The decline in the Inland Empire’s housing market has contributed significantly to the length and depth of the current recession. For several years, the region became accustomed to a booming housing market.  As the Inland Empire’s population skyrocketed from the late 1990s through the early 2000s, home construction followed a similar trajectory. The availability of affordable land and blue-collar labor facilitated the rapid expansion of the housing sector. When the region’s housing bubble burst, it left the once-thriving new home and home resale industries gasping for air. But now that home prices have declined to levels last seen in 2002, it appears that the housing industry may finally have hit bottom and begun to stabilize—although a full recovery of the industry is much less certain.

The U.S. recession officially started in December 2007, with national home sales beginning to decline in the third quarter of 2007. However, the fall in home sales in the Inland Empire occurred much earlier, during the summer of 2006.  Since then, average home sale prices in the Inland Empire have declined sharply.  Much of this downward trend can be attributed to foreclosed homes hitting the market, due to the rapid increase in the supply of homes exceeding the demand of qualified buyers.

Inland Empire home sale prices hit a trough in April 2009 and have since seen minor fluctuations. The average sales price of all homes in the region seems to be leveling off in recent months as the market for foreclosed homes is absorbed and new homes are finally beginning to sell again. In one neighborhood of San Bernardino, the $61,000 April 2009 median home sale price represented an 84% fall from the 2007 peak of $370,000. However, the continuing influx of foreclosures and the expectation of more throughout the year because of high unemployment will continue to keep the average prices at reduced levels. The average sales price in the Greater Los Angeles Area follows the same trend line, but remains well above prices observed in the Inland Empire. In Greater Los Angeles, the average sales price in June was more than 240% higher than that of San Bernardino and Riverside Counties, illustrating the gap in affordability between Southern California’s inland and coastal regions.

Real estate and construction activity has slowed tremendously in the Inland Empire, with fewer potential buyers looking to purchase homes even as prices have plummeted. From August 2005 to September 2007, monthly home sales in the region decreased 70%, or by 8,000 sales. The average number of home sales hit a peak in August 2006, one year before the region’s median home sale price reached its highest level of almost $390,000. At that point, many home buyers felt that home prices would continue their upward trend.

Following their sharp decline, home sales in the Inland Empire have leveled off at just over 7,000 homes per month, with September 2009 sales reaching close to 7,300 in the Inland Empire. However, over half (52%) of September 2009 home sales can be attributed to foreclosures in the area.

Nationally, one in seven home loans in the United States were in default or foreclosure during the third quarter of 2009, marking the highest quarterly level since reporting began in 1972.  Taking into account the number of foreclosed homes on the market, new and existing home sales have not exhibited a dramatic change since the trough in the summer of 2007. Statewide and Inland Empire home sales have decreased almost uniformly: both have waned by about 40% since their peaks during the summer of 2005. The Mortgage Bankers Association, a prime lender group, reported in November 2009 that applications for mortgages to homebuyers in the United States had declined for six consecutive weeks while interest rates are very close to their all-time low.  Thirty-year home loan rates averaged 4.7% during the first week of December, beating the record set last April.

Although this data may support the conclusion that the housing market is stabilizing, there are factors that could contribute to further decline. Expectations of additional foreclosures due to increased unemployment and the recasting of adjustable-rate mortgages (ARMs) could lead to even lower sales prices and inhibit the industry’s path toward recovery. These teaser-rate ARMs, the largest percentage of which are set to readjust in 2012, may prompt a further increase in defaults and place more pressure on the housing sector. Until the Inland Empire economy can support its own weight and stem job losses, the housing market will continue to struggle.