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.
With the smallest employment base relative to California’s other major metropolitan areas, the South Bay continues to experience steady labor market expansion. However, despite home price appreciation contracting in recent months, homeownership is still out of reach for many in the region as home prices remain near record highs.
Small Labor Market, Strong Job Growth
From October 2018 to October 2019, total nonfarm employment in the South Bay grew by 3.0%, trailing San Francisco (3.5%), but outpacing the East Bay (2.2%), Los Angeles (1.3%), San Diego (2.0%), the Inland Empire (2.0%), and the state as a whole (1.8%). With the smallest employment base of all major metro areas in California, the South Bay added 33,700 new jobs over the past year, coming in behind only Los Angeles (+58,900) and San Francisco (+40,400) in absolute terms. The region’s unemployment rate has continued to track in very low territory, falling to 2.3% in October 2019 and bested only by San Francisco at 1.9%.
The Information sector in the South Bay expanded at the fastest rate in percentage terms, growing by 7.4% year-over-year in October 2019, an addition of 7,000 new jobs. This industry has been growing at an explosive rate since the recession, adding 58,000 jobs since January 2010.
The South Bay’s largest employing sector, Professional & Business Services, which employs 21% of the total workforce, grew 2.7% year-over-year, an addition of 6,500 new positions. The Manufacturing sector, the South Bay’s second largest industry in terms of total employment, increased 3.2% from October 2018 to October 2019, an addition of 5,600 new jobs. The South Bay was the only Northern California metro area to experience positive growth in the Manufacturing sector.
The only industry to record declining employment growth in the South Bay is the Logistics sector, a trend that began in early 2019. While this industry makes up the smallest share of the South Bay labor market, it has shed 4,100 jobs since the decline began. However, it is important to note that employment growth in this industry is relatively volatile, and swings of 8% in either direction are not uncommon.
Home Prices Contract; Ownership Still Out Of Reach For Most
While the median price of an existing single-family home in the South Bay surpassed its pre-recession peak in the fourth quarter of 2015 and soared 36% above that level in the first quarter of 2018, prices have since retreated and continue to trend down. From the third quarter of 2018 to the third quarter of 2019, the median price of an existing single-family home in the South Bay decreased by 3.0% to $883,000. This represents a substantial reversal of trend from the near double-digit average annual price growth experienced in the region following the recession. The East Bay (-0.6%) was the only other major metro area to record negative home price growth in the third quarter of 2019.
On a year-over-year basis, sales of existing single-family homes in the South Bay declined by 0.6% in the third quarter of 2019. While still in negative territory, this is a considerable moderation compared to the double-digit declines in home sales experienced over the previous four quarters. Much like its neighbors San Francisco (-3.2%) and the East Bay (-4.8%), the downward trend in mortgage rate averages since the start of the year appears to have done little to stem further declines in home sales. In contrast, many Southern California metros recorded positive home sales in the third quarter of 2019.
Despite cooling price appreciation for single-family homes in recent months, homeownership is still out of reach for many in the region. At $883,000, the median home price in the South Bay is second only to San Francisco (MD). For those priced out of the homeownership market, the average cost of rent in the South Bay increased 2.6% year-over-year in the third quarter of 2019 to $2,755/month. While recording the second highest cost of rent among all the state’s major metro areas, the South Bay experienced the slowest growth in rent cost in the third quarter of 2019.
Permitting activity has been a mixed bag in the South Bay. Much like the rest of the state, single-family home permitting activity has been lackluster post-recession. On the other hand, multifamily permitting has just started to cool in recent years, recording two consecutive declines in year-to-date permits in 2018 and 2019 (year-to-date as of the third quarter), a decrease of 1,100 and 1,600 permits, respectively. Commercial permitting in the South Bay has been considerable with the region issuing $640 million worth of commercial property building permits in the third quarter of 2019 – second only to Los Angeles ($752 million). The majority of this permitting came from the Office property market, which added $496 million in permit valuations compared to the same period one year earlier.
** The South Bay refers to the San Jose-Sunnyvale-Santa Clara Metropolitan Area, covering Santa Clara and San Benito Counties.