Research by the Institute for Spatial Economic Analysis shows forecasted home prices for nine selected Southern California cities (Riverside County: Corona, Riverside, Temecula; San Bernardino County: Ontario, Redlands, San Bernardino; Orange County: Anaheim, Irvine, Orange) for March 2012.
Housing is an important industry in the nation, but even more important for the Inland Empire. Due to the Inland Empire’s affordability as compared to the neighboring counties to the West, many chose to reside in the Inland Empire and commute to work. This created a vibrant housing market in Riverside and San Bernardino counties. Since the housing market collapsed, the deeply rooted connection between housing and the economy as a whole became apparent, with the financial sector as the transmission mechanism. Thus, interest in residential home prices has soared, and many forecasts have been produced, either for the entire nation, by state, or sometimes larger areas within a state. The forecast presented here differs from others in three important ways: (1) the forecasts focus on selected cities that are taken as representatives for the Inland Empire, and for comparison, Orange County; (2) the forecasts are prepared for each city separately and even segmented into four groups by price level and characteristics of neighborhoods; (3) the forecasts were created by a method called genetic programming, a particular method within the field of artificial intelligence. A major advantage of this method is that it reflects intricacies of past performance of the studied variable (in our case residential home prices) better than many other methods commonly used.
The results found by University of Redlands’ ISEA faculty fellow Mak Kaboudan are not very encouraging: the local economies in the selected nine cities cannot hope for much help from their local housing markets, since they will remain stagnant at least for another year. Over the period starting July 2011 and ending June 2012, Riverside County prices are expected to remain almost unchanged in two of its cities (Corona and Temecula) but should drop about 2.5% in a third city (Riverside). For the same one-year period, prices in San Bernardino County are expected to remain unchanged in two of its cities (Ontario and San Bernardino) but increase by about 8% in Redlands. In comparison, Orange County home prices are expected to decrease by about 9% in Irvine, decrease by 6% in Orange, but decrease by only 2.5% in Anaheim.
The importance of this finding becomes apparent when one considers that the housing market and economic health are interdependent. Healthy economic environments fuel housing market growth while strong housing market conditions fuel economic growth. Conversely, weak economic environments create stagnant housing markets while weak housing market conditions erode economic prosperity. When tracing this interdependency, accounting for time is critical. Strong housing markets transform rather fast into healthy economic environments. But healthy economic environments transform very slowly into strong housing markets. Conversely, weak housing market conditions swiftly transforms into ailing economic environments while the negative impact of weak economic conditions on the housing market are relatively less rapid.
In assessing current 2011 conditions, unemployment rates are unacceptably high and the housing markets are wretchedly depressed. With poor economic conditions, the housing market cannot bootstrap itself. Therefore, economic conditions must improve first before the housing market rebounds. The improvement in economic conditions will then be followed by slow reaction in the housing market since banks need to reestablish confidence in rebounding markets before extending new real estate loans. New homes construction will be slow because of the existing huge inventory of homes for sale. This means that even if economic conditions improved soon, it will take potential home buyers, home builders, and lending institutions two to three years before reacting to any improved and sustained economic conditions.
ISEA research shows:
- Home prices are expected to be flat across all price segments and neighborhoods in Corona and Riverside.
- Home prices in Temecula are expected to be a bit erratic, due to a thinner market.
San Bernardino County
- Ontario’s home prices are also expected to be flat, with the exception of the lowest price segment where prices are forecasted to increase by moderate amounts.
- Redlands is the only somewhat bright spot on the map – home prices are forecasted to increase across segments, with the largest increase in the highest priced segment.
- Home prices in San Bernardino are forecasted to stay constant with few ups and downs in the next two years.
Orange County (for comparison)
- Anaheim home prices seem to belong only in two price segments – high and low. Home prices in the higher segment are forecasted to fall, while the lower end segment will essentially stay flat.
- Irvine’s home prices are expected to fall the most, and they will do so across all segments, and similarly in Orange, with only slightly smaller declines than Orange.
The author acknowledges significant computational assistance provided by Professor Johannes Moenius, ISEA Director. Maps were prepared by Serene Ong, GIS Analyst, assisted by Brendan Harmon, The Redlands Institute, University of Redlands.