Much was made about California’s population decline in 2020, possibly the first such occurrence in the 170-year history of the Golden State. Growth had leveled off for several years and there were real consequences to this stagnation, with the state losing a congressional seat along with federal funding for highways, schools and social services.
The much-publicized doom and gloom, however, doesn’t tell the whole story. There were pockets of population growth in 2020, particularly in the Central Valley and Inland Empire regions. And Bloomberg reported this past June that California’s economy grew by $530 billion, or 22%, from 2015 to 2019, well above the growth rates for New York (14%) and Texas (12%).
The same report noted that California remains the U.S. leader in manufacturing, research and development, renewable energy and global trade. The 373 California companies on the Russell 2000 index saw their average values rise by 85% from 2016 to 2021, well above the growth of the index as a whole.
Climate change has contributed to historically large and devastating wildfires across the state of late. A 2020 analysis by Realtor.com found that more than 12,000 California homes, with an aggregative value of $9.4 billion, were at risk from wildfire. At this time, runaway home-price increases were occurring in places like Napa County and Sonoma County as city dwellers fleeing to smaller markets competed against those displaced by fires.
Tourism is a major economic driver for the state, but revenues from domestic and international visitors aren’t expected to return to pre-pandemic levels until 2024. The estimated 213 million visitors to California in 2021 was a 51% year-over-year increase, according to Tourism Economics.
After experiencing massive growth earlier in the COVID-19 pandemic, California home prices began to level off in the latter half of 2021. According to the California Association of Realtors (CAR), statewide home prices surged by 34.2% year over year this past April to reach a new record high of $813,980.
The post-pandemic price surge has offered protection for homeowners during turbulent economic times. A Q2 2021 report from CoreLogic noted that less than 1% of mortgaged homes in the Golden State had negative equity, the lowest share in the nation. The average California homeowner gained more than $116,000 in equity during the 12-month period ending this past June, tops among all states.
Focus: International Trade
The Golden State is a magnet for global business. As of 2020, there were more than 18,400 foreign-owned companies that supplied some 703,000 jobs across the state, according to a World Trade Center Los Angeles report. Japan, the United Kingdom and France were the largest providers of foreign direct investments into the state at this time. The pandemic, however, had spurred these businesses to pull back about 27,000 jobs compared to 2019.
The California Chamber of Commerce noted that international trade, including imports and exports, supports almost one in four jobs statewide. In 2020, computers and other electronics were the state’s top export. Mexico and Canada were the state’s top export partners that year with a combined value of about $40 billion.
Supply chain delays were creating massive logjams this past fall at the Los Angeles and Long Beach ports, which handle 40% of all seaborne freight in the U.S. In November, however, port officials reported significant progress in cargo movement and chose to postpone daily fines of $100 per delayed container, CNBC reported.
What the locals say
“We’ve received so many calls this year with buyers who’ve put their good-faith deposits down, counted on their lender to get their loan done, and a week before closing the underwriter would come up with some condition and they couldn’t meet that condition. … And now they have two choices — either give up their deposit or get their loan done quickly. That’s where I see a continued large demand, where sellers are just saying, ‘Well, if you want to back out of the escrow, I’m fine with that. I’ll keep your deposit. I’ve got two or three backup offers.’ That was a trend we didn’t see, at least pre-COVID.”
3 Cities to Watch
This East Bay hub grew by 10.8% during the past decade and now has 433,000 residents. As of September 2021, the metro area had an unemployment rate of 5.4%, considerably lower than the statewide average of 7.5%. A longtime sports hotbed, Oakland recently lost the NFL’s Raiders to Las Vegas and the NBA’s Golden State Warriors moved across the bay to San Francisco. A new stadium for the Oakland Athletics is in the works, but the baseball team also is reportedly exploring relocation options.
Sitting at the heart of the fast-growing Inland Empire region, Riverside has a population of 331,000 and boasts major employers such as Amazon, the University of California at Riverside, March Air Reserve Base and the Stater Bros. supermarket chain. A fall 2021 report from UC Riverside’s School of Business stated that the Inland Empire’s economy was growing faster than that of the U.S. as a whole. Sales of existing single-family homes rose by 62.5% from Q2 2020 to Q2 2021.
California’s second-largest city (1.4 million residents) has an economy built around international trade, manufacturing, the military and tourism. During the year ending this past September, defense activities accounted for roughly 25% of the regional economy, supporting 349,000 jobs and contributing $55.2 billion in output. Tourism is bouncing back and San Diego hotels were performing well above average compared to peer markets through the first 10 months of 2021, hospitality analytics company STR reported.
Sources: Bleacher Report; Bloomberg; California Chamber of Commerce; California Department of Finance; CalMatters; CBS Sports; City of San Diego; CNBC; CoreLogic; Los Angeles Daily News; NBA.com; PropertyShark; Realtor.com; Riverside County Economic Development Agency; STR; The Associated Press; The Sacramento Bee; Tourism Economics; University of California at Riverside; University of California at San Diego; World Trade Center Los Angeles