Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
The East Bay economy advanced further in the third quarter of 2019 as the region’s unemployment edged down and job growth picked up. Despite mortgage rates trending down over the year, home sales have yet to react and remain in negative territory.
East Bay Labor Market Humming Along
From October 2018 to October 2019, total nonfarm employment in the East Bay grew by 2.2%, trailing neighboring San Francisco (3.5%) and the South Bay (3.0%), but tracking above the state as a whole (1.8%). Although employment growth in the East Bay was lower than in other major Northern California metros, the 2.2% annual growth in October 2019 is higher than the region’s average post-recession annual growth of 1.9%. In fact, October’s annual employment growth ticked above 2% for the first time since April 2018.
In absolute terms, the East Bay’s addition of 25,600 jobs over the past year trails all major metros in the state, despite sustaining a larger employment base than neighboring San Francisco or the South Bay. The unemployment rate in the East Bay fell 0.3 percentage points from October 2018 to October 2019, and currently stands at 2.7%, considerably lower than the statewide average (3.9%).
The two largest employing industries in the East Bay, Professional & Business Services and Education & Health Services, each of which employ 16% of the region’s total workforce, posted strong growth in October 2019. Year-over-year, Professional & Business Services employment increased 4.1% from October 2018, adding 7,900 jobs. The Education & Health Services sector also recorded strong year-over-year growth at 3.5%, adding 6,800 new positions. Employment in the Retail Trade sector, another major industry in the region in terms of total employment, tracked into positive territory for the first time since September 2018, increasing by 2.1%, an addition of 2,400 jobs. The Administrative & Support Services sector and the Construction sector, while not as significant in the region in terms of total employment, both experienced strong jobs growth, expanding by 6.9% and 6.0%, respectively.
Not all East Bay industries experienced employment growth, as a number of smaller sectors in the region posted year-over-year declines. Employment in the Other Services industry fell by the largest degree, contracting by 5.4% in October 2019, a loss of 2,200 jobs. Additionally, the Manufacturing sector (-0.8% or 800 jobs), Information sector (-0.3% or 90 jobs), and the Wholesale Trade sector (-0.2% or 90 jobs) all experienced mild year-over-year declines in employment.
Decline Continues For Home Sales
From the third quarter of 2018 to the third quarter of 2019, the median price of an existing single-family home in the East Bay declined by 0.6% to $743,000. Along with neighboring San Francisco and the South Bay, price appreciation for existing single-family homes has decelerated substantially in recent quarters. To illustrate this point, annual price growth for existing single-family homes in the East Bay in the years following the recession averaged 10.3%, considerably higher than the 3.1% average growth experienced over the past four quarters.
While a decline of 0.6% in median home price growth reflects a substantial slowdown from trend, the 4.8% decline in home sales during the third quarter of 2019 is nothing special. In fact, home sales growth in the East Bay has been tracking in negative territory for the past four quarters and total sales have remained stagnant following the recession. Despite fixed rate mortgage averages that have been trending down since March 2019, home sales in the region have yet to react to the more favorable environment, a result of the reduced cost of borrowing. Notably, many Southern California metros experienced positive home sales growth in the third quarter of 2019, reversing the declining home sales trend in some regions of the state.
Much like other Northern California metro areas, rent growth in the East Bay has moderated from the high levels experienced in the years immediately following the recession, when the region was still recovering. That is not to say the cost of rent is not rising in the East Bay: The median cost of rent increased by 4.9% year-over-year in the third quarter of 2019, the highest of all major metro areas in the state. However, multifamily permitting activity has picked up in the last two years, with the East Bay issuing more multifamily permits in 2018 than in any year going back to 1995. Looking at multifamily permits issued year-to-date as of the third quarter, 2019 has experienced a notable decline, with 3035 fewer permits issued than in the first three quarters of 2018. Along with increased supply in the rental market in recent years, vacancy rates edged up to 4.0% in the third quarter of 2019, the first time they have reached that level since 2011. This indicates that the new supply may not be providing enough relief to the market, as declining affordability pushes people away from a market, despite new units coming online.
The East Bay has experienced considerable commercial permitting in recent years, issuing $140 million worth of commercial property building permits, on average, per quarter, from 2015 to 2019. This is notably higher than the $33 million issued per quarter from 2011 to 2015. In the third quarter of 2019, commercial permitting activity was almost exclusively in the Retail market, where $285 million out of the total $288 million commercial permits issued were for Retail space. Furthermore, while permitting activity in the Warehouse and Distribution property market exploded in 2018 with $309 million worth of commercial permits, 2019 has not maintained that trend. Year-to-date permitting activity in this market has fallen to a meager $3 million as of the third quarter of 2019.
** The East Bay refers to the Oakland-Fremont-Hayward Metropolitan District, covering Alameda and Contra Costa Counties.