Research by the Institute for Spatial Economic Analysis (ISEA) reports forecasts of home prices for six selected cities in Riverside and San Bernardino Counties in September 2012.
While there may be some signals suggesting that the national housing market picture is improving, the results found in a recent housing price study by the Institute for Spatial Economic Analysis (ISEA) at the University of Redlands indicate that forecasts of home prices in the Inland Empire are not very encouraging. The local economies in six cities noted in the study are still suffering from high unemployment rates and an increase in the number of discouraged workers. The depressed labor market will, according to the ISEA (pronounced “eye-see”) study, continue to have “spillover effects” in Riverside and San Bernardino Counties.
Dr. Mak Kaboudan, professor of economics and statistics and ISEA faculty fellow, reports in his housing study that Inland Empire residential home prices are likely to remain flat for another two years.
“Researchers, politicians, investors, homeowners, and potential home-buyers have sincere interest in current as well as future directional changes in home prices. That interest has increased over the past three or four years after most of us realized that economic health is deeply dependent on that of the housing market –and we continue to see a weak residential housing market in the areas analyzed,” Dr. Kaboudan noted.
The cities featured in the ISEA study are Corona, Riverside, and Temecula in Riverside County and Ontario, Redlands, and San Bernardino in San Bernardino County. The forecasts are prepared for four groups of price ranges representing each city separately and using “genetic programming,” a type of artificial intelligence technique, to produce the forecasts. Use of this method has proven to fit the nature of housing markets fairly well in the past, according to Dr. Kaboudan, who pioneered the use of this technique for such reports.
Over the next year, home prices in Riverside County will decline further in four of the next six quarters. Prices in Corona are expected to witness the steepest decline (almost 5%) by October 2013. The city of Riverside is expected to face home price declines of about 2% over the same period. The decline in Temecula’s home prices is expected to be just below 1% by October 2013.
Over the same period, the picture is a bit better in San Bernardino. Prices are expected to decline in at most three of the six quarters. By the end of the six quarters, Ontario’s home prices are expected to appreciate by 1.8%. Redlands’ prices are expected to appreciate by only 1.5%; while those of the city of San Bernardino to advance by a modest 0.5%.
The modest rebound in San Bernardino County’s home prices is encouraging economic news since it may help economic conditions in the areas. The slow recovery may help improve expectations and bring about investors that avoided real estate investments over the past few years. Although the meager housing markets improvement may help the local economic environment, improved economic environments transform very slowly into strong housing markets. The weak rebound in housing prices is encouraging but more improvement in the labor market (i.e., a stronger real decline in unemployment) is needed before the housing market gains strength.
Generally, in assessing current 2012 conditions, unemployment rates remain high even though the monthly unemployment rate seems to have declined over a year ago. Unfortunately, the decline is mostly because many of those who were unemployed for a lengthy period of time (over twelve months) became discouraged workers and dropped out of the labor force. This means that they are no longer counted when measuring the reported unemployment rate. Therefore, economic conditions must still improve more substantially first before the housing market starts to regain strength. New homes construction remains very slow and banks are still enforcing tight credit and lending conditions. These remain important factors that need to be changed before the housing market can witness serious improvements.
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About the Institute for Spatial Economic Analysis at University of Redlands
The Institute for Spatial Economic Analysis (ISEA) serves regional, national and global business and government leaders in their needs to better understand how socio-economic phenomena affect their communities. A division of the University of Redlands School of Business, ISEA publishes ongoing, timely reports covering retail, employment, housing, logistics and other special topics. A key distinction is its ability to illustrate economic trends and patterns through the use of geo-spatial mapping techniques. In addition, ISEA’s ability to provide Zip code level analysis for many of its reports provides unprecedented detail. Current ISEA economic data and interactive maps may be found at http://isea.redlands.edu/.
Author: Mak Kaboudan
Professor of Economics & Statistics and ISEA faculty fellow,
School of Business, University of Redlands
Media contact: Johannes Moenius, firstname.lastname@example.org, 909-557-8161
Director, Institute for Spatial Economic Analysis,
University of Redlands, School of Business