Winter 2019/20

San Francisco

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.

Winter 2019/20

Strong employment growth in San Francisco has become almost mundane in its regularity, continually outpacing the rest of the state. However, tight inventories in the residential housing market remain a problem as new units are quickly being absorbed into the market.

SF Labor Market Continues To Outshine The Rest

From October 2018 to October 2019, total nonfarm employment in the San Francisco Metropolitan Division (MD) grew 3.5%, outpacing the neighboring East Bay (2.2%), South Bay (3.0%), Los Angeles (1.3%), the Inland Empire (2.0%), San Diego (2.0%), and the state as a whole (1.8%). In fact, San Francisco’s addition of 40,400 jobs over the past year puts the region’s employment growth second only to Los Angeles in terms of the absolute number of jobs created.

This is a familiar phenomenon for San Francisco, as average annual employment growth has been the highest in this region throughout the post-recession years. Furthermore, the labor market in San Francisco remains tight, with unemployment in October 2019 recorded at 1.9%, a 0.3 percentage point decline from the same period one year earlier and a full 2.0% lower than the statewide average of 3.9%.

On par with the previous five-year trend, Information sector employment in San Francisco has remained strong, growing 6.3% year-over-year in October 2019, an addition of 5,500 workers. Similarly, the Professional & Business Services sector, the largest sector in San Francisco employing 25% of the total workforce, added 12,200 new jobs from October 2018 to October 2019, an increase of 4.2%. Employment in the Education & Health Services sector, another major employment base in San Francisco with 12% of the total workforce, also recorded impressive year-over-year growth at 5.2%, or 7,300 new positions.

However, there are a few weak points in the otherwise impressive job growth across San Francisco. The Retail Trade sector, which employs 7% of the total workforce, saw employment decline 3.4% in October 2019, a loss of 2,700 jobs. Employment in this industry has been on the decline for several years as the growth of e-commerce as a heavily utilized channel for personal consumption expenditures continues to expand rapidly. Additionally, the Manufacturing sector also remained on the decline in October 2019, a trend that began in late 2017.

Tight Inventories, Declining Sales = A Housing Challenge

From the third quarter of 2018 to the third quarter of 2019, the median price of an existing single-family home in San Francisco increased 1.4% year-over-year to reach $1.5 million. While still positive, this rate of growth falls short of the near double-digit price growth trend that began in the fourth quarter of 2012. The neighboring East Bay (-0.6%) and South Bay (-3.0%) metros both experienced declining home price growth.

On a year-over-year basis, sales of existing single-family homes continue to decline, falling 3.2% in the third quarter of 2019. Home sales in San Francisco are the weakest among all the major metro areas in the state, with the exception of the East Bay (-4.8%).

With the Federal Reserve cutting interest rates for the first time following the recession in August 2019, and with two additional cuts in September and October, short term interest rates are trending down. While the impact on longer-term obligations such as mortgage rates is less clear and often less substantial, mortgage rate averages have been declining since the start of the year. This creates a more favorable environment for would-be home buyers as the cost of borrowing falls. While this appears to have stemmed the decline in home sales in Southern California metros, including the Inland Empire (+5.8%), Los Angeles (+1.2%), and San Diego (+8.6%), this is not the case in San Francisco. Home prices are simply too high relative to the median household income for the decline in the cost of borrowing to have anything more than a negligible effect on home sales in the region.

In addition to dismal home sales, low market inventories have also contributed to home price growth as the tight supply of single-family homes continues to put upward pressure on prices. In October 2019, according to the California Association of Realtors, the existing supply of homes on the market in San Francisco would be exhausted in 1.9 months at the current pace of sales, much faster than in the neighboring East Bay (3.7 months), South Bay (5.3 months), and the state as a whole (3.0 months). Weak single-family construction activity in recent years will do little to alleviate the tight housing market that pervades the region.

As a result, many residents and workers are still priced out of the homeownership market in San Francisco, despite the median household income sitting at $112,000. These would-be homeowners must look to the rental market. However, not only does San Francisco have the highest home prices compared to California’s other major metro areas, but the region’s rental market is the most expensive as well. The average cost of rent in San Francisco increased 2.9% year-over-year in the third quarter of 2019 to reach $3,248/month.

Unlike the single-family homebuilding market, which has been lackluster in recent years, multifamily permitting activity in San Francisco returned to pre-recession levels rather quickly. Looking at permits issued year-to-date as of the third quarter of 2019, construction activity in the multifamily property market continues at a steady pace. However, consistent rent growth and declining vacancies indicate that new units are quickly being absorbed into the market.

** The San Francisco MD includes San Francisco and San Mateo Counties. This is a change from previous editions of “The Regional Outlook San Francisco” when Marin County was also included.

More Information

For information about any of the Center’s research services, please contact:

Northern California Representative Mike Dozier at 424.372.1061 ext. 1006 or

Managing Partner Sherif Hanna at 424.646.4656 or