Making Sense of the Numbers

(Published in Inland Empire Magazine)

Home sales in California dropped a whopping 20.8 percent in March. Yet the median price continued to rise, setting a new record at $580,090. How does that make sense? Shouldnít the soft market be forcing prices down?

Itís all a matter of understanding the numbers, according to Robert Kleinhenz, Deputy Chief Economist with the California Association of Realtors© (CAR). Regarding the high median figure, he says, "If you were to peel that back, and take a look at the individual counties, communities and cities, youíll find that itís very much a mixed bag." Indeed, many areas have experienced price declines.

Sound contradictory? Kleinhenz anticipates the confusion, explaining that "Throughout the state of California the stronger segment of the market tends to be the high end."

In other words, that high median price reflects the types of homes that are selling — not real increases in individual property values. Higher-priced homes are selling; cheaper ones, not so much. The median is the point at which half the homes sold for less, half for more. So, a stall in the low end coupled with relative stability in the high end drives the median price up. Thatís deflating news for those who thought they could still capitalize on "higher" home values. Those days are largely gone. In fact, the economists at C.A.R. expect a two percent decline in values statewide before 2007 is over. And by then, higher-end home sales will be hit too.

On the bright side, prices in the Inland Empire have been largely exempt from downward pressure till recently, because of the strong economy. "You had an economy that was still growing jobs at a very steady rate," Kleinhenz observes. "You had population growth that was there to fill those homes as they were being built. The fundamentals with respect to jobs and population growth have been positives for the local housing market. So thatís why we havenít seen as much price erosion in the Inland Empire as many would have predicted."

And for that, inland homeowners are glad.

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