Articles

Analyst forecasts cooling Inland economy

10:53 PM PST on Tuesday, January 25, 2005

By JACK KATZANEK / The Press-Enterprise

LOOKING AHEAD

Predictions for 2005

Job growth up 3%

Taxable sales up 6.1%

Inflation 3.1%

Personal income up 5.7%

SOURCE: Chapman University

Much of the economic muscle Inland Southern California has flexed in the last few years has been tied to its housing boom, but one economist says that boom might fall off sharply in 2005.

The median home price in Riverside County was 36.4 percent higher in December that a year earlier in Riverside County and up 30.7 percent in San Bernardino County. A Chapman University economist predicted Tuesday that the appreciation is going to melt to a tenth of that or less this year.

Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at the Orange university, is calling for prices of single-family detached homes to increase by only 3.2 percent in 2005. Some buyers are being priced out, Adibi said, and there is now an adequate supply of homes on the market.

Adibi, who was in Riverside to deliver his annual economic forecast Tuesday, said this would affect some of the job markets tied to housing. His forecast calls for construction hiring to level off in 2005 and financial sectors to lose more than 1,200 workers.

Not everyone agrees that property values are going to appreciate at that comparatively miniscule rate this year.

"I don't see that happening at all," said Michael Carney, executive director of the Real Estate Research Council of Southern California at Cal Poly Pomona. "Absent the unexpected shock, nothing is going to take that much steam out of the market."

Carney said by phone that he sees mortgage rates increasing by as much as two percentage points by the end of the year, and he admits that will make affordability more of an issue. But he thinks price appreciation won't fall below 10 percent in the Inland area.

John Karevoll, an analyst with real estate research firm DataQuick Information Systems, said, potential buyers in Southern California now outnumber the homes that are for sale. Karevoll said affordability problems might drive buyers to different kinds of mortgages but won't necessary price them out.

Adibi said that 15 years ago, the median home price was 3.3 times higher than the median family income in the Inland Empire. Now the price tags are almost five times as much as family incomes, based on census estimates.

Adibi said that if the Inland Empire grows to more than 4 million people in 2010, the area will need about 33,000 new residential units a year. In 2004, more than 51,000 units, single- and multi-family dwellings, were built.

"The supply is rising and demand, we think, is a little soft," Adibi said. "On the supply side, we see a little too much going to market."

The gathering at the Riverside Convention Center was co-sponsored by the Riverside area chapter of the Building Industry Association and was packed with executives in the construction and real estate industries.

Michael Bobeczko, director of marketing for Sukut Construction Inc. and a BIA board member, said affordability was a worry.

Bobeczko said the Inland Empire could be in a leveling-off period, although the Coachella Valley is "running on eight cylinders."

Orange County has bigger issues, Bobeczko said. Adibi said Orange County could see depreciation of more than 7 percent.

"This is the year to watch," Bobeczko said.

Reach Jack Katzanek at (951) 368-9553 or at jkatzanek@pe.com