For a while now, the economists at the UCLA Anderson Forecast have been arguing that California is experiencing a two-track economic recovery from the Great Recession. The coastal side of the state is doing relatively well, while the inland regions are struggling. Other economists dispute this analysi; they maintain that the recovery is more robust in Northern California than it is in the Southern California.
A key lens to look through when trying to figure out which analysis is right (and really, both have some merits) is real estate. The UCLA Ziman Center for Real Estate and the Anderson Forecast have just released an brief report on the housing situation, written by economist Jerry Nickelsburg. He notes that prices appear to be moving up in California:
The aggregate California home price statistics are encouraging....The S&P Case-Shiller
Index for San Diego, San Francisco and Los Angeles is the highest it has been since June 2011 and the median sales price is now the highest since 2008.
But then he examines the sales statistics:
In fact home sales are basically flat. Volumes moved up from January to May of this year, but that was just the normal seasonal increase. Since May volumes have been basically stagnant at about 40,000 units per month. One might argue that inventories are low and demand is increasing with the result that two are cancelling out in the sales figures, but it is hard to make that case over a 9-month period.
In somewhat roundabout fashion, Nickelsburg comes back to the "two Californias" thesis, emphasizing that although the recovery might have serious legs along the coast, it's still learning to crawl in the inland regions:
[L]ooking behind the aggregate statistics that combine very different market data, one finds a mixed picture. California housing markets are both recovering and that recovery should accelerate, and they are still in the doldrums at the same time. The expectation is that the aggregate data should begin to reflect much stronger housing growth in the coming years, but as we look at the data we need to keep in mind that some local markets will not yet have come to the party.
Nickelsburg is zeroing in on a key factor in the housing market — something we're feeling pretty keenly right now in Southern California. The market isn't "normal." Banks are working through the $25-billion mortgage settlement while they simultaneously try to avoid flooding the market with foreclosures. Because we didn't build very many houses in the last four years, there's an inventory shortage. Waves of buyers are jumping at low prices and historically low interest rates. This has created a price bubble in the L.A. area.
Meanwhile, inland California is lagging. That's unfortunate, because as Nickelsburg points out, homebuilding is a bigger part of the economy there. Simply put, rising demand for housing in California is concentrated in the wrong place to spur a broad recovery in the market.