Wednesday, April 7, 2010

Inland Empire California: Dust Clearing Around Epicenter

Beacon Economics' Regional Outlook

Throughout the recession, the Inland Empire has been one of California's most heavily affected regions. The area was home to a disproportionate share of the state's subprime and Alt-A loans, and saw the expansion of retail (a now beleagured sector) as a share of its economy. However, the dust is beginning to settle. The region’s unemployment rate came down to 14.5% in February, after hitting nearly 15% in November 2009. Both household employment and total nonfarm employment have also seen gains in recent months. Additionally, the region's strengths going into this recession are still there (e.g. affordable housing, proximity to large urban employment centers). Nonetheless, the recovery will be a slow one. The labor and consumer markets will struggle to gain a solid footing over the next few years, and unemployment is expected to remain above 10% through 2014.

Bearish On Housing...

Despite the recent buzz about a "bounce” in housing markets, there remains much to be bearish about in the Inland Empire. After more than tripling between 2000 and 2007, the median price of an Inland Empire home crashed from $394,000 to $155,000 by mid-2009. Since then, there has been a 9% uptick in home prices in the region. However, this is largely the result of unprecedented government intervention into the housing market: The FHA has become the new subprime lender of sorts, the Federal Reserve has kept interest rates at record lows, and Congress has extended the first-time homebuyer tax credit. As these programs expire/end, the recent strength of the Inland Empire’s housing market will likely subside. Additionally, the region is home to many distressed mortgages, which still need to be worked through the system. As a result, Beacon Economics is forecasting that home prices will be relatively flat through 2011, before they return to a more solid growth trend.