Riverside County Home Prices are holding up well – by Vincent Bindi

Over the past 8 months, there have many newspaper and Internet headlines predicting a large drop in home prices in riverside County and throughout the southern California region.    Redfin shows there graph of Median Home prices in Riverside County, CA. which shows a peak in sold prices in June of 2022 of $626,000, and a low in Median home prices in October 2022 of $567,500 for a drop of 9.3%.   In actuality the drop in home prices is only about 1/2 of that amount at around 5.1%.  Here is the reason why.

The various agencies that calculate these statistics have traditionally used the Median Home price as an accurate indicator of the true measure as to the direction of home prices.  The problem with this approach is that it does not take into account changing buying patterns that may exist.  For example, lets say that in August of 2022 (60 days before they homes close in October 2022), the average home buyer was more relaxed and looking at all homes in the price range they are qualified for.  Then as interest rates rose towards the end of 2022, some buyers were priced out of the market due to increased mortgage payments, for the size of home that they must have in order to purchase.  While other buyers, during these rising interest rates, would change their search parameters to scale down the size of home, and thus scale down the price of the home, so they could still afford to buy in these new higher interest rate market conditions.  But the average Median price would not show this change in Buyer habits.  The average Median price statistics would just show a shift in closed transactions to lower priced homes, being total unaware that many of these closed homes are now smaller homes as compared to 6 month prior.

Vincent Bindi developed an analytical solution to this dilemma some years ago.  What we developed is to calculate the Price per Square foot, for a certain range of detached homes, not including  condominiums.  Also we only look at homes in the size range of 1,500 to 2,700 Square Feet, and homes located on Lots smaller than 17,000 Square Feet, and homes that are not located in 55+ retirement communities.  The reason we use the filtering methods, is it removes the bias due to a shift a buyer habits.  And eliminates bias to to the fact that homes on large lots (1 Acres or more) appear as though the home is selling at a higher price per square foot.  And eliminates the bias of 55+  communities homes selling at lower prices if their was a change in buyer habits.

When we ran our statistical calculations of Price per Square Foot for closed homes with the filters of  home size range of 1,500 to 2,700 Square Feet, no 55+ communities, and lot sizes less than 17,000 square feet, we calculated an median price per square foot of  $305.6/SqFt in April of 2022, which was the date in the peak in pricing. And then performed the same calculations in November and December in 2022, we arrive at a median price per square footage  $289.9, which is a 5.1% drop in home prices.  Which is 45% less than the statistics quoted by Redfin and a much more accurate analysis of the current trend in market prices.

In addition, we statistically track the Number of Homes Active for sale (Inventory) divided by the homes under contract In-escrow (which is a leading indicator of Closed Sales).    This ratio graphed over periods of time, is a leading indicator of homes prices.  The Active/Pending graph trend is trending downwards which indicates renewed strength in the market, which is another indicator that home prices will most likely hold firm for several months to come.  This renewed strength is partially attributed to the slight reduction in 30 yare mortgage interest rates that occurred in the past couple of months.

Vincent Bindi has been in the real estate profession since 1987 as an investor, real estate developer and a past real estate broker.