IRVINE, Calif. – May 21, 2015 – The 12-month change in jobs for the Inland Empire reached a new high, at 53,400 jobs created since March 2014 for a 4.2% growth rate. This very high growth rate is mainly occurring in Trade and Transportation, Professional and Business Services, Leisure and Hospitality, and Education & Health Services. Increasingly strong job growth is also evident in Construction, Government and Financial Activities. The recent drop in oil prices and low (but erratic) gas prices will continue to create a surge in economic growth caused by increased liquidity and consumer spending.
Over 5.6 jobs are being created for every house built in the Inland Empire. The current jobs-to-housing ratio is far higher than the long-term equilibrium level of 0.87 jobs-to-1.0 house. Housing demand is growing much faster than housing supply, resulting in continued rapid depletion of distressed housing and increasing ‘spillover’ demand to interior markets. By Year-end 2015, the Inland Empire’s housing market will be 1.2% underbuilt, with an under supply of 18,458 homes. By Year 2017, under supply will reach over 100,000 homes relative to the job base.
Despite rapid price appreciation in the Inland Empire region during the past 24 months, under valuation of housing is still mildly evident – being caused by a continuation of record low mortgage costs and increasing household incomes. Age qualified and age targeted housing demand, directed toward a maturing demographic, will continue to strengthen during the next five years in this region. California’s economy continues to improve, allowing mature California homeowners to release high equities in coastal markets and potentially roll them over into retirement housing in the Inland Empire. the Inland Empire will enjoy a strong cycle of rollover demand from coastal markets.
The Inland Empire’s population is getting older and less mobile. The Year 2000 Census median age was 32.8 years. It will be 34.4 years by Year 2020. An older demographic translates to reduced mobility, which reduces existing home listings (supply), but also reduces demand via lower housing turnover.
Under/Over valuation of housing is determined via an examination of current mortgage cost-to-household income ratios with the long-term norm. Based on these relationships, housing in the Inland Empire will become over valued by Year 2017, and may become significantly over valued by or before Year 2019. Affordability relative to the economy will need to be monitored carefully – at least on a quarterly basis – to understand the best land buy/sell and development decisions.
Based upon most recent economic, socio-economic and demographic conditions and forecasts for the Riverside-San Bernardino-Ontario, CA MSA, the Inland Empire is still a strong ‘buy’ in terms of housing and residential land. Indeed, this market is anticipated to remain very strong through Year 2017. Caution begins to emerge by Year 2018. Careful quarterly monitoring of affordability issues will be crucial in planning and development of housing sites throughout the region.
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