A study released on May 18 by the UCR School of Business revealed that the housing market in the Inland Empire is set to experience a prosperous year in 2018. This is largely due to the current state of both the supply and demand of housing.
Robert Kleinhenz, Executive Director of Research at the UC Riverside School of Business Center for Economic Forecasting and Development, explained this phenomenon in an interview with the Highlander. “On the demand side, several years of job and income gains have enabled households to improve their financial situation. Moreover, millennials have largely moved into the household formation/first-time home buying stage of their lives,” stated Kleinhenz. He also emphasized that interest rates, while low, are expected to rise soon. This expectation could pressure people into making a decision regarding whether to buy or sell.
Regarding the housing supply, Kleinhenz pointed to the fact that builders are starting to construct more homes in the Inland Empire, which will help convince younger families to move to the area. Interest rates have been low, but the expectation that they will increase in the near future should motivate prospective buyers into purchasing homes. The increase in demand has not gone unnoticed by builders who have started building more single family homes. While there are still not enough homes, Kleinhenz maintained that the trend is moving in the right direction.
The report also states that the Inland Empire’s economic growth and improvements to its local economy will prevent the next recession from being detrimental to the housing market. In response to this claim, Kleinhenz stated that it is important to remember that during the most recent upturn, large numbers of jobs in the Inland Empire were created in construction. Construction jobs, one of the most volatile occupational sectors, tend to be heavily susceptible to large swings in demand. Now, industries where more sustainable job gains are expected, such as logistics, healthcare, the food industry and manufacturing are experiencing growth.
“Moreover, the housing sector skyrocketed during the last expansion because it was all too easy to get a mortgage. Easy money coupled with rapidly increasing prices led some people to buy not one, but two or three homes,” said Kleinhenz. In many instances homebuyers did not put enough money down, so as soon as home prices fell, they find themselves in a difficult situation. This would lead to them eventually having to opt for a foreclosure or short sale. The housing market is not as over-inflated as it was during the economic recession because now it is more difficult to qualify for a mortgage in the first place. However, this is not to say that the local economy will not face any problems that result from a recession, but just that they won’t be as severe as in 2008.
Housing sales, however, have not been as steady as many have hoped. Sales for both existing and new homes have plateaued mainly due to a long-time lack of houses in the area. Kleinhenz explained that “Supply should increase this year as new home construction increases. As of the first quarter 2018, single family permits were up 14% year to year in Riverside county and up 10% in San Bernardino county.”
Kleinhenz also emphasized that in order for the Inland Empire to grow, younger people will have to be among the next wave of home purchasers translating into a younger labor force. “If you want a vibrant economy in the region going forward, you need to make it an attractive place for young households. It’s a big plus that the region is already more affordable than the coastal regions,” said Kleinhenz. While Los Angeles and Orange County have typically been considered more appealing places to live, the Inland Empire is much more affordable for young families.
Kleinhenz explained that if the prices of homes continue to increase, it might not be possible for many families to move to these areas, and they have no choice but to consider moving to the Inland Empire. Beyond that, Kleinhenz hoped that improvements in housing can be a way of attracting and retaining young home buyers in the area. He thinks that that if the Inland Empire can offer people what they are looking for in their neighborhoods, their communities, the region as a whole will begin to realize its potential.
