Monthly Archives: November 2014

Record Employment Levels of Employment in the Bay Area

(Story reposted from San Jose Mercury News)

The Bay Area is poised to reach all-time-high levels of employment, breaking the records set at the height of the dot-com boom, as the region undergoes another technology renaissance and a reshaping of its economic landscape. In September, the region had 3.57 million payroll jobs, which was about 43,000 jobs, or 1.2 percent, below the record of 3.61 million reached in January 2001, state data show. But the rebound in the nine-county region’s major urban centers has been uneven. The San Francisco metro area already posted record highs in recent months, and the East Bay is close to its best-ever employment numbers. For Santa Clara County, even with its remarkable job growth over the last few years, that pinnacle could be a year away.

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Despite that, one thing is certain: The looming milestone is a testament to the Bay Area’s ability to overcome the calamities of the tech bust, the 9/11 terrorist attacks, corporate scandals, and, most recently, the Great Recession.  And this isn’t another dot-com bubble, argues Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. The foundation of the current growth is a collection of world-class market leaders in the tech sector.

“We are in a blowout, surging economy,” said Levy. “A lot of it is being driven by companies with millions of customers, billions in sales and hundreds of millions or billions in profits. And the economic growth is spreading from the main tech centers to other parts of the Bay Area.”

The rebound is doing more than bring employment to record levels. It also has produced a profound transformation in the Bay Area economy, this newspaper’s analysis of job trends over the 14 years from the dot-com peaks in the fall of 2000 through September of this year shows.

More than 165,000 manufacturing jobs have vanished, including nearly 89,000 computer and electronics manufacturing positions in the nine-county region.

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“Tech hardware jobs were decimated after the dot-com bubble, and that part of the business really hasn’t come back in this cycle,” said Mark Vitner, senior economist with Wells Fargo Bank. “That’s the big reason behind the slower recovery for Santa Clara County.”

The real estate industry is also struggling, with 30,000 construction jobs and nearly 26,000 finance and real estate positions lost since 2000.

The slumping industries were replaced by a surge in sectors such as health care and social assistance, which added 152,500 jobs; leisure and hospitality, up nearly 84,000 jobs; and a category called “professional, scientific and technical services,” which was up 52,000 jobs. This category typically includes jobs such as tech engineering, computer and network design services, social media, Internet design and tech research.

The manufacturing side of high-tech has eroded so badly over the last 14 years that there are
actually 52,000 fewer tech jobs in the Bay Area today compared with the dot-com period.

 

In September 2000, tech jobs accounted for 21 percent of the total workforce in the Bay Area, and as of September of this year, that share had dwindled to 19 percent. Computer and electronics manufacturing used to account for 7 percent of the Bay Area workforce, and now it represents 4 percent.

Yet while the tech sector has lost jobs over the 14-year stretch, it has been a robust industry in the last few years. Over the one-year period that ended in September, the Bay Area added 32,000 tech jobs, according to an analysis of figures from the state Employment Development Department and Beacon Economics.

“The Bay Area in general and Santa Clara County in particular specialize in the goods and services that help businesses be more productive,” said Jordan Levine, director of economic research with Beacon Economics. “And it’s happening at a time when the entire country is trying to figure out how to be more productive and efficient.”

“There are a lot of openings in the tech industry, and it’s easier to find jobs,” said Ashim Suri, a Fremont resident who works in San Jose as a recruiter for tech companies. “It’s definitely a stronger tech market than it was a year ago. Salaries for technology workers are really rising.”

Yet wages aren’t rising in all industries, even in the hottest metro areas.

“It’s a frustrating process to find higher wages,” said Clara Di Bartolo, a San Francisco resident who works in retail and marketing, says she sees plenty of available jobs, but pay raises are sluggish for nontech workers. “Wages are stagnant for middle-class people.”

For two years, Santa Clara County has been the fastest-growing metro center for employment in the nation, with annual growth rates that averaged 4.2 percent, EDD statistics show.

But Santa Clara County has to overcome a steep drop in its job market following the dot-com meltdown.

After hitting its dot-com peak, the county suffered a 20 percent nose-dive in total jobs before its employment market stabilized. By comparison, the East Bay fell 11 percent before hitting bottom. The San Francisco area slumped 14 percent.

“This shows how hard Santa Clara County fell from what was an amazing peak in the dot-com years,” said Jeffrey Michael, director of the Stockton-based Business Forecasting Center at the University of the Pacific. “It’s plausible it could take another year or two for Santa Clara County to get to its record levels.”

And changes in the tech sector have benefited the San Francisco area to a much greater degree than Santa Clara County.

For instance, Santa Clara County added 14,000 jobs in a broad category that includes software, social media, computer design, network design, mobile telecommunications and Internet-related positions, a 7.6 percent increase.

Over the same period, the San Francisco-San Mateo-Marin region added 18,500 jobs in that category, a 9.2 percent increase.

“This isn’t just a flash in the pan, this is a structural shift about where the jobs are going in the Bay Area,” said Scott Anderson, chief economist with San Francisco-based Bank of the West. “San Francisco has been offering tax incentives for these tech companies. They have been very aggressive in attracting these new jobs.”

Plus, San Francisco has become a magnet for engineers fresh out of college or just starting out in their careers.

“The new young millennials are more apt to want to live in urban areas where there is a lot of activity and a chance for collaboration and getting together,” Anderson said. “That gives some advantages to San Francisco over Silicon Valley.”

Even industries such as construction are showing strength over the last year or so, despite the long-term decline in that sector.

“We have a lot of openings for welders, and have been looking to find welders for six months now,” said Jason Guiol, a San Jose resident who works with a construction firm.

Perhaps the most encouraging part of the rebound in the Bay Area is the resurgence of the East Bay, at the epicenter of the cataclysm unleashed by the meltdown of the housing and banking sectors. The East Bay over the most recent 12 months has enjoyed a big surge of thousands of jobs in professional, scientific and technical services, health care, restaurants and hotels, and construction.

“The entire Bay Area is recovering strongly,” Wells Fargo’s Vitner said, “and all of its metro areas are firing on all cylinders. It’s not just one industry that is leading things back.”

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Housing bubble or crisis?

Story orginally posted on KALW.org

Real estate markets run in cycles, and right now our regional market is soaring. While the national median price for a home is just over $200,000, the median price paid for a home in the nine-county Bay Area last month was just about $600,000.

In San Francisco, the median home price hit $1 million for the first time over the summer, making it the third least affordable housing market in the world behind Hong Kong and Sydney, according to the Demographia International Housing Affordability Survey.

The Bay Area has been here before. The real estate bubble burst after the first dot-com boom in the late ’90s, and then it inflated again around 2003. By the recession in 2008, that bubble had also burst.

Now, home prices are higher than ever before in the Bay Area. So it begs the question: are we in a housing bubble or a housing crisis?

Jamie Comer of McGuire Real Estate says that while her business has been thriving with the latest tech boom, the market is starting to get a little choppy. Comer specializes in lofts in the Dogpatch and South of Market neighborhoods where many of her young, well-heeled tech clients are scooping up properties.

“If you’d talked to me eight months ago I’d still say you’re seeing at least five to eight offers on every property,” Comer says. “That’s not the case as much anymore. Frequently you’re seeing two to three offers and of course it depends on the category. A $1.5 million home is very different from a one bedroom condo. The buyer pool is different.”

Still, Comer expects an $899,000 Dogpatch loft she’s currently showing to sell for closer to $1 million.

Broker Dan Dodd of Vanguard Properties viewed the loft for clients in the tech industry who are looking at the top of their price range. They’ve lost out on half a dozen properties so far.

“For this particular set of buyers they’re right at the threshold of what they can afford so it means they have to suffer through more disappointment,” Dodd says. “But eventually we’ll get something for them.”

It’s a tough market, even if you have a million dollars to spend. And if you don’t, it’s even tougher. That’s the downside to an economy on the upswing — home prices get so high that home ownership can become unattainable.

Or, you can sell your home for a profit but still not be able to afford to buy something bigger.

This is the case in San Francisco, where real estate values are outpacing incomes, as was the case with the last real estate bubble. However, if you’re wondering when the next bubble will pop, experts say don’t hold your breath.

Jed Kolko is the chief economist at the real estate website Trulia. He uses data to understand housing markets nationwide.

“We should think of a housing bubble as an acute condition,” Kolko says. “[It’s] something that can come on quickly. It’s very sharp, but won’t last forever.”

Kolko says the housing issues in the Bay Area aren’t the kind of acute conditions that characterize a bubble. What we have is a chronic problem, which arises when supply fails to meet demand.

This matters because whatever the current state of the housing market is, people feel like it’s going to last forever. There are some factors that change relatively frequently: interest rates, inventory in certain categories, things like this. But San Francisco’s chronic problem is a lack of housing for middle and lower-income people. It’s not that they can’t afford it, it’s that it doesn’t exist. And real estate investors and speculators are helping drive up the demand.

“They start bidding up the price of housing partly because they expect prices will keep rising. But we know after last decade that home prices don’t only go up, they can also go down,” Kolko says.

That doesn’t mean prices are about to level off; Bay Area homes are actually selling for around what they’re worth.

Economists determine whether the price of a house is too high based on things called fundamentals, like income and rents in a particular region.

“In the San Francisco area right now, prices look about 12% overvalued compared to where they should be based on local fundamentals,” Kolko says. “During the height of last decade’s housing bubble, though, prices looked almost 50% overvalued.”

And the more prices are overvalued, the closer we are to a housing bubble, and a price crash. Which is what led to the foreclosure crisis in 2008.

“Now that doesn’t mean that housing is affordable in San Francisco today, not even close,” Kolko says. “Poor affordability is the chronic condition of the Bay Area’s housing market.”

That’s in part because in San Francisco, the rich are getting richer and the poor are getting poorer, according to the Brookings Institution. It reported that from 2007 to 2012, San Francisco’s income gap widened more than any other U.S. city.

Households at the 95th percentile earned about $350,000 a year, while households at the 20th percentile earned just over $21,000. That huge disparity makes it pretty hard to determine what the average San Franciscan should be able to afford.

“There’s no perfect way to know what home prices should be at any one point in time,” Kolko says. “Measuring fundamentals is as much art as it is science.”

And one reason that bubbles form is it’s very hard to know whether you’re in a housing bubble until it pops. If the Bay Area is not in a bubble, Kolko says it had better start building.

“San Francisco builds much less housing than almost any other metro in the country, particularly compared with metros that also have strong demand,” he says. “To make a serious dent in our affordability crisis we would have to build a lot more housing than we build today and than what we’ve built over the past decades.”

Even then, Kolko says, it will take a long time for supply to meet demand.