Since the economic recovery began four years ago, San Diego County has added more than 100,000 new jobs and 100,000 new people. This past year, San Diego County added 30,000 jobs and now boasts an unemployment rate of 5.8 percent.
The unemployment rate is actually lower because the published rate excludes the military and this county has more than 110,000 persons in uniform. It also excludes the 30,000-plus workers who come across the border each morning and work here.
It is particularly gratifying to report that in virtually every category of employment there were gains. It is important to note that for every three jobs gained, one is a basic job, and basic jobs drive the economy. In San Diego County, our basic jobs are doing very well, led by the military (as usual), manufacturing, tourism, science and research, and import-exports.
Resale housing in 2014 also prospered. In 2014, 40,000 homes were sold (excluding new homes). Prices increased between 6 percent and 10 percent (depending on location).
The one laggard in the local economy is new construction, which had almost 100,000 employees at the peak in 2005 and then deflated like a punctured balloon. By 2011, construction employment declined almost in half. It is gradually making its way back, but still has only 67,000 jobs.
Traditionally, construction pulls the economy out of recession, but this time, it didn’t. The absence of new homebuilding (including, of course, condominiums) has caused a sluggish recovery both locally and nationally. In San Diego County, homebuilders are producing 25 percent of the single-family homes that they did in the mid-2000s, when 9,000 homes were produced.
In the housing business, there are typically four resales for every new home built. This time around, there has been a dearth of new-home construction, which has substantially lessened the turnover of resales.
In San Diego County, the other missing ingredient is condominiums. Construction has remained moribund, particularly in higher-density product. In downtown San Diego, not one condominium project has broken ground since 2007. Assuming someone starts construction in 2015 (and I can’t guarantee that, but maybe Bosa), it will mean an entire decade will have passed without the completion of a condominium unit downtown.
Turning to 2015, it is very likely that we will see a repeat of 2014 and that’s not so bad. The state of California projects that the county will add more than 30,000 people. With an average of 1.6 jobs per household, that means a demand for almost 20,000 new housing units.
Given the reticence of builders to produce condominiums and the absence of shovel-ready lots, we do not anticipate a major increase in construction in 2015. There will, however, continue to be a substantial number of new apartment projects underway. In fact, our database has almost 20,000 new apartments in the pipeline, most of which will be built out in the next three years. Most of those apartments are on land that was originally destined for condominium development, particularly in the urban areas.
The demand for housing is most vividly noted in the rental sector, where occupancy rates are in the high 90s and rents are increasing significantly. New projects are often seeing rents of 15 to 20 percent higher than the existing rental housing stock.
In the new-home market, most of the single-family homes are priced upward of $750,000, as most are north of state Route 56 in upscale communities. Finished lots are typically priced from $250,000 to $300,000, prices that inevitably translate into very heady home prices.
In 2015, there will be an increase in townhome construction, but most of that will be in the Otay Ranch area. In South County, land is being graded and should be shovel ready by mid-2015. Townhomes there will be priced somewhat sensibly, often in the $400,000-plus range. In North County, however, there will continue to be a dearth of moderate-priced new homes.
The resale market should continue to prosper in 2015, particularly in the lower price ranges. Areas that once were not attractive to the county’s first-time buyers, will now find appeal, even if they are distant from employment centers. This trend includes a resuscitation of the Riverside housing market for San Diego employees. Interstate 15 is not a pleasant experience in peak hours, but long-distance commuting is almost inevitable for first-time homebuyers.
Home prices should increase modestly in 2015, as most areas have already played catch-up in the past two years. There will still be strong competition for the limited inventory in the moderate-priced urban core. Much of that urban core housing is in need of major renovation and the fix-up business should be vibrant in 2015. Good news for Home Depot and Lowe’s.
And the job market should be vibrant in all sectors of the county and all facets of the job market. We look for tourism, manufacturing, research and technology to add a substantial number of jobs in 2015 and for the unemployment rate to hover in the 5 to 5½ percent range.
Interest rates will remain delightfully low.
2015 should be a very good year in San Diego. And, oh, yes, the weather will remain warm and sunny. Remember to make note of that for your friends and clients in Buffalo.