Friday, November 12, 2010

The Inland Empire: A Canary in the California's Economic Coal Mine

Beacon Economics 

Employment Recovery Sluggish

While surrounding areas have started to show employment growth, the Inland Empire's labor market remains relatively flat. This is an indication, however, that the region has finally reached bottom and job growth should begin again soon. The Inland Empire's peak-to-trough job losses were much bigger than those in Los Angeles, San Diego, and California overall, even though they began at the same time (July 2007). Riverside and San Bernardino Counties lost 14.4% of all jobs, more than the losses posted in Los Angeles (8.8%), San Diego (8.1%), and California overall (9.2%). Starting in the latter half of 2011, Beacon Economics expects job growth in the region to accelerate and overtake the state rate. The Inland Empire's relative affordability is what drove growth before the recession and that is still in play. In fact, relative affordability has increased since the housing market collapsed. Still, Beacon Economics does not forecast total employment to reach pre-recession peaks within the life of its forecast (through 2015). The unemployment rate will continue to decline, driven in the short-term by job growth in the surrounding counties, and then, when economic activity picks up, by local job growth. While the overall growth of jobs in Southern California will help the unemployment rate in Riverside and San Bernardino Counties fall faster than in the state, the rate will remain above 8% through the end of 2015.

Dark Clouds Still Hang Over Real Estate Market

The Inland Empire has not yet emerged from the broader economic downturn for one major reason: the housing crisis. Riverside and San Bernardino Counties suffered huge losses of equity when the housing market collapsed and have ended up with large numbers of vacant homes. The region was indeed one of the hardest hit in the nation. According to a recent report by CoreLogic, 55% of all mortgages in the Inland Empire are underwater. And while most of the nation is less underwater than they were at the end of last year, the Inland Empire's situation has worsened on this front. The large number of distressed properties loom over the two Counties, and there are almost certainly more foreclosures to come in the near future. Beacon Economics expects the continuation of foreclosures to push the region's median home price downward again next year, but only very slightly. Expect moderate price growth to begin again in 2012.