The Inland Empire (IE) has long been considered a bedroom community. Every day we sit in the same grueling traffic going toward Los Angeles and Orange County in the morning and then back towards the IE in the afternoon. Meanwhile, traffic on the other side of the freeway sails past. These predictable traffic patterns tell the story of a region that has housed Southern California’s workforce for decades. So why would commuters endure the hour and a half drive in each direction? Simply put, it’s cheaper to live in the Inland Empire than in Los Angeles (LA) and Orange County (OC) (and you can have a bigger yard).
According to real estate site Zillow, the median home values in Riverside and San Bernardino Counties are $302,100 and $262,600 respectively. When you compare that to $493,600 for LA County and $617,700 for Orange County, you can see how many people would justify living a little further out. But as the economy picks up in California, and the IE grows its own local economy, the cost of housing is on the rise.
That’s good news for homeowners, but according to Zillow’s housing price projections, the gap between housing prices in LA, OC, and the IE has begun to narrow. Over the next year, a value increase of 5.4% is projected for Riverside County and 6.2% for San Bernardino County, while LA County values are expected to increase by only 2.3% and OC values are actually expected to decrease by 0.4%. This could mean less incentive to make a long commute. Combine that with an increased pace in new housing construction (which means less land to develop), and the fact that the Inland Empire has a 15:1 housing price appreciation to wage growth ratio, and the IE could eventually join the ranks of California unaffordability.
Not surprisingly, the unaffordability problem is made worse by a high number of house flips. As investors purchase distressed houses with cash and flip them, realizing returns of 35 to 41 percent, the stock of affordable housing that is available to those who must take out a mortgage decreases. In fact, the IE was rated by RealtyTrac in the top 10 of the 22 counties with the most house flips in 2014.
Increasing housing values are a natural part of economic growth, but there must be a balance of wage growth and housing value increase if the IE is going to remain affordable. On the bright side, while we may soon be paying OC prices, at least we will still have our yards.
Is home value growth a positive or negative thing? What are some economic factors that can strengthen the economy while keeping housing affordable? Share your thoughts and your city's stories in the comments area below.
Credits: Images by Taylor York. Data linked to sources.