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 San Diego labor market’s recovery in October fell off its pace from previous months. But its housing market has quickly recovered from the initial shock of the COVID-19 pandemic.
Some Industries Have Recovered; Others Continue to Lag
Unlike in other Southern California metros, the San Diego labor market continued to cool in October. About 13,000 jobs were gained from September to October, less than in September (14,000) and August (25,000). Nonetheless, the region’s unemployment rate fell 1.3 percentage points to 8.0% in October and rests below Los Angeles’ 12.3%, the Inland Empire’s 9.2%, and the statewide average of 9.3%. Although the region’s falling unemployment rate in the early months of the recovery was aided by a contracting labor force, in October the labor force expanded significantly. This surge has pushed the labor force beyond pre-pandemic peaks and is now 20,000 higher in October than in February.
At the industry level, the Construction sector led the month’s employment gains, adding 4,800 jobs from September to October. Following were Accommodation and Food Services (3,300) and Professional, Scientific, and Technical (2,500). As one of the largest-employing industries in San Diego, the Professional, Scientific, and Technical sector has recovered all the jobs lost in March and April. Other sectors with strong gains during the month were Health Care (2,300), Administrative Support (1,500), and Retail Trade (1,300). A few sectors’ payrolls declined in October, with the largest in Wholesale Trade (-1,400), Government (-1,300), and Other Services (-700).
Despite continuing to slow, the positive employment gains in October mean the San Diego labor market has recovered 48% of the jobs lost in March and April. San Diego leads California’s other major metro areas in this regard. Unfortunately, COVID-19 cases are again surging across the state and county, and restrictions on activity have been enacted. Beyond the public health implications of rising cases in the county, the new surge presents renewed challenges for the 120,000 workers who have been unemployed since February.
With just over half of the lost jobs since the pandemic yet to be recovered, the trajectory of each industry’s recovery has varied significantly. From February to April, employment in lower-paying industries fell 20.8%, compared with just 6.4% in higher-paying industries. But what followed in the months through October was a much stronger recovery among lower-paying industries: Their employment rose 16.5% from April to October, much stronger than the 2.8% growth among higher-paying industries. As a result, lower-paying industries, such as Accommodation and Food Services, Arts and Entertainment, Retail Trade, and Other Services, have recovered 57% of jobs lost while higher-paying industries have recovered only 35%.
San Diego’s Apartment Market Proves Far More Resilient in the COVID-19 Economy Than Other California Metros
The impact of the COVID-19 crisis on apartment rents was fairly significant in the San Francisco and Los Angeles markets, but the impact on San Diego rents has been minimal. Average rents per unit in the region were $1,867 in September, virtually unchanged from $1,881 a year before. In fact, more submarkets in San Diego reported year-to-year increases than decreases in rent. Submarkets including Escondido/San Marcos (3.0%), El Cajon/Santee/Lakeside (2.6%), and Vista (1.7%) reported increases, while the La Jolla/University City (-6.1%), Mira Mesa/Rancho Bernardo (-4.2%), and Ocean Beach/Point Loma (-2.8%) submarkets had the largest decreases.
Moreover, the impact of the pandemic on apartment vacancies has been virtually nonexistent, with two notable exceptions: the Mission Bay/Pacific Beach submarket, whose vacancy rate rose from 1.2% in September 2019 to 3.2% in 2020; and the Downtown San Diego submarket, whose rate rose from 8.7% to 10.1%. Even then, these shifts are much more restrained than the sharp increase in vacancies in other metros like San Francisco, a positive sign of San Diego’s resiliency through such a tumultuous year.
Data from the California Association of Realtors show an increase in San Diego home sales, a story seen all across the state. In fact, San Diego County home sales have increased 32.8% year to year. This increase is the largest among those reported in Los Angeles, Orange, Riverside, San Bernardino, and Ventura counties. The median price of existing single-family homes has also risen in San Diego County, going from $636,750 in September 2019 to $735,000 in September 2020, a 15.4% increase that is also much higher than neighboring counties’.
San Diego is also one of the few counties in California with an increase in housing permits issued, a positive sign of San Diego’s continued commitment to growing its supply of housing and keeping prices relatively affordable. A total of 3,538 multifamily housing permits were reported through August, an 18% annual increase. The number of single-family permits also increased 3.3%, to 2,055. Though these data on permits suggest an optimistic outlook for the housing market in San Diego, one troubling statistic is the record-low number of new apartment completions this year: only 661, according to REIS. This is the lowest year-to-date value since 2011, which had zero completions through September of that year.
Overall, San Diego’s economic recovery continues, albeit at a slower pace than in previous months. Although the region’s apartment market remains relatively unfazed by the pandemic, the bifurcated labor market recovery poses questions to the sustainability of the housing market surge. Additionally, more rigid public health mandates and fading support from the Federal stimulus will create headwinds in the near term. But with the distribution of vaccines imminent, San Diego’s growth will likely ramp up in the second half of 2021.