Riverside is the fourth most populous county in California with over 2.4 million residents. Much of the region’s population growth took place during the Millennium Boom years, when construction jobs and new home sales skyrocketed.

But the recession left the region with deep losses in home sales volume, construction starts and employment. Nearly a decade after the end of the 2008-2009 recession, Riverside’s economy remains in a state of prolonged recovery, slowly gaining momentum as lost jobs are regained. Employment finally exceeded the number of jobs prior to the Great Recession at the end of 2014, though has yet to catch up with the intervening population gain between 2007 and today. It will likely take another couple of years to build the jobs sufficient to support the population added since 2007 and generate wage inflation needed to sustain home sale growth.

View the Riverside regional charts below for details on current activity and forecasts for its local housing market.

Updated November 26, 2018. Original copy posted March 2013.

Home sales volume remains down

Chart update 11/26/18

2018* 2017 2005: Peak Year
Riverside County home sales volume 41,900 42,400 68,100

*first tuesday’s projection is based on monthly sales volume trends, as experienced so far this year.

Home sales volume in Riverside County has remained mostly level in the years since 2011. The exception was 2014, when the area was hit particularly hard by the rapid exit of speculators, sales volume ending the year 9% below the prior year. Riverside recovered from that exodus in 2015, when sales numbers rebounded to 11% above 2014.  Flash forward to 2018 and a true recovery still has not materialized, as annual sales volume continues to plod along, 1% below a year earlier as of Q3 2018.

For some context, home sales volume fell quickly before and during the recession, then demonstrated a textbook example of an aborted checkmark recovery. Volume bounced back briefly in 2008-2009, initially due to what economists term a dead cat bounce recovery, which was extended another year by the home buying tax credit stimulus. Sales volume remained flat in Riverside until late-2013 when it began to trend down, bottoming in early 2015 and remaining roughly level since.

Home sales volume won’t fully recover for a few more years, likely around 2021-2023, at which point first-time Generation Y (Gen Y) homebuyers and Baby Boomer (Boomer) retirees will converge to drive up sales volume and prices. In the meantime, expect reduced home sales volume and prices leading up the next economic recession, anticipated to arrive in 2020.

Turnover falls

Chart update 11/26/18

2017 2016 2015
Riverside County homeowner turnover rate 9.5% 6.7% 9.1%

Riverside County renter turnover rate

18.8% 20.3%
21.4%

Without homeowner or renter turnover, homes do not sell. In Riverside, the number of homeowners and renters moving in recent years peaked in 2009 due to the tax stimulus and high level of foreclosures, which temporarily lifted sales volume as tenants became homeowners. In a reversal, turnover has swiftly declined since then as potential end users have chosen more often to remain where they are.

The renter annual turnover rate fell from above 26% in 2013 to just below 19% in 2017 (the most recently reported Census year). On the other hand, the homeowner turnover rate rose significantly in 2017 to 9.5%, its highest level since 2009. Homeowner turnover is still below the level needed for a full recovery in home sales volume.

As slow job growth and wages continue to stagnate, residents lack the confidence (and more importantly, often the financial ability) to move. The turnover rate will rise once employment catches up with population growth and wages improve sufficiently, as these increases boost confidence in the economy and reduce fears of carrying mortgage debt.

Turnover rates are likely to slow across the state in 2019-2020, much like they did in the lead-up to the 2008 recession. Following this brief dip in economic activity, members of Gen Y will collectively rush from their apartments to buy and Baby Boomers will begin to retire in larger numbers, generally buying smaller, more convenient replacement homes after they sell. Immigrants will also play a significant role in boosting Riverside County’s suburban resale housing demand. Apartment vacancies will rise as they did in the early 1990s when the boomers took to buying homes.

Homeownership rate bounces back

Chart update 11/26/18

Q3 2018
Q2 2018 Q3 2017
Riverside County homeownership 64.7% 59.2% 59.2%

Riverside County’s homeownership rate fell steeply during the recession. Riverside’s rate of homeownership hovered around 68% from 2000 through the end of the Millennium Boom. As of Q3 2018, the homeownership rate appears to have risen fully from its bottom, now at 64.7%. Further, this is significantly higher than the state average, which is still 55% in Q3 2018.

The return of significant numbers of buyer-occupants depends primarily on the creation of more jobs with better pay than the new jobs that have come on line as we go into expansion from this recovery. By the end of 2014, the jobs lost in the Great Recession of 2008 were finally recovered, several months following the statewide jobs recovery. But with the intervening eight years of population increase, the ultimate jobs recovery with the strong wage rises needed to support high sales volume and in turn price increases will wait until 2019, just in time for the economy to head into its next slump. The homeownership rate will remain below pre-recession levels until the years following the next recession, only to rise when members of Gen Y collectively gain enough income to become first-time homebuyers.

Residential construction mixed

Chart update 11/26/18

2017 2016 2015
Riverside County single family residential (SFR) starts 9,900 8,000 6,800

Riverside County multi-family starts

3,900 2,100
3,800

Residential construction starts are recovering marginally in the Riverside Metropolitan area. Single family residential (SFR) and multi-family construction both continued to improve in 2017.

Here, the focus on multi-family construction is far less pronounced than in regions closer to the coast. Nevertheless, increased demand for rental housing during this recovery translates to stronger growth in this sector than in SFR  construction.

Construction increased dramatically during the Millennium Boom as the population moved from the urban centers of Los Angeles, Orange and San Diego Counties into the bedroom communities of Riverside County. Builders kept pace with buyer demand for new housing. Eventually, their starts overran the 2006-2007 decline in buyer demand. The excess starts resulted almost exclusively from distortions in mortgage and construction financing with personal guarantee arrangements.

When the housing bubble burst in 2006, the sale and thus the construction of SFRs and multi-family housing plummeted. Small builders went bust in droves. Today, the general trend for SFR starts in Riverside County is displaying signs of stability with no signs of reaching 2004 and 2005 numbers in the foreseeable future.

The next peak in SFR construction starts will likely occur in 2021-2023 due to legislative efforts to increase California’s housing stock. Even then, SFR construction starts are very unlikely to return to the mortgage-driven numbers seen during the bacchanalia of the Millennium Boom.

Jobs are picking up

Chart update 11/26/18

Sep 2018 Sep 2017 annual change
Riverside County jobs 1,494,300 1,452,600 +2.9%

Before end users can provide sufficient support for the housing recovery, they will need to acquire income — i.e., jobs with wages exceeding the rate of consumer inflation.

The number of individuals employed in Riverside County finally surpassed its December 2007 peak in Q4 2014. As of September 2018, 194,000 more individuals are employed than at the outset of the recession. However, it will likely take another couple years to build the jobs sufficient to support the population added since 2007 and generate wage inflation needed to adequately support today’s home price increases.

Real estate, construction slowly add workers

Chart update 11/26/18

Sep 2018 Sep 2017 annual change
Real estate 18,000 18,200 -1.1%
Construction
102,200
101,400
+0.8%

Many of Riverside’s top employing industries have yet to recover from the recession.

The number of employed in the construction industry has grown 0.8% this past year in Riverside. Meanwhile, the number of individuals employed in the real estate industry is actually shrinking in 2018. The number of real estate and construction professionals employed will see a significant increase when the next confluence of buyers and renters (members of Gen Y and the Boomer generations) enter the market around 2021-2023.

Per capita income points to a continued slow recovery

Chart update 11/26/18

2017 2016 Annual change
Riverside County per capita income $39,261 $37,827 +3.8%
California per capita income $59,796 $57,497 +4.0%

Per capita income in Riverside is one of the lowest in the state. Low per capita income holds down rents and thus new multi-family starts. Annual income rose beyond 2008 peak year amounts in 2013 — and that’s before accounting for the purchasing power reduction brought on by interim inflation.

The average employed individual in Riverside earns just $39,300, according to the most recent Census reported year of 2017.  The statewide average income is much higher than Riverside’s. However, the average resident of Riverside spends less of their income on housing expenses than those living in urban coastal cities.

Jobs and the pay received by locals is why homebuyer occupants ultimately determine selling prices. Buyers can only pay as much for a home (or rent) as their savings, income and credit score qualify them to pay — nothing more, no matter the price demanded by sellers.

Expect per capita income to increase concurrent with increases in job numbers and the competition that brings employer demand for more employees.