Inland Empire: Risks can Impact Economy in Near Future, Even as Fundamentals Continue Expanding

The Inland Empire’s economy displays robust fundamentals and will continue expanding in 2019—although probably at a slower pace. However, certain risks could impact local businesses and consumers going into 2020.

That’s according to the “2019 Inland Empire Economic Forecast,” recently hosted by the Building Industry Association (BIA) of Riverside County and the A. Gary Anderson Center for Economic Research at Chapman University. The keynote speakers’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately:

Inland Empire Forecast

  • The Inland Empire will add 44,000 company payroll jobs in 2019, boosting its corporate employment to 1.54 million. This new total would be a 20 percent increase from 2014, and it doesn’t include any additional jobs in the independent contractor/consultant sphere (which may also likely occur given a growing economy). The region’s annual job growth will slow from 3.4 percent in 2018 to 2.9 percent in 2019. “In spite of this decrease, job growth in the Inland Empire will maintain a hefty growth differential over California,” the forecast report states.
  • The following Inland Empire employment sectors—from highest to lowest growth—will add jobs in 2019 (and will more than offset any employment declines in other sectors): trade, transportation and utilities (13,000); education and health services (7,000); transportation and warehousing (7,000); state and local government (7,000); professional and business services (6,000); leisure and hospitality (6,000); wholesale trade (3,000); retail trade (3,000); construction (2,000); manufacturing (1,000); and “other” services (1,000).
  • Although the Inland Empire recently gained “superstar” status as an immense driver of new jobs, its employment growth is slowing down similar to other nearby counties. The region at one time boasted an annual “unsustainably high growth rate” of 5 percent, and today it is still outperforming California as a whole. However, employment increases across all nearby regions are slowing as the broader economy can only induce so many individuals to fill available positions. Annual job growth as of third-quarter 2018 was 3.3 percent in the Inland Empire, 2.3 percent in Silicon Valley, 2.2 percent in Orange County, 1.7 percent in San Diego County, and 1.3 percent in Los Angeles County. About 73 percent of the Inland Empire’s job expansion from 2014 – 2018 happened in just five categories (from highest to lowest growth): transportation and warehousing, education and health services, state and local government, leisure and hospitality, and construction.
  • Total personal income for Inland Empire residents will hit a record $200 billion in 2019. This comes after reaching $153 billion in 2014, a 31 percent increase over five years—and a sign that the collective purchasing power of local residents continues rising. In conjunction, local taxable sales for San Bernardino and Riverside counties combined will hit $82 billion in 2019 (up from $65 billion in 2014).
  • The median price of a single-family home in the Inland Empire will reach $374,000 in 2019 (up 4.5 percent from $358,000 in 2018), revealing a slowdown in price growth from 6.4 percent during the last year-ago period. This 2019 projection is up from $273,000 in 2014—a 37 percent increase over five years. Sales of existing homes in the region will hit nearly 63,000, which is smaller than the run-up to 67,000 in 2017.
  • Local household income that’s needed to purchase a single-family median priced home in the Inland Empire in 2019 will be 2 percent below what’s required to qualify for a mortgage of $374,000 (median price). Household income was 4 percent higher than the required median-price mortgage level in 2018, which shows how affordability will continue declining. The local existing-home affordability index (the percentage of the median home price that can be purchased with the median household income in that market) continues dropping as home prices rise, going from “180” in 2011 to a projected “98” in 2019.
  • The relative difference in household income versus home prices is fueling a noticeable rise in workers choosing to live in the Inland Empire but commute to Orange County. “Although the median family income of $75,249 in the Inland Empire is lower than Orange County’s $102,390, the Inland Empire’s median home price of $366,000 is less than half of Orange County’s $830,833,” the forecast report states. “The disparity in housing prices is leading to a steady increase in the number of residents commuting from the Inland Empire (where homes are affordable) to Orange County, where higher-paying jobs are more readily available.”
  • Annual new-home permits in the Inland Empire (single and multi-family units combined) will hit 14,100 in 2019 (up from 10,100 in 2014). Although the region added approximately the same number of total residential units (59,000) between 2014 – 2018 as Orange County (54,000), a much larger proportion of that increase in the Inland Empire went towards single-family rather than multi-family housing. “Additionally, given the decline in housing affordability, it is not surprising that a decreasing proportion of new residential units built in 2019 will go to single-family units in 2019 (70 percent) compared to 2018 (74 percent),” the forecast report states.
  • Total construction building permit valuation in the Inland Empire (combined residential and commercial) will hit $7.7 billion in 2019 (up from $4.1 billion in 2014). Construction is a key industry for the region since it not only provides jobs, but also shows that new households and business establishments are being created. Residential construction valuation will reach $4.4 billion (versus $2.35 billion in 2014); renovation valuation will reach $208 million (versus $250 million in 2014); and commercial construction valuation will reach $3.36 billion (versus $1.75 billion in 2014).
  • The Inland Empire’s rapid consumer and business growth over the past few years (although slowing just recently) can be explained by visualizing the region’s economic coming-of-age. The region could be described as transitioning from a “bedroom community” to one having a “critical mass” that supports a self-sustaining economic environment. “Helping fuel that transformation is the fact that housing is relatively more affordable than nearby coastal regions,” the forecast report states.
  • U.S. Gross Domestic Product (GDP)—the traditional measure of economic growth—will come in at 2.4 percent in 2019, slower than the 2.9 percent experienced in 2018. However, the national five-year average from 2014 – 2018 was 2.4 percent. Additionally, the U.S. unemployment rate will drop even lower, from 3.9 percent in 2018 to 3.6 percent in 2019, as the employment market continues producing job openings to absorb workers entering the labor force. However, monthly average job growth will downshift from an average of 210,000 between 2015 – 2018 to about 150,000 in 2019 as only so many workers can fill a record number of job openings (about 7.34 million job openings nationwide as of December 2018).
  • The Federal Reserve should continue increasing its benchmark “federal funds” short-term interest rate in 2019, but probably at a slower pace than the past couple of years. That rate-range window (currently at 2.25 – 2.5 percent) could rise 50 basis points this year. Meanwhile, the 10-year U.S. Treasury bond (currently about 2.65 percent) will probably rise and float within a range of 2.9 – 3.1 percent in 2019, with interest rate spreads still remaining positive. The average 30-year fixed mortgage rate (currently about 4.5 percent) could reach as high as 5.3 percent by late 2019. “Such an increase would mark a second consecutive year of increases in the rate of change in mortgage rates,” the forecast report states.

IE Real Estate Trends and Projections

Based on surveys and other analysis, the latest comprehensive report published by the Urban Land Institute and consulting firm PWC (“Emerging Trends in Real Estate”) reveals the following Inland Empire real estate characteristics:

  • The Inland Empire’s “homebuilding prospects” recently rated No. 42 out of the top 79 U.S. real estate markets. Other metropolitan areas in California ranked as follows: San Diego (No. 25); Oakland/East Bay (No. 31); San Jose (No. 32); Los Angeles (No. 33); Orange County (No. 38); the Sacramento region (No. 41); and San Francisco (No. 52). “Sacramento and the Inland Empire are markets that may actually benefit from the higher cost in other markets as they report seeing companies and employees move from higher-cost areas into the market.”
  • The Inland Empire’s five-year projected annual median home-price growth for “existing” housing (2019 – 2023) is higher than any other region in California. Assuming some potential economic fluctuations (recession and growth periods), the local two-county region’s median housing appreciation will register an average growth rate of 1.7 percent yearly while all other large regions across the state come in lower (between 0.7 – 1.5 percent).
  • From an investor standpoint, the Inland Empire’s industrial real estate market, space, activity and potential ranks No. 13 on the latest top-20 U.S. industrial markets. About 61 percent of investor survey respondents gave a “buy” rating on local industrial space in the two-county region, versus 24 percent giving a “hold” rating and 15 percent saying fellow investors should “sell.” The only other California metropolitan areas to make the top-20 list were Oakland/East Bay (at No. 19) and San Diego (No. 20). However, while Los Angeles and the Inland Empire continue to report good industrial activity, “some concern exists regarding the potential for overbuilding in the near term,” the report states.
  • The Inland Empire is one of four U.S. industrial real estate markets where one-third of all new industrial construction nationwide is taking place (sharing the spot with Dallas, Atlanta, and Pennsylvania). “Given record low vacancy rates in most markets across the United States, developers are now bringing product to these markets and submarkets where possible,” the report states. “Furthermore, the economics of development have been incentivizing larger projects to a higher degree than ever before. Within these markets, most projects are outside the urban core in outlying submarkets where large plots of land are more plentiful. Demand has kept pace with new supply.”
  • The Inland Empire ranks No. 9 in the entire Pacific West region with respect to the strength of its local economy and other variables affecting commercial and residential real estate markets. These also include real-estate investor demand, capital availability, development and redevelopment opportunities, public/private investments, and local community development. Other California metropolitan areas on this top-12 Pacific West region list include Los Angeles (No. 2); Orange County (No. 3); San Jose (No. 4); San Francisco (No. 6); San Diego (No. 7); Oakland/East Bay (No. 8); and the Sacramento region (No. 12).

Local County-Level Perspectives

The California Department of Transportation (Caltrans) has released its 2018 – 2050 demographic forecast for all counties in California regarding local jobs, wages, home prices, population, personal income, taxable sales, net migration, wildfire issues, public policy implications, legal cannabis, industries, workforce, and more.

For forecasting purposes, the shorter-term economic projections for 2018 – 2023 within this county-wide report by Caltrans do not factor in an economic recession into its local scenarios. They are only highlights stemming from a baseline projection (view the report above for more information).

Latest CA Economic and Demographic Research

The organization “Next 10” recently released a handful of new studies in early May looking at divisions in California's economy with respect to residents' income, where they live, and other key insights:

Demographic Profile and Projections: Inland Empire*

  • Total population: 4.5 million (and will hit 5 million by 2025).
  • Working-age individuals (15 - 64 years old): 68 percent of total population in 2015 (and will fall to 64 percent by 2025).
  • Labor force (at least 16 years old who are working/looking for a job): 2.06 million out of 3.5 million adult population.
  • Labor force participation rate (adults who “want” to work): 59 percent (or 2.06 million individuals).
  • Unemployment rate: 4 percent (versus 4 in CA and 3.9 in U.S.)
  • Unemployed workers: 83,000.
  • Median household income: $58,000 as of 2017 (compared to $66,600 for CA and $59,000 for U.S.)
  • Poverty rate: 16 percent (versus 14 in CA and 14 in U.S.)
  • Education of population: 20 percent have a college degree; 33 percent some college; 26 percent high school diploma; and 21 percent no high school diploma.
  • Employment sector growth: click here for a local future growth breakdown (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance in the Ontario-San Bernardino-Riverside metropolitan region.

* Combined counties of San Bernardino and Riverside

** Data as of February 2018 from the California Center for Jobs and the Economy; California Employment Development Department; California Department of Finance; Federal Reserve Bank of St. Louis; U.S. Bureau of Economic Analysis; and U.S. Census Bureau

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