California’s jobs market finally surpassed the pre-recession 2019 peak in October 2022, with nearly 18.3 million Californians employed as of October 2023. However, the jobs recovery pace continues its year-long deceleration, with jobs growing at a slim rate of just 2.5% over the past 12 months. Compare this to the 4.0% annual growth rate of a year earlier.

The 2020 recession was officially the briefest on record, cut short by enormous amounts of government stimulus, along with the Federal Reserve’s (the Fed’s) actions to drop interest rates into the basement. Pandemic Economics distorted the job’s market behavior in 2021-2022, with job growth running on momentum alone in 2023 — momentum which is quickly disappearing.

Meanwhile, the housing market recession arrived in the second half of 2022, slashing the fees of real estate agents and mortgage loan originators (MLOs). Some DRE licensees have opted for a career change while employers are still offering the chance. Other, more innovative real estate professionals are choosing to pivot and expand their practice to find additional transaction fees from the side of the market most active during a recession.

Even as California has just reached a full jobs recovery from the 2020 recession, another more significant economic recession is tightening its grip on the jobs and housing markets. Watch for job losses to commence at the beginning of 2024. Home sales volume and prices won’t find a recovery from the present downturn until around 2026, when the economy will be heading into its next sustainable expansion.

Updated December 14, 2023. Original copy released October 2009.

Chart 1

*Data not seasonally adjusted

Chart update 12/14/23

Oct 2023
Sep 2023
Oct 2022
Total CA Employment

Chart update 12/14/23

Oct 2023
Sep 2023
Oct 2022
Annual CA Employment Change

Data Courtesy of the California Employment Development Department (Labor Market Information Division)

All forecasts are made by firsttuesday. Forecasts are based on current data, influential factors and market trends.

To understand the real estate market, look first at local employment

The chart above tracks the single most important factor in determining the past and future of real estate in California: the number of people employed. This chart reviews total employment numbers statewide. The gray bars indicate periods of recession in the United States economy (as tracked by the National Bureau of Economic Research).

Some key points to pay attention to:

  • In the single month of July 2023, California lost 107,100 jobs, remaining up 487,100 from a year earlier. While still positive, the annual pace of job additions continues to subside.
  • Jobs are finally recovered from 2020 recession job losses, exceeding the pre-recession peak of December 2019 in October 2022.
  • In contrast, it took California over six years to recover all jobs lost during the 2008 recession.
  • Despite the increase in job numbers during the recovery from the 2008 recession, California did not regain enough jobs to account for the interim population increase until mid-2019, just before the 2020 recession hit.

The quantity of jobs in California directly impacts statewide homeownership. Without a paycheck, nobody can afford to rent an apartment or buy a house (unless they are subsidized by the government or possess substantial independent wealth).

The financial basis for an individual’s creditworthiness, essential to lease a residence or borrow money to buy a home, is:

  • a paycheck;
  • self-employed earnings from a trade or business; or
  • income from investments.

When a jobholder buys a home today, their decision to buy a particular property is influenced by:

  • the amount saved for a down payment;
  • their annual income from all sources;
  • a lender’s willingness to lend to the homebuyer; and
  • any government subsidies available to the jobholder.

Of all the factors affecting our economy, however, employment throughout California’s population has the most impact on the vigor of the real estate market. This is true in good economic times, times of financial crisis or economic recession.

Without jobs, wage earners have no financial ability to make rent or mortgage payments. The unemployed are financially unable to occupy any type of residential property (without direct government funding or personal wealth). Further, without work to provide jobs, businesses have no need to occupy and use:

  • retail space;
  • office suites;
  • warehouses for inventory and distribution;
  • industrial buildings for production; or
  • land for development.

Demand for all types of real estate increases with the number of local jobs, as during periods of economic development or boom. Additions to the local labor force tend to drive rents and prices up on properties in the vicinity and results in local construction of homes and apartments.

On the other hand, a decline in the number of local jobs reduces the need for all types of real estate, as during a recession. Likewise, reductions in local employment lead to lower rents and prices paid by tenants and buyers for the occupancy and use of real estate. The current trend in the quantity of individuals employed in a region sets the direction for:

  • the volume of rentals and sales in the local real estate market during the following 12 to 18 months; and
  • the movement of rents and prices paid for the use and occupancy of all types of real estate in the following 24 to 30 months.

Other jobs issues which affect the level of rents and prices paid for property include the:

  • quantity of employed individuals;
  • quality of jobs available; and
  • types of jobs existing and developing in the local market.

For instance, if a community relies heavily on the construction industry (such as the Inland Empire during the Millennium Boom), then changes in that industry will certainly impact the local housing market. In the Inland Empire, the employment picture became particularly grim following the downfall of the construction industry.

To get an idea of what type of job growth your community can expect in the coming years, here is a projection by California’s Employment Development Department on the percentage of growth to take place between 2010-2020:

Mining and logging10.4%
Wholesale trade25.8%
Retail trade22%
Transportation and warehousing18%
Finance and insurance16%
Real estate and rental and leasing10.7%
Professional, scientific and technical services25.6%
Management of companies and enterprises4.7%
Administrative and support and waste management24.9%
Educational services (private)28.8%
Health care and social assistance24.9%
Arts, entertainment and recreation15.3%
Accommodation and food services27.5%
Other services13.7%
Federal government-13.7%
State and local government6.3%

Quantity of employed individuals

Historically, jobs in California create homeowners and tenants on an approximate 50:50 basis. Roughly half of all households own the residence they occupy and the other half rent. This ratio became badly skewed during the Millennium Boom when the California homeownership rate increased to an unsustainable 61%.

Our state’s homeownership rate has declined dramatically since 2006. As of Q1 2020, the homeownership rate is 54.4%, just below at our state’s stabilized equilibrium rate of 55% before the Millennium boom. This rate is unlikely to rise much in the coming years due to inflated home prices and the increased tendency to rent in urban locations, where the better paying jobs are found.

The appreciation or depreciation of property values is triggered by increases or decreases in:

  • local population density; and
  • the economics of the jobs (read: numbers, skills and pay levels) held by the local population.

The unemployment rate has no effect on the present real estate market. The unemployed and underemployed do not rent or buy real estate — they first need a full time job to do so.

Related article:

Unemployment fluctuates

First nonresidential, then residential

The loss of jobs has a ripple effect on all types of real estate beyond SFRs. As employees are shed, the need for office space, commercial space and industrial space is reduced by an equal or greater amount. Subleases, reduced rents and vacancies across all segments of California’s real estate economy are the direct results of job loss.

As nonresidential vacancies increase, single family residential (SFR) vacancies likewise increase.

California has just over 8 million SFR units and 17.4 million individuals employed in 2020, according to the U.S. Census.

Thus, California had slightly less than two-thirds as many homes as people on payroll. More meaningfully, 54.4% of households in California own the home they live in as of Q1 2020. Most homeowners are employed.

Thus, with every ten jobs lost, six people will not be able to purchase a home or retain the home they already live in (unless they have cash reserves). The remainder simply cannot afford to pay rent and will lose their housing. The reverse occurs when payroll numbers increase.

Forecasting the job market

While readers observe payroll data as reported by the media or others, they must be certain to distinguish between what is happening to California jobs and what is taking place across the rest of the nation. California took a disproportionately greater hit to jobs during the 2008 recession in comparison to national averages. The magnitude of California’s real estate bubble exceeded those of all other states (except Nevada and Florida) in terms of its negative impact on price, lending, construction, speculation and anticipation of demand.

The recession’s impact on the housing industry was equally severe. In turn, the recovery’s long, bumpy plateau path took longer than the rest of the nation, as we corrected for the recent past’s excesses. What happens in a commodity economy such as Texas, and in every other state, has little relationship to what happens in California, a state defined by much more than the continental divide.

Jobs are further localized within California’s individual counties. San Francisco was the first county to regain (and quickly exceed) all jobs lost during the recession when considering population gains since 2007. This is primarily due to its large technology industry, which has swiftly recovered. Other counties, particularly Los Angeles and Riverside, did not recover until 2018-2019. These regions were heavily dependent on the housing and construction industries during the Boom and have struggled since.

Therefore, when constructing your own local jobs forecast, the types of jobs available are significant to the job market’s rate of growth. This information is available from California’s Employment Development Department.

Related article:

Regional forecasts