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.
San Diego County’s employment growth has held steady as the region’s largest employing sectors continue to bolster their payrolls. In the regional housing market, home price appreciation continues to moderate, while home sales show signs of life.
Not Done Yet: San Diego Labor Market Continues Growth
From October 2018 to October 2019, total nonfarm employment in San Diego County grew by 2.0%, outpacing growth in Orange County (1.2%), Los Angeles County (1.3%), and the state as a whole (1.8%), while staying on track with the Inland Empire (2.0%). In addition to faring better than most other major metros in Southern California, San Diego’s 2.0% annual growth in October 2019 sits slightly above the region’s average post-recession annual growth of 1.9%.
In absolute terms, San Diego County’s addition of 29,800 jobs over the past year brings the region’s total nonfarm employment to 1.5 million. Furthermore, the County’s unemployment rate has continued its steady decline, hitting 2.9% in October 2019, a full percentage point below the statewide average (3.9%).
Driving San Diego’s strong pace of nonfarm employment growth are the Construction, Logistics, and Manufacturing sectors, while growth in the Government, Professional & Business Services, and Education & Health Care sectors remains positive as well. The Construction sector posted the greatest year-over-year employment growth at 6.5%, adding 5,400 jobs, followed by Logistics (3.9% or 1,300 jobs) and Manufacturing (3.7% or 4,200 jobs). San Diego County’s largest employing sectors also continue their steady advance as State & Local Government (3.3% or 8,100 jobs), Professional & Business Services (2.8% or 7,100 jobs), and Education & Health Care (2.7% or 5,700 jobs) bolster their payrolls.
While the majority of industries in San Diego County experienced positive employment growth, the Retail Trade sector recorded the largest contraction in percentage terms, declining by 2.1% year-over-year in October 2019, a loss of 3,100 jobs. Additionally, the Information sector (-1.3% or 300 jobs), and the Wholesale Trade sector (-0.9% or 400 jobs) experienced declines.
Home Sales Showing Signs Of Life
From the third quarter of 2018 to the third quarter of 2019, the median price of an existing single-family home in San Diego County remained constant at $617,000. Home price appreciation began to moderate in the third quarter of 2018 and fell to 0.0% year-over-year in the third quarter of 2019. Additionally, growth in the median price of an existing single-family home in San Diego trailed growth in Los Angeles County (3.1% to $642,000), the Inland Empire (4.8% to $363,000), and the state as a whole (2.2% to $491,000).
Much like the overall state, as well as other major metro areas, sales of existing single-family homes in San Diego County have been tracking in negative territory on a year-over-year basis since the fourth quarter of 2017. However, the third quarter of 2019 marks a substantial turnaround in this trend, with home sales increasing by 8.6% year-over-year. While the Northern California metro areas remain on the decline, sales in Los Angeles County (1.2%) and the Inland Empire (5.8%) have also picked up, albeit at lower levels than experienced in San Diego County. This may be partially attributable to the decline in fixed rate mortgage averages, which have been trending down since the start of the year. The shift creates a more favorable outlook for potential homebuyers as the cost of borrowing falls. As a result, home sales in San Diego County may continue to pick up in the fourth quarter of 2019.
Relatively stagnant single-family permitting activity following the recession has created a tight market for homeowners. As of October 2019, the California Association of Realtors estimates the existing supply of homes on the market in San Diego County would be exhausted in 2.8 months at the current pace of sales.
This tightness in the homeowner market has spilled over into San Diego County’s rental market, as the cost of rent has continued to climb at a steady pace and vacancy rates remain at record lows. Given the absence of single-family permitting activity and the tightness that pervades the homeownership market, multifamily construction may be the only thing keeping the County from bursting at the seams. Following the recession, multifamily permitting in San Diego County recovered relatively quickly, approaching pre-recession levels in 2016 and maintaining momentum in the years since. Despite year-to-date multifamily permitting falling by 26.2%, or 1,500 permits in 2019 (year-to-date as of the third quarter), multifamily construction in 2019 is on track with the post-recession trend, albeit at a slower pace than in the previous year.
Further bolstering construction activity in San Diego County is the commercial real estate market. In particular, nonresidential alterations to existing commercial property are up 36.6% year-over-year in the third quarter of 2019, an addition of $93 million worth of commercial permit alterations compared to the same period one year earlier. Although commercial permitting activity slowed considerably in the last two quarters of 2018 and the first quarter of 2019, the total value of commercial permits being issued has returned to its post-recession trend of strong and steady growth.