Category Archives: Economy

Economy General

Economic Recovery Continues-Slowly

Published by:

By Dr. Alfred J. Gobar
Alfred Gobar Associates

Historically, there has been a close correlation between reported nonagricultural wage and salary employment and number of occupied dwelling units. This relationship has been tested for the United States as a whole, showing a long-term (50 years) correlation coefficient (R2) of about 0.985. Individual analyses of housing markets in 140 U.S. Metropolitan Areas confirm this correlation.

Currently, the Federal Reserve Board seems to believe that a strong housing market will cause growth in employment, whereas most of the research Alfred Gobar Associates has done over the past decades suggests employment is the independent variable, and housing absorption is a dependent variable.

In any case, as shown in Exhibit A, nonagricultural wage and salary employment in Southern California as a whole has been increasing over the past twelve months. This measure of economic growth for the Southern California economy as a whole (Ventura, Los Angeles, San Bernardino, Riverside, Orange, and San Diego Counties) is illustrated on a county-by-county basis in graphic form in Exhibit A. In percentage terms, employment growth in the Inland Empire has been substantially stronger than in other parts of Southern California, suggesting that the local employment base accounts for an increasing share of the total housing market in the Inland Empire, which for several decades prior to 1990 was dependent on commuters to jobs in Orange, San Diego, and Los Angeles Counties.

Growth in nonagricultural wage and salary employment in the Southern California area between 2012 and 2013 amounted to approximately 150,000 jobs. This is fairly typical of “normal” economic times in the Southern California region and suggests increase in housing demand at a rate of about 120,000 units a year, allowing for second homes, some increase in vacant units, etc.

Strong employment growth is evident for professional and administrative jobs, in the education and health fields, and in leisure and hospitality. State and local employment actually decreased over the most recent twelve months.

The pattern of change in nonagricultural wage and salary employment in Southern California, in the current recession as, compared with similar trends for the recession that began in June of 1990is illustrated graphically in Exhibit B. Extrapolation of these trends suggest that employment levels in Southern California will be back to the pre-recession level (of 2007) in late 2016 or early 2017; i.e., we still have a little ways to go to get back to where we started. Meanwhile, we are building a few new units.

Anecdotal information in the media suggest an exploding housing market. To some degree, this is an illusion. The large proportion of cash buyers implies that professional investors account for a large share of the market. In essence, when a speculator buys a foreclosed home for cash, rehabilitates it, and then sells it to a user, the entire transaction is equivalent to only one net sale of a housing unit to an ultimate user; i.e., the formation of a new household to buy or rent the incremental dwelling unit generates two sales—one to the speculator and the final sale to the user. In most normal circumstances, the formation of a new housing consumer generates one sale. The current market also is, in part, an illusion fueled by incredibly low mortgage interest rates.

Building permit activity in the High Desert is illustrated in Exhibit C. During the first three months of 2013, a total of 81 new units were authorized by permit, all of which were single-family homes. The largest number of new units authorized was in Victorville, followed by Apple Valley and the unincorporated area.

A linear extrapolation of 81 units per quarter suggests an annual rate of new development of 324 units a year, or 4.0 percent of the level of building permit activity that was achieved in 2005 (8,295new units were authorized by permit in the High Desert in 2005). The current level of development represents about 8.0 percent of annual average building permit activity in this area from 2000 to 2010.

The supply-side of the demand and supply equation is not accelerating at a rate likely to result in shock in the near term.

Permit valuation data for 2012 and 2013 are not available. Information for 2011, however, shows a high average permit value per unit for new single-family units, suggesting that the limited amount of new housing being developed in the High Desert includes a larger-than-average proportion of custom homes, which would typically carry a higher permit value per unit.

Exhibit D summarizes nonresidential building permit activity on the HighDesert. There is little recent activity except for some new retail construction in Barstow and industrial development in the unincorporated High Desert. The total for the first quarter of 2013 is at an annualized rate of about $100 million worth of permit activity, which is less than the aggregate for 2012 or any other prior year shown in Exhibit D.

Exhibit E expresses this information as a percent of San Bernardino County totals. The High Desert is not constituting a large proportion of the county’s industrial and retail development. This is to be expected since these uses tend to be driven by either an urban environment or an increase in the consumer population.

Another interesting manifestation of the recession is that the composition of employment in Southern California is changing. Historically, nonagricultural wage and salary employment data are collected on the basis of a survey of employers. This data do not provide a basis for estimating unemployment. Another measure of total employment as well as of unemployment levels is based on a household survey in which respondents report the number of people in the household who are employed and also the number of people in the household who would like to be employed, but who are not (unemployed) and further information regarding part-time work, type of employment versus the employed person’s training and education, etc. Historically, the level of employmentthat could be deduced from the Household Survey has exceeded the employment level estimated on the basis of the Employer Surveys, with the nonagricultural wage and salary employment estimate being about 85.0 to 87.0 percent of the estimate derived from the Household Surveys. This suggests that 13.0 to 15.0 percent of employed people worked in jobs as independent contractors, self-employed entrepreneurs, etc. The most recent data for 2013 indicate that the nonagricultural wage and salary employment sector as reported by employers is a smaller percentage of total employment than typical and that, therefore, independent contractors, self-employed people, etc., are an above-average proportion of the total; i.e., a larger-than-usual “informal” job base.

This ambiguous employment is likely to represent an increasing share of total employment as Obamacare goes into full force with restrictions on employers in terms of providing medical insurance relative to full-time versus part-time total employment level, etc.

In the next few years we are likely to see a larger proportion of total employment who will be people whose employment is not reported on the basis of the Establishment Survey and, therefore, the relationship between change in nonagricultural wage and salary employment and number of occupied units will imply that it takes fewer jobs to support the absorption of a new dwelling unit. That phenomenon may already be appearing to some degreebecause of the trend lines illustrated in Exhibit F.

The data discussed above implies that full economic recovery is likely to be two to three years in the future. A larger proportion of the housing market in the Inland Empire will be supported by locally-employed people than has been true in the past. Land absorption (the economic variable of interest to many of the readers of this newsletter) at a rate of 120 acres per 1,000 new residents of the Inland Empire is likely to be fairly modest for the next two to three years. Sometime during the reasonably near future, real inflating-adjusted interest will have to come above zero percent on an after-tax basis, which raises the potential for a cosmic economic problem at the national and international level of how we cope with the huge amount of debt and high interest rates in an environment where we need economic growth. The economist whose ideas account for a lot of our current problems (John Maynard Keynes) may have had this situation in mind when he responded to questions about the long-term risks of his policy implications that, “…in the long run, we will all be dead.” Could it be that the long run is finally catching up with us? At the age of 81, my odds of avoiding the long run are a lot better than those of the typical reader.

Economy General Property

Homeownership Policy Priorities-A Federal Perspective

Published by:

By Carlos Rodriguez
Chief Executive Officer
Building Industry Association (BIA) Baldy View Chapter

Every new home built creates three jobs, as well as expands and increases the tax base that supports schools and our community.

Our homes are the foundation of strong communities, and it is imperative that we pay attention to the debate about housing policy occurring at the national level.

Thanks to national policy that has acknowledged the importance of the home in American family life for almost a century, generations of Americans have counted on their homes for their children’s education, their own retirement and a personal sense of accomplishment.

Despite the fact that most Americans want change that will mend the housing market, create jobs, and boost the overall economy, policymakers are proposing radical changes that threaten the dream of homeownership for millions of current and future Americans.

The policies that are being considered could negatively impact Americans’ ability to buy a first home, keep their current home, or enter into the move-up market.

Mortgage interest deduction

Eliminating or limiting the mortgage interest deduction would impose a huge tax increase on millions of middle-class homeowners and discourage prospective buyers.

Changing the deduction would cause after-tax housing costs to increase and housing demand to decrease.

Reduced demand would depress home prices – produce a sizable loss for existing homeowners – leave more homeowners underwater, and fuel even more foreclosures.

Such a change in home values could weaken the economic recovery and perhaps drive the nation’s economy back into recession.

Mandating 20 percent down payments

The national Qualified Residential Mortgage standard that is being proposed by federal agencies would require a minimum 20 percent down payment and other stricter qualifications, which would keep homeownership out of reach for most first-time home buyers and middle class households.

It would take 12 years for the typical family to save enough money for a 20 percent down payment on a median-priced single-family home, according to National Association of Home Builders estimates.

Other research has found it would take even longer.

Creditworthy borrowers denied homeownership opportunities

Even though there is pent up demand for homes in many parts of the country – the construction or sale of which would create jobs and support local economies – lenders are not making loans to qualified home buyers.

Overly restrictive lending standards prevent creditworthy borrowers from buying homes, which slows the housing recovery and hurts the economic recovery.

Restoring the flow of credit to qualified homebuyers will boost the housing market, help put America back to work and strengthen the economic health of communities across the country by providing tax revenues that local governments need to fund schools, police and firefighters.

Just as each home is important to the family that owns it, housing is vitally important to local, state, and national economies.

It is critical that homeownership remains attainable and that access to safe, decent and affordable housing remains a national priority.

Economy General

County of San Bernardino Workforce Investment Board

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As the economy continues to show signs of recovery, County of San Bernardino businesses are pursuing new opportuni­ties for growth. The County is doing its part to support business growth through On-the-Job Training programs. Steeno Design Studios and Hi-Desert Medi­cal Center are examples of High Desert companies experiencing business im­provement. These companies are tak­ing advantage of Workforce Investment Board programs designed to offset the cost of hiring and training the new em­ployees needed for expansion.

Steeno Design Studios is a Hesperia-based architectural firm that provides land development, site and building de­sign, consulting, and general contract­ing services for a variety of industries, including residential, retail, office pro­fessional, and industrial projects. The company needed to add two drafters and an office assistant to keep up with in­creasing demand.

The technical nature of Steeno Design Studios’ work made it costly to train new employees. Fortunately, the Work­force Investment Board’s (WIB) On-The-Job Training program offered the perfect solution. The company received partial reimbursement for training costs through the On-The-Job Training pro­gram. This made it affordable to prop­erly prepare the three new employees in the diversified and highly technical du­ties of a busy architectural office.

Thomas Steeno, owner of Steeno De­sign Studios, said , “Working with the County of San Bernardino Workforce Investment Board’s Business Resource Team provides beneficial services that promote job creation in our local economy. It empowers our company to confidently hire from a pool of locally unemployed professionals. Each time we work with the Business Resource Team and the On-The-Job Training pro­gram, we know it means success for theemployee hired and for our company. We will continue to utilize the On-The-Job Training program and look forward to the future employees gained through these services.”

Hi-Desert Medical Center is also show­ing signs of growth. Once challenged by the economy, the Hi-Desert Medical Center recently added six full-time reg­istered nurses and saved $25,000 in hir­ing and training costs with the assistance of the On-the-Job Training program.

“When we learned about the On-the-Job Training program, it sounded too good to be true,” said Lionel Chadwick, Chief Executive Officer, Hi-Desert Medical Center. “The financial and professional support provided by the Workforce In­vestment Board’s program reduced our expense, limited our risk, and helped us recruit excellent employees at no cost to us. It was the answer to our growing pains.”

The On-the-Job Training program reim­bursed the Hi-Desert Medical Center for a portion of a new hire’s wages during the initial training period. All six em­ployees, now fully trained and having completed the probationary period, have been permanently hired on full-time at $28.04 per hour.

The County of San Bernardino Work­force Investment Board is dedicated to providing the services necessary to help employers continue to grow. Through careful analysis of the local economy, the Workforce Investment Board is helping to provide an educated work­force to expanding businesses.

Businesses interested in learning more about or enrolling in the no-cost servic­es provided by the County of San Ber­nardino Workforce Investment Board can visit or call (800) 451-JOBS.

Economy General

High Desert Employment: How Many Jobs Have we gained or Lost in the Last 12 Years?

Published by:

By Joseph W. Brady, CCIM, SIOR
The Bradco Companies/TCN Worldwide

As Publisher of The Bradco High Desert Report, one of the major issues that we attempt to track is the number of jobs that are created or lost within the High Desert economy. With the help of our great friends at the State of California Employment Development Department (San Bernardino and Riverside Counties), we were able to ask them to create a special chart that compared the years 2006 through 2012 for the State of California, San Bernardino County, and the Cities of Adelanto, Apple Valley, Barstow, Hesperia, Victorville, and Wrightwood (CDP) in the percentage of unemployment that each one of those areas experienced.

We asked them to include the “methodology.” I am sure that you will find the stats rather interesting and we can all see the net effect of what happened between 2008 and 2009 with the sudden increase of unemployment throughout the High Desert region. While many of us are “feeling better,” one of the key indications of how the High Desert will continue to prosper will be by the creation of jobs and by the continued lowering of the unemployment number.

Second, we asked them to take a look at selected areas within the northern portion of San Bernardino County at the annual average employment number. We picked the rather obvious High Desert areas and we also picked out areas that were not as obvious (Daggett, Boron/Four Corners/Hinkley, Newberry Springs, Johnson Valley, and Lucerne Valley) as well as the incorporated cities. We greatly appreciate the help that Tony Tyler of One Stop Printers gave with manipulating the data that was provided in an Excel spread sheet to really show a pattern for the High Desert region, the base year of 2001 and obviously the peak year 2007 and 2008.

Again many thanks to our friends at the State of California Employment Development Department.


CDP is “Census Designated Place” – a recognized community that was unincorporated at the time of the 2000 Census.

Notes: 1) Data may not add due to rounding. All unemployment rates shown are calculated on unrounded data. 2) These data are not seasonally adjusted.

Methodology: Monthly city and CDP labor force data are derived by multiplying current estimates of county employment and unemployment by the employment and unemployment shares (ratios) of each city and CDP at the time of the 2000 Census. Ratios for cities of 25,000 or more persons were developed from special tabulations based on household population only from the Bureau of Labor Statistics. For smaller cities and CDP, ratios were calculated from published census data.

City and CDP unrounded employment and unemployment are summed to get the labor force. The unemployment rate is calculated by dividing unemployment by the labor force. Then the labor force, employment, and unemployment are rounded.

This method assumes that the rates of change in employment and unemployment, since 2000, are exactly the same in each city and CDP as at the county level (i.e., that the shares are still accurate). If this assumption is not true for a specific city or CDP, then the estimates for that area may not represent the current economic conditions. Since this assumption is untested, caution should be employed when using these data.

Economy General

Southern California’s Economy Recovering

Published by:

By Southern California Association of Governments

The six counties of the Southern Cali­fornia Association of Governments (SCAG) region (Imperial, Los Angeles, Orange, Riverside, San Bernardino, and Ventura Counties) are home to over 18 million residents, 8 million workers, and have a gross regional product of ap­proximately $900 billion, all in an area covering 38,000 square miles. Between December 2007 and July 2009, the re­gion experienced the “Great Recession,” a devastating economic downturn with over 1 million jobs lost. Even though the recession technically ended nearly four years ago, California continues to have the fourth highest unemployment rate in the nation with nearly 1.6 million out of work, including approximately 770,000 in the Southern California region.

In 2013, however, Southern California’s economic recovery is starting to gain traction, demonstrating significant job creation momentum. Recovery contin­ues steadily as the unemployment rates across the region dropped to their low­est rates in five years. For example, Or­ange County’s rate dipped to 5.7 percent last month, from 6.3 percent in March. Manufacturing, financial services, and construction, industries hit hardest dur­ing the Great Recession, have become leaders in job growth. Self-employment and new businesses are also growing rapidly.

Recovering Lost Jobs In SCAG Region

The graph to the right shows unemployment rates by county in three time periods: December 2007 (pre-recession), Decem­ber 2010, and April 2013. Recent data shows that Southern California unem­ployment levels are well below their recession peaks and moving in the right direction. Nonetheless, none have returned to the levels enjoyed prior to the Great Recession. The Southern California region still has a way to go to get back to pre-recession employment levels.

In 2010, the SCAG team of economic advisors compared the pre-recession to post-recession unemployment numbers in the region, State of California, and United States. The purpose was to de­termine the number of jobs that would need to be created to return to peak level employment in each county. In the fall of 2012, the economic team once again reviewed and analyzed the current eco­nomic indicators and employment trends to estimate a probable timeline for eco­nomic recovery by each county. The graph on the next page outlines the pro­jected best-and-worst-case time frames for each county to return to pre-reces­sion unemployment levels. Note the dif­ference between Imperial County where the recovery range is between 2013 and 2015, compared to Los Angeles County whose recovery date could reach as farout as 2020. In general, much progress has been made so far in 2013 in terms of job creation, and economic recovery is on a steady path in most parts of the SCAG region.

Difficult Inland Empire Economic Environment Finally Improving

During the 2008-2010 Great Recession, the Inland Empire lost 148,425 jobs. The economy has finally started work­ing its way out of that deep hole, creat­ing 4,633 local jobs in 2011 and 23,025 in 2012. If 2013 goes as predicted by SCAG and Inland Empire Economic Partnership economist John Husing, 28,300 will be added. By the end of this year, the total gain of 55,958 positions would represent a 38% of the loss (Exhibit 1 below).

Meanwhile, the local unemployment rate has fallen from 14.3% in 2010 to 9.6% in April 2013. The March 2013 rate of 10.5% was the highest for any metropolitan area with over 1 million people, higher than Los Angeles, De­troit, and Providence (Rhode Island), each at 9.9% (Exhibit 2 below).

Some good news is seen in the details of inland job growth of 25,233 from first quarter 2012-2013 (Exhibit 3 below). The top four sectors adding jobs showed a wide range of recovery as they included:

  • Eating & Drinking (7,267), a low paying sector driven by more funds cir­culating through the local economy.
  • Distribution & transportation (5,833), a moderate paying blue collar sector that brings money to the inland area from international port trade and the rise of fulfillment warehousing centers like
  • Health care (4,100), a moderate pay­ing white/blue collar sector that brings money to the area via Medicare and in­surance payments. It has grown in every quarter including throughout the Great Recession.
  • Management & professions (3,700), a high paying white collar sector both bringing money to the area via firms like GIS giant ESRI and engineering firms, plus growth due to the local economy now needing more local professionals like lawyers and CPAs.

With that said, the Inland Empire’s growth is blunted by difficulties in two sectors:

  • Federal and state (-1,333) and local (-1,600) government shrank due to the federal sequester and low tax revenues at the state and local level. These dif­ficulties will likely persist for two more years. Growth would have been 27,100 without these job losses.
  • Construction (-800) has stopped its major decline but is still not growing. It normally brings money to the inland area from national money markets. To date, the sector is responsible for 50% (-59,300) of the net inland job loss (-118,700) from the job peak in June 2007 to April 2013.

Looking ahead, the forecast for com­plete recovery was 2016-2018 due to low home prices and lack of construc­tion. Recent economic and employment data provides evidence that recovery may arrive sooner. Why? Because ex­isting home prices have recently soared, rising 32.4% from a second quarter 2009 low of $155,319 to $205,692 in first quarter 2013. That means fewer un­derwater homes (down from 54.9% in 2009 to 35.7% today) and fewer fore­closures. Meanwhile, investors bought 52% of first quarter 2013 foreclosures directly from lenders and all cash buy­ers bought most of the rest. They outbid families for the units and are the reason why prices are soaring. New homes now appear to be the only way families can acquire homes. Builders are thus indicat­ing a willingness to start small projects, particularly in areas where differences between new and existing home prices are narrowing. This means the housing market should soon be a positive factor helping boost the recovery.

Economic Benefits of Accelerating Five Years of Projects

In April of 2012, the Southern Cali­fornia Association of Governmentsunanimously approved the 2012-2035 Regional Transportation Plan/Sustain­able Communities Strategy (2012-2035 RTP/SCS).

The 2012-2035 RTP/SCS is a long-range plan that improves overall mobility, re­duces greenhouse gases, enhances the quality of life for the region’s residents, and will create approximately 500,000 jobs per year over the life of the plan by increasing the global competitiveness of Southern California.

But with the region’s economy in a slow recovery, how can transportation invest­ments accelerate Southern California’s Economic Recovery?

Transportation projects face many hur­dles to faster project delivery methods, including funding availability chal­lenges, environmental review process issues, and other process uncertainties, such as agency coordination. Many op­portunities exist for transportation proj­ect delivery streamlining and expediting (such as “Breaking Down Barriers,” “America Fast Forward,” process re­forms, modernizing CEQA, etc.). Ac­cording to Caltrans, the average major transportation project takes 17 years to complete. What are the economic bene­fits of accelerating the building of these projects, adding construction jobs now and increasing the region’s competive­ness sooner? In short, what is the real cost of delay?

SCAG engaged prominent economists from throughout the SCAG region to an­swer the question. Without focusing on how the projects were moved forward, the economic team developed methods to analyze the impacts to the economy of moving a 5 year tranche of the 2012–2035 RTP/SCS forward 5 years. Invest­ments planned for 2021–2025 were added to the investments committed in 2016 –2020. And the benefits the planachieved by 2025 (air quality, green­house gas reduction, mobility) were as­sumed to be realized by 2020. The team used the REMI TranSight Model to ana­lyze the results, the same economic im­pact model that was used to estimate the economic benefits of the SCAG 2012–2035 RTP/SCS.

Benefits of Accelerated Project Delivery

  • Accelerating transportation projects by five years will lead to 102,143 jobs brought forward per year. These jobs will be created sooner in an industry crucial to Southern California’s eco­nomic recovery.
  • Infrastructure enhancement leads to an expeditious and enhanced economic competitiveness with 120,639 jobs cre­ated per year.
  • The reduction in travel time, emis­sions, fuel consumption, and vehicle op­erating costs will lead to an additional 83,654 jobs per year. In addition, an in­crease in road safety and preservation of system infrastructure.
  • Advancing five years of projects re­sults in a decrease in construction cost by $1.25–1.95B (or 5–9% of construc­tion cost). Savings can be reinvested in additional transportation infrastructure and services
Economy Property

Real Estate Market Outlook-Fall 2012

Published by:

By Alfred Gobar
Chairman, Alfred Gobar Associates

Over the past 50 years, increase in nonagricultural wage and salary employment as reported by public agencies has correlated closely with household formation and, therefore, housing occupancy. Employment growth is a good thing for real estate markets. An index of nonagricultural wage and salary employment for Southern California as a whole (Ventura, Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties) is illustrated in Exhibit A in comparison with a similar index based on the 1990 recession. As indicated, employment declined more in percentage terms in the current recession than it did two decades ago, and the recovery has been relatively feeble. Those of us interested in the High Desert real estate market, therefore, should have patience in order to identify attractive real estate market opportunities. From August 2007 until August 2009 (about the bottom of the decline in nonagricultural wage and salary employment), total job base in the six-County Southern California area decreased by about 800,000 jobs. Recovery since August 2009 through August 2012 has amounted to almost 200,000 jobs. Currently, therefore, the total employment base is about 600,000 jobs below the peak prior to the onset of the current recession. Theoretically this amounts to an improvement in demand from the low point of the cycle on the order of 135,000 dwelling units. Concurrently, however, despite modest new construction, approximately 140,000 new units have been added or are in the pipeline to be added to the total housing stock in Southern California; i.e., new development is at about the rate of demand growth.

Real Estate Outlook-Exhibit A

There may be a light at the end of the tunnel. It is likely, however, that we are looking into a fairly long tunnel.

During the twelve months ended August 2012, nonagricultural wage and salary employment as reported by the California Employment Development Department for the six-county area grew by approximately 158,000 jobs. This is a significant increase. Employment trends for California recently have been outperforming the general trends for the U.S. overall.

Employment growth over the twelve months ended August 2012 shows increases in most sectors including construction. Of significant interest is the increase in employment in the finance sector amounting to 9.2 percent of the overall job growth. Within that category, employment in real estate-related activities—rental and leasing, etc.—amounted to 4.9 percent of the 158,000 jobs increase. The finance sector represents less than 6.0 percent of Southern California’s employment base. The real estate portion of the finance sector amounts to about 2.0 percent of the total base. These categories of employment, therefore, are growing substantially faster than the general economy and faster than their overall role in the economy.

Employment in leisure and hospitality accounted for a substantial portion of job growth during the twelve months ended August 2012, amounting to 23.3 percent of the increase. This sector accounts for less than 12.0 percent of the total employment base in the six-county area.

Government employment grew little during the most recent twelve months for which data are available, accounting for 2.2 percent of the net increase. Overall, government employment is about 15.0 percent of the total employment base in Southern California. If government employment were to be increasing consistent with the other categories, total increase in nonagricultural wage and salary employment over the twelve-month interval would have been above the long-term average for Southern California as a whole and job growth would have exceeded the long-term average trend.

When Harry Truman was President, he was said to have pushed for “one-handed economists” so that economists could avoid tempering their projections by saying “on the other hand.” Similarly, we should point out that for the past several years, employment estimates from government agencies have been subject to revision and to rather erratic behavior on a month-to-month basis contributing to some queasiness regarding the validity of the data. Since the recent employment figures have been so positive, however, until they are revised, we will continue to act like we fully trust their validity. In the most recent twelve-month data, the most significant growth in nonagricultural wage and salary employment occurred in Los Angeles County, followed by San Diego County, Orange County, and the Inland Empire, in that order. The level of nonagricultural wage and salary employment in Ventura County declined slightly during the twelve-month interval.

The pattern of housing development in Southern California derivative of building permit activity for 2011 is fairly consistent with the relative growth in nonagricultural wage and salary employment among the five study areas (Riverside and San Bernardino Counties are grouped together as the “Inland Empire”). A comparison of the percent of nonagricultural wage and salary employment growth accounted for by each of the five areas relative to the percent of new units authorized by permit in each of the five areas is shown below:

Real Estate Outlook-County Comparison Chart

The specific data indicate that San Bernardino County represented 5.9 percent of the new units authorized during 2011 and Riverside County for 13.3 percent. Riverside County’s housing market benefits from its proximity to San Diego County, which experienced the recession sooner than the rest of Southern California and has been doing somewhat better than much of the rest of Southern California. In addition, Riverside County serves a national market for second homes and retirees.

The trend of building permit activity for residential development in Southern California since 1985 is illustrated in Exhibit B.

Real Estate Outlook-Exhibit B

There has been a modest increase in residential building permit activity since 2009. Actual numbers of new units authorized by permit since 1985 for Southern California overall are summarized in Exhibit C. Projections for full-year 2012 suggest building permit activity for Southern California will total about 29,000 units. Interestingly, this is roughly 14.0 percent of the level of building permit activity observed in 1986 when Southern California was emerging from the 1980 recession. It is also interesting to note that during 1985—at the end of the 1980’s recession—building permit activity in Southern California totaled nearly 150,000 new units, while currently in 2012, approximately three years after the bottom of the current recession, building permit activity is only 20.0 percent of that level at about 30,000 units a year.

Real Estate Outlook-Exhibit C

Although the 1980’s recession had the special features of extraordinarily high inflation and interest rates, the recovery from the current recession has been minimal, suggesting that economic growth that occurred during the 1980s supported a strengthening housing and real estate market, while the tepid economic growth observed currently has obviously not resulted in similar real estate sector activity.

Exhibit D shows the pattern of residential building permit activity on the High Desert. At the peak of activity, more than 8,000 units a year were being authorized by permit. Recently, as shown in Exhibit E, overall residential building permit activity has been on the order of less than 250 units per year in 2011 and likely to be substantially less than 1,000 new units for 2012.

The figures in Exhibit E are influenced substantially by 205 multi-family units authorized by permit in Victorville. Absent this atypical level of activity in multi-family housing construction, overall building permit activity on the High Desert would probably be on the order of 350 units for the full year, or less than 4.0 percent of the more than 8,000 new units authorized in 2005.

Real Estate Outlook-Exhibit E

Based on the average building permit value per unit, much of the new construction of single-family housing on the High Desert recently has apparently been custom homes. This is not a product that lends itself to high-volume activity. Much of the real estate activity observed recently has been of a qualitative nature—purchase of distressed assets that lend themselves to be reworked for enhanced value. The whole process of flipping foreclosures has attracted increasing levels of interest on the part of real estate professionals who have limited opportunities in tract developments, land entitlement, or other large-scale endeavors which typify opportunities in a strong market. Although interest rates are at record lows—a factor which should encourage real estate development or real estate investment—uncertainty associated with the tax environment, the risk of a double-dip recession, and general unease about an uncertain fiscal policy in light of the potentially inflationary impact of the current monetary policy contribute to anaura of uncertainty that makes real estate decisions particularly difficult, even for those intrepid individuals who somehow chose to make their living in this field.

One thing that makes this recession different from previous ones is that heretofore we generally relied on the housing market to lead the country into an economic recovery. Because of efforts through the Community Reinvestment Act and encouragement of Fanny Mae and Freddie Mac, we induced marginal buyers into real estate ownership prior to the recession. The reservoir of pent-up demand represented by potential first-time homebuyers was severely eroded and is not readily available to stimulate an economic recovery associated with lower interest rates and more moderate-priced housing. Significant portions of the housing market(which is the largest proportion of the real estate market) have been overexploited because of the interference of government policy, making this recession atypical relative to past experience. Basically, we have already shot that arrow and no longer have it in our quiver. This implies that the recovery is likely to continue to be slow, and that the real estate market will not begin to be vibrant for quite some time. Opportunities, therefore, will continue to be in rearranging real estate assets better to conform to the demand profile or exploiting market imperfections associated with limited understanding of the characteristics of demand and supply for real estate product. Raw demand is not likely to drive a strong real estate market for a number of years.

Economy Property

Some Encouraging Signs on the Home Front

Published by:

By Carlos Rodriguez
Chief Executive Officer
Building Industry Association (BIA) Baldy View Chapter

After years of cautious optimism, home building professionals are beginning to see signs of improvement in Southern California’s housing markets. While there is still a long road to a full recovery, the good news is Southern California home sales rose to their highest level in six years while prices hit a four-year high in August.

Data Quick reports that the number of homes sold increased more than 14 percent in August to more than 22,000 compared to the same period last year. The median price for new and existing houses and condos in the six-county region rose nearly 11 percent to $309,000 last month compared to August 2011. Last month’s median price was the highest since the median was $330,000 in August 2008. Experts say the housing market is fueled by low mortgage rates, more mid- to high-end deals, and near-record levels of investor and cash buying. Likewise, prices have been lifted partly by fewer sales of foreclosed homes.

Locally, communities located within the Victor Valley market have also experienced an estimated 4% increase in the median home pricing between July 2011 and July 2012 from approximately $112,400 to $117,100. If these figures continue to improve in the fourth quarter of this year and throughout 2013, then that’s great news for the outlook for a potential economic recovery.

The simple fact remains that an improved housing market will lead us out of economic recession. According to the report The Economic Benefits of Housing in California prepared by the Strategic Economic Research Center, in 2010 new home construction contributed over $13.8 billion per year and supported nearly 77,000 jobs in California in 2010. Over one-half of the economic output (about $7.8 billion) was directly the result of new housing construction and another $6.1 billion was generated by those sectors which supply goods and services to the residential construction industry “as well as the spending activities of the employees of the construction industry and its supplier sectors.”

The report went on to say that every dollar spent on new housing construction in California generated 80 cents in total economic activity while each job created through residential construction supported an additional 1.2 jobs in related businesses.

Because new homes have an assured longer life, appraisals are generally higher than on comparable resale homes and new homes are more likely to sell for a comparatively higher value in the future. This results in enhanced property tax revenue streams for our cities and county. That’s also good news for local and county government in desperate need of funding for quality of life services.

New home construction also funds new infrastructure such as streets, schools, parks, libraries along with fees for public safety such as police and fire services. These investments benefit everyone by keeping us safe and increasing the property values of existing homes and businesses surrounding new home communities.

There’s still a long road ahead to a full economic recovery. However, the recent signs of improvement in the housing market provide us with encouraging news about the prospects of increased local job creation and enhancements to local infrastructure improvements. While the market is still on the mend, the Building Industry Association Baldy View Chapter will remain steadfast in our efforts to work with elected leaders at every level of government to find public policy solutions to help us back on the pathway to prosperity.

The Building Industry Association of Southern California, is a non-profit regional trade association that represents more than 1,000 member companies within a six county region. Together, BIA members build most of the homes and communities throughout the same six-county region. For more information about the Baldy View Chapter go to

Economy General

Employment Development Department

Published by:

By Brittany A. Ortega
Employment Program Representative

2012 unemployment rates are shown in the chart below. The rates shown are National, State of California, San Bernardino County, and the High Desert Region.

It appears that 2012, so far has been a year of steady unemployment for most of the nation as well as California. The High Desert cities had a higher unemployment rate for the months of the year shown than either the nation or the state.

The past four months of 2012 did show a slight downward slope in unemployment rates, which we hope will continue throughout the remainder of 2012. The data shows that it is trending in a more favorable direction for the economic growth of California, San Bernardino County, and the High Desert Communities.

Employment Development Department-Table

Contributed by the staff of the EDD Workforce Services office in Victorville. Please contact (760) 241-1682 for further information.

Economy General

The Population of the High Desert Has Increased Since the 2010 Census and is Projected to Continue Increasing through 2016

Published by:

By Ronald J. Barbieri, Ph.D., CPA
The Bradco Companies

In order for home and land values to substantially appreciate in the High Desert over the next five years the area’s population must continue to grow at a moderate rate. The greater the growth rate the greater will be the rate of appreciation. The population of the High Desert peaked in 2008. As of January 1, 2009 Nielsen/Claritas(Nielsen) estimated that the population of the greater Victor Valley-Barstow area was 443,516. During the next 27 months the number of individuals living in the High Desert declined by 13,250. By the time of the April 1, 2010 U.S. Census the population was only 430,250. Since then there are indications the population of the greater five city area has increased. Nielsen estimated that as of January 1, 2012, the population of the High Desert was 446,950, which would represent an expansion of 16,684 during the 21months after the U. S. Census.

During the four year period from the beginning of 2009 through the end of 2011, Nielsen estimated the High Desert completely recovered the population it had lost during the last recession and actually added an additional 3,434 individuals. Nielsen also projected the population of the High Desert would continue to expand by 40,607 over the five year period ending January 1, 2017. This reflects an average annual population growth of 8,121. During the three year period 2004 through 2006 the population of the High Desert increased by approximately 25,000 per year. Although the expected population growth is only a third of what was experienced during the last housing bubble, it is significantly positive; and it has been sufficient to stabilize the residential housing markets in the High Desert, and to enable Taxable Retail Sales to increase in all of the last eight economic quarters.

The accompanying table depicts the same population information for each of the eight counties in Southern California, the state of California and the 21 ZIP code areas in the High Desert. At the time of the census, the Inland Empire had a population of 4,224,851, which reflected an increase of 7,999 from January 1, 2009. San Bernardino County suffered a loss of 32,260 while Riverside County gained 40,259. During that same period, Los Angeles County experienced a decline of (336,252) and Orange County lost (58,343), while San Diego expanded by 30,694. Ventura, Imperial, and Santa Barbara Counties all experienced increases in population. During the 27 months prior to the U.S. Census Southern California lost 340,571, while the population of the State of California only declined by 305,772. Hence, the rest of the state actually grew by approximately 35,000. At the time of the census, the state had a population of 37,253,956 of which 21,570,742 were in Southern California.

During the 21 months after the census, the population of the Inland Empire increased by 130,228, while the three coastal counties of Los Angeles, Orange, and San Diego only increased by 105,793. The population of Southern California increased by 252,261, while California grew by 464,337.

The five-year forecast by Nielsen estimates the Inland Empire will be the fastest growing region in Southern California. During the period ending 1/1/2017 the Inland Empire is projected to increase by 357,903, of which San Bernardino County would capture 112,771 of the increase and Riverside County 245,132. This reflects annual county growth rate of 22,554 and 49,026 respectively. During that same 5-year period, Los Angeles County is forecasted to increase by 24,635 per year, Orange County by 15,528, and San Diego County by 20,533. Nielsen estimates Southern California will experience an average annual increase of 141,455 compared to an average annual increase of 260,000 for the entire state.

The U. S. Census Bureau estimated that the population of the State of California increased by 93,000 for the three months immediately after the 2010 Census, and by 354,000 for the year ending July1, 2011. Nielsen’s annual average growth rate of 260,000 for the five year period appears to be a conservative forecast, in that it is 94,000 less than the most recent estimates by the U.S. Census Bureau.

The five cities in the High Desert experienced different population trends during the last recession and the subsequent slow economic recovery. The City of Adelanto and its surrounding ZIP code had significant population growth both before and after the U.S. Census. For the four year period ending January 1, 2012 it grew by 2,597 to 34,224. Households are attracted to Adelanto because it has the lowest median home prices of any of the cities within commuting distance to the Los Angeles Basin. Nielsen forecasts an average annual population growth of 755 for the 5-year period ending with 2016.

The two ZIP codes associated with the Town of Apple Valley lost 4,622 inhabitants during the 27 months prior to the U.S. Census; but in the 21 months following it the area experienced a rebound of 2,085 in the population. As of 1/1/2012, Nielsen estimated the Town of Apple Valley had a population of 79,552, which represent a net decline of 2,537 over the four year period. The Town is projected to experience an average annual population growth of 1,148 over the five year period beginning with 2012.

The Barstow ZIP code area lost 1,611 inhabitants from the beginning of 2009 to the end of 2011. Almost the entire decline in population occurred prior to the census. The population as of the start of 2012 was 31,846. Nielsen estimates the population of Barstow will only increase by 34 inhabitants per year for the 5-year forecasting horizon.

The City of Hesperia and the Oak Hills area lost 3,224 from the beginning of 2009 to the Census; but saw a population increase of 3,980 after the census. As of 1/1/2012 the area had a population of 103,454, or 746 higher than the pre-recession level. The Hesperia-Oak Hills area is projected to have an annual average growth of 2,184 for the five year period.

The three ZIP codes that include the City of Victorville had a decline in population of 4,267 before the census; but experienced an increase of 6,309 after it, which resulted in a net population gain of 2,042 for the four years ending January 1, 2012. As of that date the population was 136, 794. Nielsen forecasts an average yearly population increase of 3,497 for the Greater Victorville Area through 2016.

All the cities in the High Desert, except the Greater Barstow Area, have experienced significant population growth since the U. S. Census; and Nielsen is forecasting solid growth for the five years beginning with 2012. A substantial greater portion of the households in the cities of Adelanto, Hesperia and Victorville have at least one member who commutes to the Los Angeles Basin for employment than was the case for the Town of Apple Valley. A greater percentage of the Town’s employees worked in the High Desert and in residential construction, real estate and finance, which have experienced substantial declines since the start of the last recession. Consequently, it is not surprising that the Town of Apple Valley experienced a greater decrease in population prior to the Census than the other three cities in the Victor Valley Area. Since then the Town has experienced an increase in population similar to the other three cities.

Economy Politics

Reviving California is Going to Take a Revolution

Published by:

By Assemblyman Tim Donnelly
California 59th District

“You can send everyone else home; this is my job.”

That is what a woman told an employer when interviewing for a job that received hundreds of applicants right here in San Bernardino County. When asked why she was so confident, the woman told her interviewer that she wanted it more than anyone else – that unless she found work that day, she and her young son would be living out of their car.

She isn’t alone.

When I was walking door-to-door meeting constituents, one man stepped away from our conversation mid-sentence to take a phone call, then rushed out the door and took off in his car. His wife nearly broke out into tears explaining that he got a call offering a half-day’s work. They had been living on a wing and a prayer, hoping against hope to keep their home, and every little job was a godsend. I wish every elected official in this state could have stood with me on that porch. These are the people we represent. We were not sent there for the lobbyists and special interests who try to buy power.

People all over this state are doing everything they can to get back to work. I wish I could say the same for the legislature. Instead, the people who are supposed to represent us are doing everything they can to stay in the good graces of the green police and union bosses to keep their pet projects running. They have done so at the expense of our business climate, job market and overall economic health.

In the last week of session, the Assembly tried to pass 550 new bills in just 5 days. Most Californians don’t think we need any new laws at all. Governor Brown just finished going through the mess of hundreds of bills the Legislature sent him this year. Among them was a brand new tax on timber, which, of course, he signed. This means that the Sacramento majority and the Governor, both looking at double-digit unemployment and a state that is hemorrhaging businesses, decided that taxing the literal building block of the recovery was the answer.

I disagree.

I regularly have the pleasure of meeting business owners from across the state. Recently, a gentleman explained to me that because of California’s heavy regulatory hand, he is unable to expand his business and hire more employees, although he would otherwise do so. In the midst of the greatest recession since the Great Depression, it is a devastating and offensive reality. It’s offensive because it is 100% preventable. The vast majority of business owners in almost every industry tell me that their number one problem is not the economy; it’s government interference.

While other states are rolling out the red carpet for businesses to open or expand, California taxes materials, penalizes energy users (aka manufacturers) and punishes production. These backwards policies have chased business owners out of our state, with manufacturers leading the charge. It’s as if the so-called leaders of our state don’t want anything to be built in California! When they drive stable, high-wage jobs out of our region, they create a hole in the budget, which always disproportionally affects education, the largest state expense.

Instead of trying to attract new businesses or incentivize employers to hire people, California is literally extorting billions of dollars from companies under the guise of “Cap & Trade.” And what are they going to do with all this new-found money? Are they going to pay down the deficit or restore K-12 funds? No. Instead, the Governor just signed AB1532, removing all constraint on how those funds can be used. No constraint. That describes the legislature’s actions through the last session. AB1532 is a recipe to fund every hare-brained scheme and pet project they can dream up, all under the guise of reducing greenhouse gasses.

The inescapable reality in California is that no matter what business you are in, government, not greenhouse gas, is the greatest threat to your livelihood. The good news is that we can change our government. The founders created a peaceful process of revolution that takes place every 2 to 4 years. Beginning in November 2012, I believe the people will confound the experts and reject these wrong-headed policies that threaten to strangle our state.

Economy Property

The Expansion of the Panama Canal Will Not Have a Negative Effect on the Demand for Industrial Space in Southern California

Published by:

By Ronald J. Barbieri, Ph.D., CPA
The Bradco Companies

The completion of a third set of locks in the Panama Canal by 2015 will enable container vessels capable of carrying up to 12,000TEU’s of containers to pass through the canal and deliver goods from China and other countries in the Far East directly to eastern half of the United States via East and Gulf coast ports. The conventional wisdom is that this will substantially reduce the flow of in-bound containers through the Ports of Los Angeles and Long Beach. An article titled: “Panama Canal: Myths and Misconceptions” that appeared in the May 2012 issue of the American Shipper argues that the opening of the third set of locks in the Panama Canal will only have a minimal impact on the volume of imports entering through the twin Southern California ports.

This conclusion is based on the following observations discussed in depth in the article: First, there are few, non-bulk products that are not shipped by containers; so there is little growth from the conversion of loose cargo to containers. Second,the amount of outsourcing by U.S. manufacturers has already been maximized to the greatest extent possible. The relocation of manufacturing from Canada and Mexico to China was mostly completed during the last decade; and there are an increasing number of companies that have begun to relocated production back to Mexico and the United States, because of issues related to cost, quality control and time-to-market. The article claims analysts are now predicting slow growth and more trade volatility with competition among ports for container throughput becoming a zero sum game of winners and losers. A third point made in the article that shippers will not realize any significant cost savings due to the shipping of goods through the Panama Canal because the tolls chargedby the canal will offset much of the cost savings of using the larger container vessels. Also the West Coast carriers, ports and railroads have the advantage of being able to differentiate pricing by market segment and could lower prices for less premium service with slower transit times if they feel pressure from the all-water service going through the Panama Canal.

Fourth, the all water service via the canal,though less expensive,can be one to two weeks slowerthat transcontinental intermodal transport. High-value or perishable products that must quickly get to market will continue to rely on the faster transit times available through the West Coast corridor. Finally, the article also notes that by 2015 only the four ports of Norfolk, New York-New Jersey, Baltimore and Miami will have the 50-foot deep channels and berths capable of handling the largest vessels. While many of the ports are competing for federal and state funds to dredge channels and increase railroad capacity most will have a difficult time securing adequate funds because they will not have the shipping volumes to justify the required infrastructure investment. Whereas, the West Coast ports already have the infrastructure in place, and have the container volumes to justify adding additional infrastructure.

The articles concludes that the ports of Los Angeles and Long Beach could lose up to 10% of their volume to East Coast ports serving the Ohio River Valley or gain a few percentage points in market share depending on how shippers respond to the expansion of the Panama Canal. What is apparent from reading the article is that there are a number of offsetting factors that make it difficult to determine with precision the level of impact the expansion of thePanama Canal will have on the twin ports of Los Angeles and Long Beach. Nevertheless, the article, which is on The Bradco Companies website, makes a convincing case that the decline in the level of imports handled through the twin Southern California ports, is not likely to be much greater than 10%.

Even if the Ports of Los Angeles and Long Beach were to experience a 10% decline in volume because of the expansion of the Panama Canal it is not likely that such a decline in container volume would have any significant negative impact on the demand for industrial warehousing space in Southern California for following three reasons.

First, approximately 2/3 of the inbound containers that are handled by the Southern California ports are loaded on trains or trucks and are transported to the east. The containers placed on trains are hauled more than 1,200 miles because that is the distance at which the cost of shipping by train before transferring the containers to trucks become less than the cost of loading the containers directly on trucks and hauling them to their final destination. Even if the containers transported by trains experience some reduction in traffic it would not impact the demand for industrial space in Southern California.

Second, the expansion of the Panama Canal will not have any impact on the containers that are hauled east by truck because it would not make any economic sense to ship the containers to Texas and then backhaul them west to their destination points that are within 1,200 miles of Los Angeles. Containers transported from the ports to the east by truck do not create any demand for warehousing space in Southern California; nevertheless, they are one of the factors motivating the Los Angeles Metropolitan Transit Authority to get the E220 Freeway from the City of Palmdale, CA to the I-15 freeway in the City of Victorville, CA completed ASAP. The construction of the E220 is by far the least expensive solution to get trucks from the ports of Long Beach and Los Angeles to the I-15 Freeway heading east. The E220 is also expected to relieve congestion on I-10, I-210, I-15 and the 60 Freeways in the Los Angeles Basin and therefore mitigate several environmental and congestion problems.

One third of the inbound containers at the ports of Los Angeles and Long Beach are transported by truck from the ports to industrial firms in the Los Angeles Basin for local distribution, inventory storage, or for use in manufacturing. None of these will be impacted by the addition of a third set of locks in the Panama Canal.

The high levels of Net Absorption in the Inland Empire by large industrial users and tenants is further confirmation that Southern California role as a warehousing, distribution and manufacturing center will not be negatively impacted by the expansion of the Panama Canal.

Economy Property

A Shortage of Homes for Sale Has Caused a Significant Increase in the Price of Homes in the High Desert

Published by:

By Bob Thompson & Ronald J. Barbieri, Ph.D., CPA 
The Bradco Companies

During the 2004 -2005 housing bubble, 600 new homes were sold each month in the Victor Valley area in addition to 500 previously owned homes. The vacancy level was low and builders were straining to meet demand, which was artificiality inflated by the lax lending standards fostered by the federal government through Freddie Mac and Fanny Mae. The median price for previously owned single family homes in the Victor Valley area peaked in February 2006 at $322,000. By April 2009 the median price had declined approximately 68% to $103,000, which was the low point for this real estate cycle. In March 2012 the Median price for the area was only $110,000; however prices have increased consistently since May of this year. By September 2012 the median price reached $121,000. The table below titled the Victor Valley SFR Market Condition Report for September 2012 was prepared by Bob Thompson for Escrow Junction. It is the information source for this article.

A Shortage of Homes for Sale-Table 1


In the last six months the financial institutions including Freddie Mac and Fanny Mae have further reduced the number of home they release for sale. The number of homes listed has declined from a 2.2-month supply last March to only 1.4 months today. There were 641 homes available for sale in September 2012 compared to 451 closings. During 2004 and 2005 the number of outstanding listings averaged 2,500, which represented four to five months of sales. Real estate agents believe this is one of the factors causing the rise in home prices over the last few months.

Also, a review of the second page of the Market Condition Report would reveal that only 77 REO properties were listed for sale at the end of September, which is less than the 209 units available at the end of March. There were only 97 “short sale” units available in September compared to 230 in March of 2012. On the other hand in the latest report there were 469 “Standard Sale” homes listed by non-financial institutions which was essentially the same number available last March. In case of REO sales the ratio of closings to listing as only 0.50 months. There is truly a shortage of REO listings. The inventory for Short Sale properties that could be sold in 1.1 months at the current rate of sales, while the ratio of supply to demand was 2.2 months for Standard Sales.

A Shortage of Homes for Sale-Table 3


A Shortage of Homes for Sale-Table 4


A Shortage of Homes for Sale-Table 5

REO and Short Sales accounted for 53% of the transactions in September 2012. This is down from 67% in March of this year and 74% from 18 months earlier. This is a positive trend because it indicates properties that were foreclosed on represent a declining portion of the sales activity. Many of the buyers were investors, rather than owner occupants, who renovate the homes, and either, resell the units, or lease them to renters who are not able to purchase a home.

The demand for single family homes continues to be artificially inflated, because of the policies of the federal government. Interest rates are extremely low and down payments are usually substantially below 20% of the purchase price for owner occupants. Individuals are purchasing homes in the High Desert with as little as 3% down. On the other hand the underwriting criteria and documentation requirements are far more rigorous and extensive than normal; and the requirements for home appraisals tend to place a downward pressure on home prices. In the past appraisals could only include REO sales comps which are lower than standard sales comps. The effect of all this is to make home prices in the High Desert the most affordable in Southern California.

The requirement to use REO sales when doing an appraisal has been recently waived, which will make it easier for home price to increase. This will be the case, not only for the High Desert but for all of Southern California. The second page of the Market Condition Report depicts the Median Close Price for the 11 residential submarkets in the Victor Valley Area. In September of this year the Median Close Price for the REO sales in the area was $108,000. This compares to a Median Close Price of $116,000 for Short Sales and $130,000 for Standard Sales.

Home prices are expected to continue trending upward if the U.S. and California economies continue to expand, creating jobs that could support population growth and substantial household formations in both the High Desert and the Inland Empire. The good news is that the population of the High Desert increased since the U.S. Census and is currently slightly higher than it was at the beginning of 2009, before there was an out migration caused by the last recession. Recent population trends are discussed in another article on population in this Bradco High Desert Report.

Economy Property

The Demand for Industrial Space in the High Desert has Increased Substantially Over the Last 18 Months

Published by:

By Ronald J. Barbieri, Ph.D., CPA
The Bradco Companies

There are two different classes of industrial tenants and users in the High Desert. One class consists of the large box users. They typically are warehousing and distribution firms, such as Wal-Mart in the Town of Apple Valley, or large manufacturing operations, such as United Furniture Industries at SCLA in Victorville. Such companies usually occupy buildings in excess of 50,000 SF. The second consists of smaller manufacturing or distribution firms that for the most part cater to the local population and businesses or are niche manufacturing players in the regional market. They are typically small space users that occupy single or multi-tenant buildings of 50,000 SF or less. The average floor area of the small buildings is 10,200 SF.

The graph below categorizes the industrial inventory in the High Desert by city as well as by whether or not the structures are greater than 50,000 SF. It also segregates the industrial space in the City of Victorville into the inventory at SCLA and the non-SCLA portion of the city. Of the 20.5 million SF of industrial inventory in the High Desert, 8.5 million SF is associated with buildings of 50,000 SF or less. The remaining 12.0 million SF is in buildings greater than 50,000 SF. The City of Victorville has almost 8.4 million SF of industrial space, of which 4.5 million SF is located at SCLA. The balance of 3.9 million SF is in the Foxborough Industrial Park, which the city developed, and in several other industrial sub-markets throughout its incorporated area. The City of Hesperia is home to 4.6 million SF of industrial inventory, much of which is in the older industrial area north of Main Street between the railroad tracks and I Avenue. Adelanto accounts for 3.3 million SF while the Town of Apple Valley has 2.8 million SF. Barstow has 1.4 million SF of industrial space.

The Demand for Industrial Space-Graph 1

As of June 30, 2012, the vacancy rate in the High Desert for buildings 50,000 SF or less was 5.4%, while for larger buildings it was 4.2%. The City of Barstow had the highest vacancy rate for buildings over 50,000 SF. It was 36.2%. The vacancy rate for the smaller buildings in Barstow was 6.8%. The non SCLA portion of Victorville had an 8.1% vacancy rate in the smaller buildings, but zero in the larger structures. In the Town of Apple Valley there was no vacancy in the larger buildings but the rate for the smaller buildings was 8.2%. The smaller buildings in the City of Adelanto had a vacancy rate of 3.1% while the larger buildings had no vacancy. The vacancy rate for smaller buildings in the City of Hesperia was 3.6% compared to 11.6% for larger buildings. For an area the size of the High Desert the stabilized vacancy rate is approximately 5% so long as the demand for industrial space is expanding.

The Demand for Industrial Space-Graph 2

From January 2011 through June 2012 the High Desert experienced a Net Absorption of 1,281,000 SF. SCLA accounted for 1,067,000 SF, of which 1,113,000 SF was in the larger industrial buildings. The City of Adelanto gained almost 121,000 SF in industrial demand all of which was associated with smaller buildings. During the same period the Town of Apple Valley had a Net Absorption of 25,000 SF, somewhat evenly split between smaller and larger sized buildings. The City of Hesperia absorbed over 94,000 SF; in spite of the fact that there was a slight decrease in occupancy in the larger buildings. The City of Barstow experienced a decline in industrial occupancy of approximately 54,000 SF all in larger buildings, while the non SCLA portion of the City of Victorville recorded 27,000 SF of positive absorption.

The Demand For Industrial Space-Graph 3