Since I live in California and people around the country are always asking me about the California economy, I thought I'd pass along some interesting information from a report issued this week from the Anderson School of Business at UCLA.
The housing boom in the middle of the past decade was very much focused in the “Inland Empire” area of southern California, which is east of Los Angeles, including Riverside and San Bernardino counties, as well as the Central Valley of California. Those areas grew dramatically, houses were built in vast numbers, seemed to sell the second they were finished, and the cost of housing in those areas shot up dramatically, especially the Inland Empire. A few years later, when the bubble burst, the Inland Empire led the way with an extraordinary foreclosure rate.
Now the state's population is getting younger and the rising cost of fuel is leading more people to live closer to where they work. People are leaning in the direction of apartments, rather than big houses in the suburbs. Many younger people are staying in their parents' homes longer or moving back into their parents' homes because they are unemployed. The demand for new homes is therefore shrinking and will continue to be low for the foreseeable future. Construction of single-family dwellings is being outpaced by construction of multi-family dwellings that are less labor-demanding. Currently permits for single-family homes are about 20 percent of peak levels; about 40 percent for multi-family dwellings.
California's unemployment rate is still higher than 12 percent, higher than most states. And construction will not be leading the way out of the recession any time soon. According to the report, California won't be adding a significant number of building permits until 2013, nonfarm employment in the state won't return to pre-recession levels until 2014, and construction employment won't return to those levels until 2021. No, that's not a misprint. 2021.
The study says California's unemployment rate will be about 11.7 percent this year and 10.9 percent in 2012, while the national unemployment rate will be about 8.9 percent this year.
So times will continue to be tough in California for a while I suspect.