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.
After sustaining substantial job losses, Los Angeles’ hardest-hit industries have accounted for most of the region’s labor market recovery. While residents flee the Downtown submarket, home prices in Los Angeles are reaching new heights.
Latest Job Gains Concentrated Among Hardest-Hit Industries
As The Los Angeles (MD) labor market added 50,000 payroll jobs in October, bringing nonfarm employment to 90.9% of pre-pandemic levels. This marks the second-strongest month-over-month gain since the June surge, which occurred after the most stringent lockdown measures were initially lifted. In October the unemployment rate in Los Angeles fell 3.2 percentage points to 12.3%, the largest month-over-month decline since the pandemic began. Nonetheless, Los Angeles unemployment rate remains the highest of California’s largest metro regions and is significantly higher than the statewide average of 9.3%.
Nearly every industry added jobs in October, and over half were concentrated in the industries hardest hit in the early months of the pandemic. Health Care added the most jobs from September to October, increasing payrolls by 10,300. Following was the Accommodation and Food Services (8,800) and Arts and Entertainment (6,800) sectors. These gains have brought Health Care employment to 97.2% of February’s pre-pandemic level. But the industries constituting the Leisure and Hospitality super-sector, Accommodation and Food Services and Arts and Entertainment, still have a way to go to recover, standing at 73.4% and 67.8% of February levels.
After losing steam in August and September, Los Angeles’ labor market regained it in October. Unfortunately, it comes just as COVID-19 cases are again surging across the state and county and restrictions on activity have been put in place. Even with the strong jobs report in October, Los Angeles (MD) has yet to regain 58% of the jobs lost in March and April. Beyond the public health implications of rising new daily cases in the county, the new surge is poor timing for the 420,000 workers who have been out of a job since February and are heading into a stage of renewed restrictions.
More than half of the jobs lost since the start of the pandemic have yet to be recovered, and the distribution of those jobs varies significantly by industry. From March to April, employment in lower-paying industries declined 19.1%, compared with 10.8% in higher-paying sectors. But job gains over the following months have been more heavily concentrated among lower-paying industries, including Accommodation and Food Services, Arts and Entertainment, Administrative Support, Retail Trade, and Logistics. Nonetheless, because of the more severe impact during the initial months of the pandemic, jobs in lower-paying industries have more ground to cover before returning to pre-pandemic levels.
Pandemic’s Impact on Apartment Rental Markets Is Concentrated in Downtown Submarket
Rents across the Los Angeles Metropolitan Area have held steady. The average rent per unit in the market was $2,073 in September, only a 2.9% decrease from the previous year. Some of the largest decreases in rent across the L.A. Metro came from the most expensive neighborhoods. For instance, the Marina del Rey/Venice/Westchester submarket, where the average rent in September 2019 was $3,402, had the largest year-to-year drop in rents, down 6.9% a year later.
The West L.A./Westwood/Brentwood submarket also fell substantially (6.8%). But there were also large rent declines in neighborhoods that are not as expensive. Rents in the South Glendale/Highland Park submarket, for example, fell 6.5%. This was the third-largest drop in L.A., followed by the Wilshire/Westlake (5.3%) and Inglewood/Crenshaw (5.2%) neighborhoods. Meanwhile, neighborhoods largely shielded from the rent declines include the North Long Beach, Palmdale/Lancaster, and Culver City areas, all of which had insignificant changes. In South/Central L.A. and the Carson/San Pedro/East Torrance regions, average rents rose 2.6% and 3.3% respectively.
The impact of the pandemic on apartment vacancies was more pronounced in L.A. than in other regions in California. Overall, the L.A. metro reported a 0.3% increase in vacancy. Downtown Los Angeles, with a whopping 14.9% vacancy rate in September 2019, had the largest increase in vacancies: a 2.1% change, bringing its rate to 17% in September 2020. This is twice as much as the 8.6% vacancy rate in West Long Beach/Signal Hill, which ranked as the second-most vacant submarket in September.
In contrast to the declines in rent and occupancy rates, housing prices and sales boomed. According to the California Association of Realtors, sales of existing homes in L.A. County have increased 16.4% from a year ago. The increase in sales has corresponded with an increase in house prices; the median price of existing single-family homes in September was $747,380, a 12.7% increase from last year. This is more than in Orange and Riverside counties, whose home prices increased 10.2% and 11.8% respectively. Los Angeles County’s increase was fairly representative of home price increases across broader Southern California.
Data on housing permits suggest that Los Angeles County has remained committed to increasing its supply. Over 9,600 multifamily housing permits had been filed through August 2020 in Los Angeles County, down only 1.3% from last year, a much smaller decrease than in other Californian regions. Single-family permits showed a similar trend, with 3,601 filed thus far in 2020, virtually unchanged from last year. Finally, data from REIS indicate that over 5,543 apartment units have been brought online across the Los Angeles metro this year, much more than the 4,941 completions at this point last year.
Nonetheless, the Los Angeles economy still faces a severe housing shortage. As such, a rebound in apartment rents is likely in the coming months. Additionally, most of the improvement in the housing market has occurred at the upper end, reflecting the resilience of jobs in financial, professional, and technical services. Although this improvement is real, sales of existing single-family homes in the lower-price tiers have yet to recover from April’s historic decline. The vast discrepancy between more highly impacted industries and those that have more easily weathered the downturn hints at the limits to which the housing market can continue to strengthen without more progress in containing and minimizing the threat from the virus.
Overall, the Los Angeles economy has lagged the performance of many of California’s major metros. But the outlook for 2021 is brighter, with the distribution of vaccines imminent. So, although headwinds exist in the near term, including more rigid public health mandates and fading support from the fiscal stimulus, growth in the Los Angeles economy should ramp up in the second half of 2021.
** Los Angeles County refers to the Los Angeles-Long Beach-Glendale Metropolitan Division.