps five instead of two years to sell because prices will eventually come back up even higher.
Throughout the 1980’s, Riverside was the fastest growing county in all of California, and prices shot up during that decade. The recession and the closing of March Air Base in Moreno Valley had a drastic effect on home prices in the area in the 1990’s, but values are now higher than they were ever before even without the introduction of new industry to the area. While a cycle of boom, bust, and boom again can be exhausting, patience and planning for the long-term can get us through.
Below I review 2005 and discuss 2006. Also see at my Riverside Realtor and Riverside Real Estate Blogs for a more up to date discussion of current real estate trends and how they relate to the Inland Empire.
Real Estate Price Trends in Riverside & San Bernardino California:
House prices and the number of houses sold in Riverside and San Barnardino have substantially increased, but have leveled off over the past year. Below are charts showing the median house prices and number of houses sold over the past 6 years.
Increases in property values were most dramatic in cities such as San Bernardino and Moreno Valley that have traditionally had lower prices. The reason for this situation was that, as buyers found that prices in other cities had risen beyond their reach, they focused on those areas that they could still afford. Simply put, prices went up most quickly where there was still room for them to rise.
Surprisingly, 2005 mimicked 2004 in many ways. The market was slow at the start of the year, and as less-motivated sellers dropped away, the spring saw low inventories. As a result, there weren’t enough homes, particularly in the lower ranges, which gave rise to intense bidding on the part of buyers. It was this period that provided the momentum for the rest of the year.
In April, there were all together about 600 single family residences and condos for sale in the city of Riverside and the surrounding unincorporated areas. However, this situation changed over the summer when quite a few properties came onto the market. Prices were high following the heels of the spring shortage, and appraisals were coming in due to the closed sales from the previous months. But as the summer progressed, the greater availability of properties in the middle and high ranges of the market resulted in a general slowing. All in all, the number of closed sales remained fairly level. What changed was that there were more properties for sale.
Through the fall, the market continued to slow with lower priced homes more likely to sell. Interest rates rose a bit, cutting back on buying power, and there was a rise in properties falling out of escrow, a situation that continued into the winter. Yet prices of new listings continued to rise as sellers took their cues from the highest closed sales.
Over the winter, there were fewer sales as is typical. People were more likely thinking about holiday shopping, and while the buyers who were out looking were quite motivated (in generally, only truly motivated people look at this time of year), they had their pick in the middle and higher ranges. In some upscale neighborhoods, only those sellers who were in a hurry to sell and made decreases, some as much as $100,000, saw their properties sell fast.
2006 Market Update
After the New Year, I saw a break with the pattern of the previous two years in that more properties began to come on the market. Instead of a shortage of available properties, we now have a veritable profusion of available homes. In mid February, there were about 1450 residential properties for sale in Riverside. Yet prices weren’t coming down very much since the average price was about $530,720. Not many of these properties are selling simply because very few buyers can afford these homes. The houses that are selling are the ones that buyers perceive as a good buy, meaning that they are priced lower than the others, have greater curb appeal, and are in better condition.
Yet prices overall are not showing much signs of coming down. Sellers continue to prices their homes as high as possible because they are oftentimes trying to buy another, higher priced home. Foreclosures have begun, and the Inland Empire leads the rest of the state in the numbers of homeowners that are late in their payments. (Note that the majority of homeowners who go into foreclosure do not end up losing their property as they either get caught up in their payments or else sell first.) Very few listings on the MLS indicate a foreclosure situation because sellers (and their agents) wish to avoid low offers and high pressure tactics. Also, lenders are reluctant to see a house sell for a lot under market value as the sellers most likely got into trouble by taking as much equity out of the property as they could. Thus, the lender, as well as the seller, needs for the property to sell as high as possible.
Rather than a solid decrease in prices, I am seeing more sellers feeling open to helping buyers with closing costs and giving allowances to compensate for imperfections in the property. Some stacking of costs on top of list price is happening while other sellers are taking list or just under list. So even while the sellers are netting less in these instances, closed sale prices look strong and help to reinforce the higher prices of new listings. In addition, I’m seeing commissions begin to edge back up, mostly in the middle and higher ranges of the market, but also at times among the starter homes.
Predictions thus far for 2006 are that we’ll have an overall increase of about 5%, which is something of a relief after the whirlwind of the past two years. For sellers, the good news will be that they didn’t wait too long to sell. If they’re in a hurry, they may need to price lower than the competition, but they will probably do well notwithstanding since lower than the peak will be higher than most of what came before. But sellers will have to work to make their properties as attractive as possible, easy to show, and they’ll have to offer more competitive commissions to buyers’ agents. At the same time, buyers are going to have a better shot at getting a home in that they’ll be able to negotiate more for houses that have sat on the market for a while, and those with borderline financing will be more likely to get a helping hand from sellers than in the past.
