Spring 2022
San Francisco
Presented by Beacon Economics
Welcome to The Regional Outlook California, a forecast for five of the state’s largest metropolitan 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.
Employment: Recovering Lost Ground
Newly released labor market data shows that employment growth in San Francisco County was slightly better in 2021than originally estimated. In March, the California Employment Development Department (EDD) released revisions to their monthly employment survey estimates, which indicate that the local labor market has been recovering faster than originally believed. Each year the EDD releases an annual benchmark, in which the monthly labor force and payroll data are updated. The monthly statistics are based on sample data from a survey of establishments, and the benchmark incorporates official information with the more lagged, but more accurate, Quarterly Census of Employment and Wages (QCEW), which covers roughly 97% of all wage and salary employees in the nation.
Prior to the revision, nonfarm employment growth in San Francisco came in at a lukewarm 1.0% from December 2020 to December 2021. After the revision, the annual growth rate ticked up to 1.1%.While there is still a lot of lost ground to recover, economic conditions in San Francisco are gradually improving. In the twelve-month period ending in January 2022, nonfarm payrolls grew 9.7%, compared to 4.7% at the national level. Although the pace at which jobs were added is impressive, and outpaced the statewide figure, the region is still in recovery mode and has more ground to cover compared to neighboring counties. Statewide, nonfarm payrolls were 2.8% below their pre-recession peak by January 2022, compared to 4.7% in San Francisco.
The post-pandemic era has ushered in a new set of challenges for the San Francisco economy. The Bay Area is well known for its heavy tech presence, with tech employment accounting for one in five jobs in San Francisco alone. This high concentration has traditionally been a boon for the local economy, but many workers have shifted to remote work and relocated to escape the region’s high-cost housing market. Others still are simply working from home. This is evident on a number of fronts. In 2021, the California Department of Finance estimated that San Francisco’s population declined by 1.7% in a single year, the largest decline among California’s 15 largest counties. In that same year, office-facing employment increased by 7,700 jobs, but net absorption of office space declined by more than 1.2 million square feet.
Tourism is also underperforming economically. Hotel occupancy is currently trending at 45%, compared to 80% during less turbulent times. Transit use is still down, and arrivals through SFO are down by more than 45% relative to normal levels. The impact is most apparent in taxable receipts, which were down 11% relative to pre-pandemic levels, compared to a 20% statewide increase over the same period.
Much of the decline and subsequent slow pace of recovery is due to the industrial mix of jobs in San Francisco (which are oriented more towards services and hospitality) and relatively stringent health-related mandates that limited the extent to which certain types of service-oriented businesses could operate. With restrictions easing, San Francisco’s labor market is expected to fully recover in late 2022 or early 2023.
Could SF’s Famously Expensive Housing Market Get Even Pricier?
There’s no doubt that the pandemic ignited the real estate market, both locally and at the national level. Among the primary factors driving the rapid upswing in both prices and sales was the steady decline in interest rates and a shift in consumer preferences for more space. The effect has been a collapse in real estate inventories as newly listed homes are seized on by prospective buyers willing to pay above asking price and engage in bidding wars with other buyers. New home construction has continued to pick up, but that has had a negligible effect on inventories, and it will take time for residential permits offer any relief to the housing market. Most of the sales have occurred in the existing single-family homes segment, which saw home sales in San Francisco surge 34.5%, the largest annual increase since the late 1980s.
A dwindling supply of homes on the market will help to keep prices from falling. However, rising mortgage rates will take buyers out of the market, softening the demand for housing. During the pandemic the 30-year fixed rate mortgage average in the U.S. hit an all-time low of 2.65%, but rates have since ticked up to 4.7% – above where they stood prior to the downturn. The rise in rates was expected; improving economic conditions, rising inflation expectations, and the prospect of a more aggressive Fed will all have a cooling effect on real estate markets.
Beacon Economics does not expect price growth in San Francisco to turn negative. In general, home prices tend to rise regardless of rising rates because homeowners prefer to withdraw from the market rather than sell below the market rate. Also, the impact of rising rates tends to have less effect on buyers at the upper end of the market, such as those in San Francisco where the median price of both single-family homes and condos currently exceeds seven figures.
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 mike@beaconecon.com
Managing Partner Sherif Hanna at 424.646.4656 or sherif@beaconecon.com
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