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June 24, 2016

Significant Changes in San Francisco & Bay Area Employment Trends

June 24, 2016

Significant Changes in San Francisco & Bay Area Employment Trends

Analyzing new data (preliminary May numbers) from the CA Employment Development Department indicates a significant shift in Bay Area employment numbers. As seen in the first chart below, looking at the 4 central Bay Area Counties, comparing the first 5 months of last year to the same period of this year, the change in the number of employed residents during each 5-month period went from an increase of 28,100 last year to a decline of 5,000 in this past December to May.

(Santa Clara County continued to grow in number of employed residents, but at a substantially reduced rate from the previous year).

This is the first time since 2009 that the number of employed residents in this area has declined instead of increasing during this period, though this is still relatively short-term data and doesn’t prove a lasting, long-term trend.

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These next 2 charts give longer-term perspectives of year-over-year changes in San Francisco itself.

This first chart below, again, compares changes in employed-resident numbers in San Francisco alone in the first 5 months of each year. (Early 2010 saw a much greater increase, +27,000, but was not included in the first chart for reasons of scale.)

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This chart shows long-term annual changes in employed-resident numbers in San Francisco.

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Changes in employment figures, up or down, typically affect the rental market relatively quickly and dramatically – more so than the real estate purchase market – and that certainly appears to be the case in San Francisco, where softening demand and rents have been widely reported. The big increases in employment, and thus of population, in the past 5 years put immense pressure on rental rates around the Bay Area.

The decreases in employment we’re seeing in 2016 have also been coupled with recent, increased rental inventory construction, albeit most of which has been at the very high end of rent rates. In other words, a possible significant decrease in demand is being coupled with increased supply of apartments available to rent.

Average asking rents have plateaued over the last 3 quarters (first chart below), for the first time since 2011. This may disguise a decline in actual rent rates which have not yet showed up in the statistics. Comparing the annual employment chart above and the second, annual rent-rate chart below illustrates how employment numbers and rent-rates typically move in parallel.

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You might also find our market report from earlier in June of interest: Wealth, Employment, Demand, Inventory, Affordability and San Francisco Home Prices

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Statistics are generalities, longer term trends are much more meaningful than short-term, and we will always know more about what is actually going on in the present, in the future.

© 2016 Paragon Real Estate Group