It can’t be said for everywhere in the United States, but it can be said that San Diego is back on track to achieve a semblance of economic normalcy. 2013 looks like this:
The county will continue to add 25,000-30,000 persons, most of them the result of more people being born here than dying. During the recession, that number remained constant, but the number of newcomers to the community declined to zero. In 2013, thanks to our growing economy, the number of newcomers will increase.
The job market will be as vibrant as it has been in the past two years. Since January of 2010, when civilian vacancy rates topped out at 11 percent, the county has added almost 80,000 jobs, and the unemployment rate has dipped to 8.6 percent. Note that this is a civilian employment rate and excludes the 120,000 persons in uniform stationed here. When they are included, the rate falls below 8 percent, among the lowest in the United States.
On a national scale, the one nagging statistic that bothers me is first-time unemployment claims. When the nation is in a recovery period, the claims should be at the 250,000-275,000 level. Since the recession set in five years ago, claims have rarely fallen below 350,000. That means that there continues to be abnormally high layoffs and firings. That is not a good sign.
Now, back to San Diego: When I look at the job gains since January 2010, 91 percent have been in the private sector. In the private sector, the three largest employment gain categories have been professional and business services, leisure and hospitality, and educational and health services. Manufacturing is holding steady.
The continual sore spot locally is construction. In 2007, there were 90,000 construction jobs in the county. Today there are 58,000, down 32,000 jobs. That’s a tough pill to swallow. The decline has been across the board, affecting both residential and commercial construction. The only saving grace has been publicly funded construction, including schools and the military and health care industries.
The residential market is a function of household formations. Given the level of job gains we have experienced recently, household formations are in the 8,000-10,000 range annually. That may be on the low side, as it doesn’t include “undoubling.” We know that on a national basis, 6.5 million persons doubled up during the recession. In San Diego, we don’t know the exact number, but on a pro rata basis, there are more than 15,000 people who doubled up during the recession.
There is a national trend toward living alone, and San Diego is no different. Currently, 25 percent of our housing units have only one person living there. In New York, it’s 40 percent, and in London and Paris 50 percent. Therefore, it is likely that metropolitan areas like San Diego will see a rising trend in live-alones. And that, of course, adds to the demand for housing units (albeit smaller ones).
Even assuming an 8,000-10,000 unit household formation range, our county is behind the eight ball in terms of providing housing.
We know that is true for two reasons: The apartment market is “hot,” as is the home resale market.
The local apartment market is at its strongest point in the past decade. Occupancy rates are in the 95 percent plus range, and rents are rising. In the apartment business, 95 percent is considered fully occupancy, as there is always turnover.
We anticipate that the rental market will tighten further, because the homes and condominiums that were purchased by investors and are now rented will gradually be placed in the “for sale” market as prices accelerate. In San Diego, 43 percent of condominiums and 21 percent of single-family homes are non-owner occupied.
In the home resale market, business is booming. In 2012, there were more than 35,000 homes and condominiums sold, almost as many as in the boom times. Realtors report that there are multiple offers on realistically priced homes, and prices are accelerating. The average price of detached homes (on a per square foot basis) increased 9.4 percent over the past year.
In a typical market, there is a six-month inventory of units for sale. Now there is less than half that. In short sales, there is a 1.3 month inventory and on foreclosed homes, a half month of inventory.
Foreclosures have declined by almost 50 percent in the past year because banks are now learning that they can yield more in a short sale. But short sales are down, too.
On the new home side, single family home construction during the past five years is one-fifth of what it was in 2000-2004. In 2013, we anticipate that the recent trend will continue as the county has virtually no inventory of buildable lots. We ran out in 2006 and haven’t started producing any new ones yet. The next big splurge of single-family lots will most likely occur in 2015 when the next phases of Otay Ranch open for sale. In the meantime, it will be dribs and drabs, mostly in North County, and mostly homes priced more than $600,000.
Condominium development will remain moribund in 2013, not only because of the absence of buildable land, but also because banks and builders are gun-shy of condos.
The bright spot is apartment construction. In 2013, I project approximately 4,000 units will be permitted, the same as in 2012. Most of them are in large projects both in downtown and the suburbs. Examples of major projects are Garden Communities’ 1,800 units at Interstate 15 and Mira Mesa Boulevard, Sudberry/Wermers' 600-unit Circa 37 in Mission Valley, Pinnacle’s 500-unit tower in East Village, and the 500-unit Carmel Pacific Ridge project on the old Uni High site. In downtown, there are some 4,000 units under construction or in planning (most of them on sites that were once planned for condominiums). The next big block of apartments will be at Millenia, a 3,000-unit project across from Otay Ranch Town Center.
On the commercial side, 2013 will be a year of healing as the retail, office and industrial markets tighten up in the absence of new construction. An occasional new commercial project will rise out of the ground, but don’t expect the highways to be overcrowded with concrete trucks.
In the public sector, we have just voted for a lot of school construction and renovation, so that is a bright spot. The few new hospitals are a year or so away from completion, although plans abound for new additions and replacements. Anticipate Scripps Health, Sharp HealthCare and Kaiser to move forward with their ambitious plans. For instance, Scripps is now building a $200 million proton therapy center in Mira Mesa, one of six in the United States.
The big military jobs are winding down, the largest of which is the $500 million hospital at Camp Pendleton. But there are still several thousand housing units on the drawing boards, and they will move forward over the next few years.
Also quietly moving forward are a few massive infrastructure projects like the San Vicente Dam, the Poseidon desalinization plant in Carlsbad and the replacement of the aging sewer lines in the city of San Diego. And, at University of California, San Diego, the construction just keeps rolling along. Every time I go on campus, there seems to be another new building under construction.
Overall, 2013 is shaping up to be a decent economic year for San Diego County. All the folks elected in 2012 will look like heroes and can bask in the economic successes that come naturally after an awfully long recession. Both property tax and retail sales tax revenue should gain more than 7 percent in 2013.
The only thing that we need now is a few cruise ships. I miss them.