Throughout the pandemic, the Inland Empire’s relatively affordable housing market has been a bright spot in the local economy, and home price growth has outpaced more expensive neighboring areas. However, that affordability has diminished in the context of today’s higher mortgage rates and in the context of increased demand and exceptionally high-priced markets across the state, according to an analysis released today by the UC Riverside School of Business’s Center for Economic Forecasting and Forecasting Development.
Today, just 31% of local households in the Inland Empire can afford to buy a home at the median price, down from a relatively low 39% in the first quarter of 2021. Still, the region remains one of the cheapest in all of Southern California and is more affordable than that State as a whole, where only 24% of households can afford a home at the median price.
“Honestly, this is what affordability looks like in California,” said Taner Osman, research manager at the Center for Economic Forecasting and one of the report’s authors. “Home prices are at the heart of the state’s notoriously high cost of living and are out of reach for the majority of the population as supply remains persistent and demand lags sharply.” The contrast with the country as a whole, where 45% of households can afford houses at average prices, is stark.
As of April 2022, Riverside County had only 1.7 months and San Bernardino County had 2.2 months of housing available for purchase. A balanced market typically has a 6 to 7 month supply. Additionally, homebuyer demand, which has intensified on the back of the pandemic-related stimulus, remains high as home sales fall amid limited inventory.
Other important findings:
- No labor market slowdown yet: Despite mounting recession fears, near-term economic prospects for the Inland Empire are strong. The labor market continues to show strength with an unemployment rate (3.7%) lower than before the pandemic (4.1%). More than 280,000 jobs have been created in the region since April 2020, surpassing the 228,000 lost to pandemic-related closures.
- Inflation slows wage growth: Local wage growth was strongest in Riverside County, where wages grew 3% from Q3 2020 to Q3 2021 (latest data available). Wages in San Bernardino County rose 1.7%. Despite the recovery, real wages fell over the year due to high inflation.
- Consumer Demand, Fuel Prices Drive Taxable Sales Soaring: Taxable sales receipts in the Inland Empire rose a whopping 23.8% in the latest annual data. The increase was mainly driven by high fuel prices and higher spending in the Business & Industry category, where revenue increased by 57%. Gas and service station revenues increased almost as much (56%).
- E-commerce trends keep warehouse space hot: In the last edition of this report, the Inland Empire warehouse vacancy rate was already a low 3.6%. Since the first quarter of 2022 (the latest available data), the vacancy rate has fallen to 3.2%, despite a whopping 34.6 million square feet of new space coming online. Driven by strong consumer spending on e-commerce, warehouse space has become increasingly scarce and asking rents in the Inland Empire are up 6.3%, according to the latest data. But the region is still more affordable than Los Angeles, San Diego, or Orange Counties.
- Increases in the rental market: Demand for housing has continued to intensify in the Inland Empire over the past year, with vacancy rates falling to 3% and asking rents rising more than 21% to average $1,807 per month per unit. But despite the increase, rent in the area is significantly cheaper than Los Angeles ($2,236), Orange ($2,335), and San Diego ($2,226) counties.
The new Inland Empire Regional Intelligence Report is authored by Osman and Senior Research Associate Brian Vanderplas. The analysis examines how the labor market, housing markets and other areas of the Inland Empire’s economy have recovered from the COVID-19 pandemic and their prospects for the rest of the year. Check out the full analysis here.