Inland Empire Economist John Husing, Part 2 on the TNG Radio Show

Bruce Norris is joined once again by Inland Empire Economist and Specialist John Husing.

Bruce Norris mentions that The Norris Group is now ready to start purchasing properties with the intent to hold them as rentals. Bruce says we’re buying at 28% of what the lender was owed.

John takes Moreno Valley as an example of what happened in the last cycle with rentals. The injection of rentals in areas that were traditionally owner occupied caused problems. Rentals are generally not as well cared for as owner occupied properties in the area. Home values go down because of this. In areas dominated by rentals, calls for police soar. Soon turnover increases as renters look for the best deals and there’s soon a rent war. Side effects of too many rentals can cause many issues. John says Moreno Valley was destroyed by HUD in the last cycle because they didn’t even think about the effects to the communities.

In the stabilization act, money has been given to cities to help stop this issue. Cities can negotiate prices in bulk and then double escrow the homes at certain prices over to construction firms to bring them back to nice homes. They then sell these homes to qualified first time home buyers. San Bernardino did this in the last cycle. 90% of the people who purchased those homes were still in 10 years later.

Bruce mentions that homeownership levels got too high and that more rentals will be a natural conclusion. John thinks it’s more of a pricing question. If prices got down to a level that’s affordable, people will buy. He says California has never built enough homes for its population.

John says that demand for homes is accelerating greatly. Unfortunately, the supply of foreclosures is still coming in great quantity which continues to bring down prices. John feels the only real solution is to get the principal down.

Bruce says Riverside is one of the possible hot spots once this all turns around. John says the Inland region has more construction dirt available then other counties. Over the next 25 years, Southern California will add 6 million people. Orange County and San Diego are built out or zoned out of being able to build. LA is in a similar situation. Once we get through this downturn, the Inland region has tremendous growth opportunity.

Bruce says that people would rather be in California then many other states. For the next couple of years, people from other states will start to recognize the opportunity to move to California and be making the same payment or less and be able to live in a better climate. Bruce thinks we’ll see massive in migration. John says he too thinks people will be looking at California as a place to retire.

Bruce talks about how he got to Riverside and the massive growth that’s taken place. John explains the three stage growth process. By the late 70s, Riverside developers started developing in the area. People were putting up houses where people didn’t want to live. But affordability is important. Later, the entrepreneurial developers come out here because there was a market. Retail centers soon follow because of demand. Housing boom tends lead to population serving businesses coming into the area. Industrial developers follow after which creates blue collar jobs. The Inland area was in Stage 3 where we saw increasing upscale houses being built. The Inland Empire saw much younger people move into the area. This influx of young talent with higher education opens up the area for much different jobs and services. The Inland Empire economy will be back on John’s three stage development once we get through this cycle.

John says San Fernando and Orange County went through this same three stage growth cycle. Orange County went through stage three in the 70s. John tells the story of South Coast Plaza. Orange County is actually worried because it’s losing its young and educated workers to the Inland Empire.

In Riverside, all industries are having a difficult time. Residential construction brought in a large about of jobs. Warehousing and distribution have also been main drivers for jobs. Now that these have both slowed, unemployment has boomed.

Bruce asks John if the Feds will crank up infrastructure projects. John says that would be the way to help the economy. The influx of cash to consumers by the government in May didn’t work because they paid off debt or went to Walmart.

Bruce asks John about the difference in median incomes from the Orange County and Riverside. John says they are very different. However, if you take the median income and then subtract the cost of housing, it’s about dead even. As the economy approves, we’ll continue to pull more and more people from Orange County for this reason.

More on John Husing and his research at www.johnhusing.com

The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com