The next two years will be San Diego’s best since the end of the Great Recession, according to Mark Schniepp, director of the California Economic Forecast.
Schniepp, along with Svenja Maarit Gudell, director of economic research at Zillow; Jerry Nickelsburg, adjunct professor of economics at the UCLA Anderson School of Management and senior economist for the UCLA Anderson Forecast; William Yu, economist for the UCLA Anderson Forecast; Jim Costello, managing director of Americas research for CBRE; and David Osias, managing partner at Allen Matkins discussed the local, state and national economies at a regional breakfast series presented by the UCLA Anderson Forecast on Thursday at the UCSD Ida and Cecil Green Faculty Club.
Home prices in the San Diego metro area historically increase about 4.3 percent year over year, and but increased 15.1 percent from February 2013 to February 2014, Gudell said.
San Diego’s median home value is $445,100, according to the Zillow Home Value Index, and Gudell forecast a 4.1 percent home appreciation in San Diego in the next 12 months.
Home values are still down 17 percent from the peak, she said.
Increasing home prices have pushed many underwater homeowners into positive equity, bringing the remaining percentage of mortgaged homeowners who are underwater to 13.1 as of the fourth quarter of 2013 -- less than the nation’s 19.4 percent, according to Gudell.
She doesn’t expect mortgage rates to significantly affect the housing market and anticipates an increase in demand as households that doubled up during the recession begin to break apart.
While people may be waiting until they are in their 30s to buy a home, Gudell said, the aspiration for homeownership is still there.
She said she doesn’t think the United States is turning into a nation of renters.
Housing affordability is “OK” in San Diego, and not quite as bad as rental affordability, Gudell said.
San Diego homebuyers are spending as much on their mortgage payments as they have historically, Gudell said. Affordability is 33 percent, the same as San Diego’s historical average.
With San Diego’s 4.1 percent forecast increase in home values, and a projected mortgage rate of 5 percent and the assumption that income remains unchanged, people will be spending 38 percent of their monthly income on a mortgage, which Gudell said, is “worrisome.”
If income doesn’t keep pace with increasing home values and mortgage rates, San Diego could enter another bubble, Gudell said.
For-sale inventory in the San Diego metro area is down 60 percent from the April 2011 peak. Nationwide, that inventory is down 38 percent.
Nickelsburg spoke about the U.S. and California economies at the Thursday breakfast.
The nation is experiencing a “solid, tepid recovery,” Nickelsburg said, featuring a labor market that isn’t making enough progress, seasonal factors bringing down consumption and depressing demand, and any economic strength coming from housing, autos and consumption.
An unseasonably cold winter and harsh weather back East kept consumers from shopping or test-driving cars, causing an overall “depressing effect on demand,” Nickelsburg said.
This “delays purchases until later and distorts data,” he said, but it’s “just seasonal.”
Housing has been creating growth and will continue to grow over the next three years, he said.
The nation has been underbuilding housing since 2008. About 1.4 million new homes are needed each year to keep up with population growth and household formation; that number had dropped to the 500,000 level and is just about up to 1 million, Nickelsburg said.
California has also been underbuilt, he said, and any increase may be made slower by a shortage of construction workers who were laid off during the recession, he said.
Demand increases as employment grows, households form and population grows. This brings down vacancy rates, increases rental rates and creates more building -- which Nickelsburg said is a strength in the forecast along with autos and consumption.
The nation has experienced steady employment growth, but there have been seven years of population growth. The U.S. population grows by about 1 percent, or 3 million, each year, and about 60 to 65 percent of the population is in the labor force, Nickelsburg said.
Based on those numbers, the nation has a long way to go as it is still missing about 12 million jobs, he said.
The labor markets are “making progress, but not making enough progress,” Nickelsburg said.
Those 12 million unemployed includes discouraged workers who are no longer looking for jobs -- who may have gone back to school -- and also includes the structural unemployed, or those who are entering the job market with skills that aren’t in demand.
Mark Schniepp, director of the California Economic Forecast, said San Diego’s forecast isn’t mediocre or subpar, but is “better than normal,” and that the next two years will be the best since the end of the Great Recession.
San Diego has created 66,000 new jobs over the last two years, Schniepp said, and he forecast 2 to 3 percent increase in job growth with technology and health care leading the way.
“Labor markets have come back with a vengeance,” Schniepp said.
Jobs are increasing in health care, professional business services, government and finance, and industries that use office space, which is causing vacancy rates to fall steadily, he said.
The vacancy rate in San Diego is about 13.9 percent, Schniepp said.
The number of jobs in the leisure and hospitality industry is rising fast, and Schniepp said these jobs may be low-paying, but are necessary to absorb the unskilled part of the labor force.
He forecasts job growth to be better this year than last year, and better in 2015 than it will be in 2014.
The unemployment rate of about 7 percent is still too high, Schniepp said. It’s 7 percent 56 months after the Great Recession ended in June 2009. The unemployment rate was lower following previous recessions: 3.9 percent in 1981-82; 6.1 percent in 1990-91; and 4.4 percent in 2001, according to Schniepp.
The unemployment rate for those ages 16 to 19 is 30.6 percent. Employers are more discerning of whom they hire, and mundane jobs can be done by microprocessors, he said. More jobs could be eliminated in the future -- Schniepp quoted a study that showed that 47 percent of jobs could be done by robots over the next 20 years.
This could change the environment and the uneducated workforce will have more trouble being absorbed, Schniepp said.